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Cisco-Apple ‘iPhone’ truce murky on details

The short-lived legal battle between Cisco Systems Inc. and Apple Inc. over the "iPhone" name was only on the surface a trademark-infringement dispute involving identically named multimedia telephones.
/ Source: The Associated Press

The short-lived legal battle between Cisco Systems Inc. and Apple Inc. over the "iPhone" name was only on the surface a trademark-infringement dispute involving identically named multimedia telephones.

Cisco has maintained since the start of the squabble six weeks ago that the dispute was not about money, even though it stood to profit handsomely from any settlement.

Instead, the networking gear maker said it was trying to pressure Apple to break its attachment to closed, proprietary systems and begin collaborating with Cisco on imaginative future products that can communicate with each other.

But industry analysts said Thursday the settlement between the Silicon Valley tech giants does not mean that Apple will suddenly open up its most lucrative technologies, particularly the iTunes library that has helped catapult Apple into the top ranks of music retailers worldwide.

The more likely scenario, they said, is that Cisco and Apple could partner in the near-term on lower-profile projects that leverage the respective strengths of the world's largest networking equipment company and the new darling of digital entertainment.

Some of those efforts, they said, could include integrating Cisco's Voice over Internet Protocol, or VoIP, technology into Apple's iPhones, which are currently designed to operate only over the cellular network; improving the ability of Apple computers to work securely with wireless home routers from Cisco's Linksys division; or generally developing ways for both companies' products to work seamlessly with each other.

Analysts cautioned against expecting any type of major concessions from Apple concerning its proprietary technology, citing the vague joint settlement statement from the companies that raised more questions than it answered.

"As far as concessions go, from Apple's point of view, is there a downside to making their products work better with Cisco's networking gear? I don't see a downside for them," said Charles Golvin, principal analyst with Forrester Research Inc. "If anything it makes their products that much more attractive."

Gene Munster, senior research analyst with investment bank Piper Jaffray & Co., said talk of collaboration is "noble language" but he is not expecting any blockbuster joint products to emerge from the partnership.

"Apple wanted that to be the impression because they get a lot of pressure for being closed," he said, adding that he suspects money played a more crucial role in the negotiations than either company let on. He estimated that Apple paid Cisco between$25 million (euro19.08 million) and $50 million (euro38.15 million) for rights to the name.

Both companies have refused to comment on terms of the deal and are staying tightlipped about what future products might come from the settlement, which allows Cisco and Apple to both use the iPhone name worldwide to sell their phones.

They would only say they are going to explore opportunities for "interoperability" in the areas of security, consumer and business communications.

Cisco sued Apple last month in San Francisco federal court claiming that Apple's use of the iPhone name violated a trademark Cisco has held since 2000 and is using on a line of Linksys phones that make free long-distance calls over the Internet using VoIP technology.

Apple had argued it was entitled to use the name because its sleek new iPhone operates over the cellular network.

The two sides said late Wednesday that have agreed to drop any pending litigation against each other over the trademark as part of the deal.

Analysts said Thursday the truce was likely part of a longer-term strategy by both companies to bolster their competitive positions in the fight to deliver digital content _ particularly video _ directly into consumers' homes.

Cisco, which makes the routers and switches that direct data over computer networks, is profiting from the demand for video as service providers spend lavishly on equipment upgrades to accommodate the need for more bandwidth.

Analysts said the deal highlights Cisco's desire to partner with companies such as Apple that are pumping more video into the home and driving up the need for more networking gear.

Last month, Apple unveiled its new Apple TV video box, which allows users to watch downloaded movies stored on their computers on their home television sets. Industry observers suspect Apple could eventually play a much larger role in the delivery of television and movies to the home.

"This is more a strategic move by Cisco to continue to strengthen its core business _ and it was good for them to have the moxie or the wherewithal to have the iPhone name to use as a negotiating tool," said Kurt Scherf, vice president and principal analyst with market research firm Parks Associates.

The dustup over Apple's willingness to work with outside companies comes amid intense criticism, particularly in Europe, over the inability of its iTunes software to work with other portable media devices besides the ubiquitous iPod.

Earlier this month, Apple Chief Executive Steve Jobs urged the world's major music companies to abolish the digital rights management, or DRM, protections that he said where preventing Apple from selling music that would play on any device.

Danielle Levitas, a senior analyst at market researcher IDC, said she does not expect Apple to open up iTunes any time soon. She said the company's partnership with Cisco is more about Apple preparing to tackle the so-called "connected home" market where digital entertainment is delivered through a variety of devices.

"I don't think they're opening up the kimono, but they're hedging their best for what they need to do for video and the connected home," she said. "They had to do this to keep the name. They had to do this to not drag out the lawsuit so they could use the name from day one. Eventually Apple will have to open up a little bit, and Cisco would definitely be the first to benefit. But it ain't going to happen in the next 12 to 18 months."