I think I'll start treating this like a law school exam question. FYI, a law school exam doesn't look for the right answer, they look at the strength and thoroughness of your arguments. If you want to see most of this is action in the real world, search for and read Quality Inns International v McDonald's Corp (a pdf can be found here). The process I'm going to go through is the same. If I were writing a brief on this case, this would be my outline. And hang on, this is a long post because there are a lot of questions in a trademark analysis.
All I have is the public record. Cisco, in the filing, makes allegations based on "belief and information", but they don't state the basis of either. In turn, Apple hasn't filed an answer at all, so all I have are their public statements. The rest is sheer speculation. With that said, let's run the drill....
Do we have a trademark?
Yes. The trademark in question is "iPhone". It is a nonsense word, invented for the purposes of its owner. It is meant to be distinctive and indicative of the goods and services it will be attached it. Here, Cisco is attaching it to their series of voice over Internet protocol (VOIP) products, so iPhone is probably meant to indicate "Internet Phone".
In turn, Apple would use the mark in conjunction with all their "i" products. Combining that lowercase letter with a word has become a style -- but not the exclusive style -- for Apple products. In the same fashion that everything from McDonald's is McSomething, most products that Apple is introducing are iSomething.
Is it worthy of protection? Where does it sit on the spectrum of distinctiveness?
The spectrum for trademarks is fanciful, arbitrary, suggestive, descriptive, and generic. A mark that is one of the first three is entitled to automatic protection. A descriptive mark will have to acquire secondary meaning to gain protection. A generic mark is not entitled to protection and can never be protected, even if it acquires secondary meaning.
For Cisco, iPhone is at least suggestive and might be considered arbitrary. The lowercase "i" suggests the Internet; it does not immediately describe the internet.
For Apple, iPhone is arbitrary in that it is meant to identify the good as an Apple product. Since the Apple product is a cell phone, the "I" has no meaning in terms of the devices form or function. For Apple, iPhone is just a part of their iLanguage.
Who owns the mark?
In US trademark law, the threshold question is who first used the mark in commerce? Cisco has established ownership in two ways.
First, registering a mark constitutes constructive use. Cisco, via its acquisition of the mark's original owner InfoGear, filed iPhone for trademark registration in 1996. InfoGear, now Cisco, first used the mark in commerce in 1997, selling products branded with the iPhone mark. The registration of the mark was granted in 1999. Cisco acquired InfoGear in 2000, gaining ownership of the iPhone mark. Thus, the mark has been used in commerce and has been constructively used via the registration process.
In late 2006, Cisco rebranded several of the products produced by its Linksys subsidiary with the iPhone mark. It's unclear if Cisco used the mark on any other product between 2000 and 2006. It is unclear if the InfoGear products that Cisco acquired in 2000 are still on the market, branded with the iPhone mark. While it was possible that Cisco let the mark lapse, they reacquired the mark in 2006 by the announcement and sales of the Linksys "iPhones".
In 2005 one company applied for trademark registration for the iPhone mark. In 2006, two additional companies applied for trademark registration for the iPhone mark. An application gives you nothing. Companies that may already hold the mark (i.e., Cisco) can file a protest against the application. The process takes years.
It is interesting to note that one of the companies that applied in 2006 is alleged by Cisco to be a front for Apple. It is also interesting to note that nothing in the record shows that Apple has applied for the iPhone mark in the United States.
By comparison, Apple's first use of the mark is -- at best -- in 2007. Even assuming that one of the 2006 applications is by an Apple front, the application does not constitute use, constructive or otherwise.
So, by actual use in 1997, constructive use in 1999, and actual use again in (at least) 2006, Cisco owns the mark.
What level of protection is the mark entitled to?
The threshold question: Likelihood of confusion. That is, how likely is confusion? Likelihood is more than a possibility but less than a probability. We look at...
Strength of mark. The stronger the plaintiff's mark, the most likely it is that consumers seeing defendant's allegedly similar mark will be confused about its source. Apple has a strong stance here. Because of Apple's work developing its iLanguage, someone is more likely to think "Apple" when they see "iPhone". If Apple owned the mark, this would clearly weigh in their favor.
However, strength of the mark isn't measured that way. Instead, you look at how the plaintiff (here, Cisco) has used the mark. How often, ad revenue expended, etc. Cisco has done more than Apple, to date, because until this month (January, 2007) Apple didn't have a product. Also, the analysis doesn't start and end with strength of the mark. You have to move on to...
Degree of similarity between the marks. They're identical, end of story. Maybe a different type face. Maybe. On to...
Proximity of goods or services. They will be sold in the area geographic areas (the United States and the world at large). It's doubtful that you'll see (for now) the Cisco iPhone in Cingular or Apple Store, but both Cingular and Apple sell in stores that also sell Cisco/Linksys products. So, a match. But there's...
Likelihood that plaintiff will bridge the gap. How likely Cisco is to begin selling the products or services which Apple is trying to sell with a similar mark? Doesn't matter whether Cisco has no immediate plans, because the court may consider Cisco's interest in reserving the option. Nonetheless, Apple may persuasively argue that the Cisco product is a VOIP device while the Apple product uses more typical cellular technology. Thus, different customer base, different target audience, no direct competition. We now step to...
Evidence of actual confusion. Since only the Cisco iPhone has been in the market, there's no way to compare actual instances of confusion. Both sides, however, can conduct customer surveys to see which way the confusion tumbles. This both helps and hurts Apple. As said, chances are that if someone see "iPhone" they think "Apple"; that's the strength of Apple's iLanguage at work. However, that very fact means that Apple's use will confuse people when they are looking for Cisco's product. And since more than likely a court would find that Cisco owns the mark, this level of confusion helps Cisco, not Apple. So what about...
Apple's good faith in adopting the mark. This is generally only reviewed where the goods don't directly compete. Here, they almost do; they're phones, albeit using different technology (VOIP vs. cellular). The question the court asks is whether or not Apple intentionally copied the mark, and how much money they've expended in promoting use of the mark.
Hello! Apple has already confessed to intentionally using a registered trademark. How do we know? Because it's alleged that they've been negotiating with Cisco since 2001 to either acquire or receive permission to use the mark.
And here's where Apple can run into real danger because Cisco can persuasively argue that Apple acted in bad faith. Apple knew the iPhone was Cisco's registered trademark. Apple may have attempted to acquire the mark from Cisco. Apple at least attempted to acquire permission to use the mark. Despite never coming to an agreement with Cisco, Apple went ahead and used the mark in commerce. Thus they deliberately used someone else's registered mark.
Understand that if Cisco argues bad faith and wins, then Apple is -- at this point -- utter toast. Bad faith (and I love this phrase) gives rise to a presumption of actual confusion. Our analysis of the likelihood of confusion is over, Apple loses. But just to be complete, there's...
The quality of Apples product or service. Not quality as in, "This is sooo well made", but quality as in type. Both products are phones; they are related services. This indicates that there is a greater likelihood of confusion. And last...
The sophistication of the buyers. Look at the relevant market, not the general public. Is someone looking for a VOIP device likely to be confused by seeing a VOIP product trademark on a cellular service product? Goes both ways, if you ask me. You could argue that someone looking for a VOIP phone is technologically sophisticated and not likely to be confused if you show them a regular cell phone. However, VOIP providers are trying to make this simpler and simpler, specifically to appeal to a less technologically sophisticated buyer. So I could easily see someone seeing the Apple iPhone and saying, "Hey, there's that new VOIP phone..."
There's also reverse confusion, which would be Apple flooding the market with the infringing mark. Not likely, though, given it won't even be available until June 2007. Also this measure assumes that Apple would be trading off of a Cisco user's good will.
There might be a case for contributory infringement. This isn't about the likelihood of confusion. It's about Apple "recruiting" Cingular into the infringement. Apple might even mount a defense here, saying that Cingular insisted that the device be called Apple, and thus induced Apple to infringe. That's sheer speculation on my part.
And we can just ignore vicarious liability. This isn't some Apple underling infringing, unless you want to call Steve Jobs and underling. I do, but then I don't like Steve Jobs, ever since what he did to the marvelous Apple //. There, I've confessed to my bias.
Nonetheless, what defenses are available for the Apple?
Near as I can tell, this is where all of Apple's public statements rest. It will be interesting to see what they file in their answer to Cisco. I think what you'll see, at least in part, is a countersuit wherein Apple claims that Cisco is attempting to take advantage of Apple's iLanguage. Apple has expended millions and millions in developing a line of products that all use the lowercase "i" in their name (e.g., iPod, iMac, iTunes, iEtc.). Cisco, in turn, has appropriate that style for a phone in anticipation of Apple entering that market. An Apple cell phone has been one of the hottest rumors in the tech industry for years. The market coined the name iPhone for that, until now, hypothetical market, and that's why Cisco leapt on the name.
But Cisco has a more than decent counter argument. The mark was registered before Apple began to full develop their iLanguage. Until this very moment there was no official indication from Apple that they were developing a phone. If Cisco is playing off Apple's iLanguage, so have other products. Consider the Cowon iAudio mp3 players. Not only do they use the iLanguage, they are direct competitors to one of Apple's iProducts, i.e., the iPod. Maybe Apple's ownership of iLanguage isn't as great as they'd like to believe.
And so we turn to the defenses that Apple has, so far, shouted, and others....
Fair use, Apple trying to say that they are using the mark in its descriptive sense, not attempting to identify a product. Oh, this won't work. What part of iPhone describes a cell phone, other than "phone"?
Estoppel. Here's one that some have been shouting, though they used different words. This is where most shout that it's unfair for Cisco to own the name. However, this defense assumes that Cisco first let Apple infringe, then later opted to file suit. In that instance, Apple would be acting in reasonable reliance on Cisco's good will. For reasons of equity, Cisco would be prevented from suing Apple for infringement. Didn't happen here.
Estoppel might come in, though, if Apple showed that it was Cisco who broke off negotiations re permission to use the mark. In that case, Apple might be able to show that Cisco acted in bad faith during those negotiations, that they gave Apple every indication that Apple would be granted a license to use the mark, and then yanked the rug out from under them after Apple actually used the mark. If that's the case, the court could prevent Cisco from seeking relief for Apple's "infringement".
Some have argued abandonment, but that requires two elements. The owner of the mark must stop using the mark, and the owner must have no intent to resume use in the foreseeable future. Abandonment might have occurred if Cisco first used the mark in 1997, then never again until 2006. However, the fact is that Cisco did use the mark again in 2006, and that argues against the second required element. Also, this would be stronger is Apple had began using the mark in the intervening time period, that is between when Cisco stopped, if they stopped at all, and when they resume.
Maybe Cisco has engaged in assignment in gross of the mark. Not applicable, I don't think, because as I understand it this would be a case where Cisco let someone else use the mark, that other person built up the good will for the mark, and now Cisco wants it back. Didn't happen here. So, how about...
Naked licensing. This, again, requires that Cisco licensed the mark to someone else, and then didn't supervisor that use. Didn't happen. Now we're to the biggie...
Failure to police. This is the defense Apple is publicly screaming and so are the Apple fanboys. This is the one where others are using the mark but Cisco isn't suing them for infringement. In order for this to work, however, you have to look at the entire analysis above on a case by case basis. For example, if one of the alleged infringers is using "iPhone" as a trademark on their dildo, there's probably not trademark infringement. On the other hand, if the other alleged infringers are branding phones with the iPhone trademark, Apple might have a good defense. This might push things toward...
Genericism, wherein the mark has become generic. Did you know that "aspirin" used to be a Bayer trademark? But they failed to police their mark and more and more, people just referred to pain relievers as aspirin. By the time Bayer got around to suing anyone for infringement, the term was ruled to be generic, and so it remains to this very day.
If Apple pushes things to this point, an interesting thing happens. iPhone ceases to become a word that may be trademarked. By anyone. Ever. This means that anyone can make a phone and call it the iPhone. The term loses all value for everyone.
The last defense is parody, but I don't think either Cisco or Apple means this as a joke, though I think the entire matter is hysterically funny.
I think Apple has a pair of good defenses with estoppel and failure to police. I think at any other step in the process, Cisco wins. iPhone is a valid trademark. It is at least suggestive and therefore deserving of protection. Cisco established ownership by both actual use and constructive use. There is a likelihood of confusion.
I said at the beginning that law school (and bar) exams aren't about the answer being right or wrong, but the strength of your arguments. Same applies in civil court, where this will be tried. The significance of Cisco's size speaks to the quality of their legal team and the legal resources they command. In turn, Apple has a crack intellectual property legal team. This will be one hell of a fight.
And I haven't even mentioned Apple's potential counterclaims....