Apple Inc. may have to pay hundreds of millions of dollars in royalties to Cisco Systems for the coveted iPhone trademark, industry experts believe.
A day after Apple CEO Steve Jobs unveiled the Apple iPhone at a trade show in San Francisco, Cisco filed a lawsuit on Wednesday, asking the judge to refrain Apple from using the name "iPhone," which is a Cisco trademark since 2000.
With financial analysts estimating iPhone revenue to hit $6.5 billion in 2008, licensing fees could run Apple $130 million to $325 million per year, according to Red Herring, an online technology publication.
Over the period of a five-year product run, it could cost Apple well over a billion dollars in royalties, the publication reported on Friday.
"If they licensed it, the figure would be several percent of revenue annually," Mich Bergesen, executive director at Landor in New York told Red Herring.
"It could be 2 to 5 per cent or higher."
During the launch of iPhone, an iPod-like cellular phone, Jobs said he expects the company to take about one per cent of the market by selling about 10 million phones, priced at $499 and $599, in 2008.
Merrill Lynch analysts told Red Herring that it amounted to $6.5 billion in revenue in 2008 based on an average selling price of $525 and a $125 carrier subsidy per phone.
Cisco obtained the iPhone trademark in 2000 after completing the acquisition of Infogear, which previously owned the mark and sold iPhone products for several years.
Infogear's original filing for the trademark dates back to March 20, 1996.
"Cisco entered into negotiations with Apple in good faith after Apple repeatedly asked permission to use Cisco's iPhone name," said Mark Chandler, senior vice president and general counsel, Cisco.
"There is no doubt that Apple's new phone is very exciting, but they should not be using our trademark without our permission," the official said adding, the company is seeking injunctive relief to prevent Apple from copying Cisco's iPhone trademark.
Cisco said this lawsuit was not over money, product services or royalties, but because Apple flatly refused to come to an agreement with the company.
"We wanted to make sure to differentiate the brands in a way that could work for both companies and not confuse people, since our products combine both web access and voice telephony. That's it," Cisco representative John Noh said.
"This lawsuit is about Cisco's obligation to protect its trademark in the face of a willful violation. Our goal was collaboration. The action we have taken today is about not using people's property without permission."
But Tim Calkins, a marketing professor and branding expert at Northwestern University's Kellogg School of Management, said that Cisco's joint-ownership proposal is merely a negotiating point. "This ultimately does come down to money."
Calkins said it was almost impossible to calculate how much Apple would be willing to spend to secure control of the iPhone brand.
However, Calkins said the key question for Apple is: "Could Apple launch a phone under a different brand and how much would it hurt them to do so?"
Commenting on the lawsuit, Apple spokesman Steve Dowling called the Cisco lawsuit "silly," saying there are several companies using the term iPhone for VOIP products, and Cisco's trademark is "tenuous at best."