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SAN FRANCISCOApple Inc.'s efforts to fend off a trademark infringement suit from Cisco Systems Inc. over the use of the iPhone brand name raise questions about whether Apple could turn to insurance to cover any potential losses.
Apple's iPhone, unveiled last week, combines the Cupertino, Calif.-based company's iPod mobile music playback technology with cellular telephone and Internet browser service.
Three weeks earlier, San Jose, Calif.-based Cisco introduced its own line of Internet-enabled phones--also called iPhone. The product line also lets users access music, photos, and streaming video from Internet sources.
According to Cisco, which sued Apple last week in federal court in San Francisco, it obtained the iPhone trademark in June 2000 after acquiring Infogear Technology Corp., which previously owned the trademark.
In 2001, Apple approached Cisco to discuss acquiring or licensing the rights to the iPhone name, Cisco's lawsuit states. Those discussions continued until a few weeks ago, according to Cisco.
But according to trademark infringement attorney David Cutner of Cutner & Associates P.C. in New York, any contention that the talks signaled that Apple recognized it faced trademark infringement problems is "not a very strong argument in Cisco's favor."
First, he said, he would advise a client to enter such negotiations with a potential claimant--even when he believed the client would prevail in a trademark infringement lawsuit--if negotiations could prevent a lawsuit.
Policyholder attorney William A. Passannante agreed. Negotiations are "the nature of trying to avoid a potential liability," said Mr. Passannante, a partner with Anderson Kill & Olick P.C. of New York.
In addition, "it's not helpful to Cisco that several other companies are out there using the term iPhone," Mr. Cutner said.
According to the U.S. Patent and Trademark Office's Web site, three companies besides Cisco and Apple have iPhone products, and all three have applied for trademarks.
The Trademark Office's Web site also shows that Cisco last obtained formal trademark registration approval on Nov. 16, 1999. But a spokesman for the office said trademarks must be renewed sometime between the fifth and sixth year after the initial registration has been approved. The Web site does not show any request by Cisco or Trademark Office approval for a renewal.
A Cisco spokesman asserted, however, that the company has "taken all actions necessary" to protect its trademark.
Regardless of the strength of the various legal positions in the trademark infringement case, Apple may face indemnity coverage problems if it eventually turns to insurers to pay any losses, brokers said.
Apple could not be reached for comment on its insurance coverage, but sources note that trademark disputes typically would be covered under professional liability and occasionally under commercial general liability policies.
Apple's negotiations with Cisco "clearly show a fear or acknowledgement that the potential of a claim was present," said Kevin Kalinich, a Chicago-based managing director of Professional Risk Solutions at Aon Corp.
"So the timing (of a claim notice) is the issue," agreed Ted Doolittle, a principal with Integro Ltd. in San Francisco. Insurers want notice of a claim "as soon as practicable," which means within about 30 days after a policyholder suspects an issue may lead to a claim, he said.
Insurers typically argue that if negotiations between a policyholder and a potential claimant go on for months "and then turn nasty, it's too late" to file a claim notice, Mr. Doolittle said.
Apple's coverage also could turn on its policy wording over what amounts to the organization's state of mind when it introduced its product, Mr. Kalinich said.
If the policy bars coverage for "malicious" trademark infringement, then Apple's coverage likely would not be jeopardized, because of the various questions about Cisco's trademark rights, he said. But, if the policy excludes coverage for "knowingly" violating a trademark, "Apple can't say it didn't know" about Cisco's position, he said.
While Apple could use a defense that Cisco has not protected the iPhone name, the fact that several other companies have applied for a trademark "is going to muddy the water" for Apple's insurer, Mr. Doolittle said. That shows there are many other potential trademark infringement claimants, he said.
"So, I don't know if that argument helps or hurts," he said.