By Scott Martin and Red Herring Staff<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:of... />

Apple may have to pay hundreds of millions of dollars in royalties to networking giant Cisco for the iPhone trademark, according to industry experts.

Cisco Systems on Wednesday filed suit against Apple over the iPhone name, a day after CEO Steve Jobs introduced the music-playing mobile phone at Macworld in <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:sm... />San Francisco.

Given that financial analysts say iPhone revenue could hit $6.5 billion in 2008, licensing fees could run Apple $130 million to $325 million per year. Over the course of a five-year product run that could cost Apple well over a billion dollars in royalties. If the product takes the industry by storm, double that figure. A $325 million payment would represent more than 15 percent of Apple’s net income for fiscal 2006.

“If they licensed it, the figure would be several percent of revenue annually,” said Mich Bergesen, executive director at Landor in New York. “It could be 2 to 5 percent or higher.” San Francisco-based branding firm Landor has neither Apple nor Cisco as a client.

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At a packed Macworld on Tuesday, Mr. Jobs said he expects the company to take about 1 percent of the market by selling about 10 million phones, priced at $499 and $599, in 2008. Merrill Lynch analysts on Wednesday said that equates to $6.5 billion in revenue in 2008 based on an average selling price of $525 and a $125 carrier subsidy per phone.

Cisco’s trademark suit against Apple seeks damages based on future profits lost on the iPhone trademark. The suit also seeks an injunction against Apple that would stop it from entering the market bearing the iPhone name.

The suit comes after Apple had been in negotiations with Cisco for the past five years over use of the iPhone trademark, Cisco representatives said.

Cisco representative John Noh said the networking giant was willing to share the trademark with Apple. Mr. Noh said Cisco had hoped to reach an agreement under which the two companies could share technical information so their products would be compatible. He declined to provide further details.

“This agreement was not about money, not about royalties, and not about the products,” said Mr. Noh. “We want to be collaborative and we support open standards.”

But Tim Calkins, a marketing professor and branding expert at Northwestern University’s Kellogg School of Management, said Cisco cannot reasonably expect Apple to agree to share the iPhone brand. Controlling a jointly owned brand is a difficult proposition at the best of times, and Apple has developed a reputation for being a petulant partner.

“The last thing you want is to have to collaborate on one of your brands,” he said. “That would be a disaster.”

Cisco's joint-ownership proposal is merely a negotiating point, he said. "This ultimately does come down to money," said Mr. Calkins.

Legal experts said that Cisco’s suit seeking an injunction and damages was also a negotiating position. Most companies settle out of court to avoid an injunction that could potentially pull the product from the market.

Mr. Calkins said it was almost impossible to calculate how much Apple would be willing to spend to secure control of the iPhone brand. Branding industry experts also agreed that it was highly difficult to speculate as to exactly how much the iPhone brand could be worth.

But Mr. 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?"

He said Apple cannot afford to let this drag out. Cisco's position will be immensely strengthened if is manages to win an injunction.

Apple CEO Steve Jobs’ announcement that the company’s music-playing mobile phone would bear the name iPhone came as a surprise given Cisco unit Linksys had just launched a line of phones with the same brand. Legal experts said that it was a highly unusual—some might say bold—move to be in negotiations, potentially facing a lawsuit, and then going forward with a splashy launch.

Thomas Ranese, managing director of brand valuation at Interbrand said Apple will have to move fast to resolve the issue.

“The worst fate is letting this drag on and in the end not being able to keep iPhone.”

Interbrand has neither Apple nor Cisco as a client. He went so far as to suggest that Apple consider a swift name change. “The value is really in the “i” franchise.”

Mr. Bergesen thinks iPhone, however, is a perfect name. “It fits with their i-family of products. I think they should do everything they can to reach an agreement with Cisco.”

Branding giant Interbrand ranks Apple at No. 39 on its list of top 100 global brands. Apple’s brand value is $9.1 billion, according to Interbrand’s most recent list.

“Apple is one of the fastest growing brands on our list,” Mr. Ranese said.

Apple representative Natalie Kerris responded to requests for comment on the Cisco suit in an emailed statement.

"We think Cisco's trademark lawsuit is silly,” Ms. Kerris wrote. “We are the first company to ever use the iPhone name for a cell phone, and if Cisco wants to challenge us on it we are very confident we will prevail."

Landor’s Mr. Bergesen didn’t agree with Apple’s response to the lawsuit.

“Apple’s response that this is a frivolous suit is crazy. It’s absolutely something they’ve got to get done.”