Rights to a trademark
As a general rule, the company that either first uses a trademark, or first registers it, has the presumptive rights to use the mark. In this case, however, the product that Cisco/Linksys made and marketed may be substantially different than the product proposed by Apple.
Or is it? Sure, the Apple phone is a "smart phone" – a cell phone, music and video player, and internet access device, whereas the Cisco/Linksys product appears to be just a network-based VoIP phone. Of course, the Apple iPhone may also have the capability of making VoIP calls, piggybacking on its Wi-Fi connection.
Now the question is, would anyone seeing one of these products think of the other, or would the use of one trademark in some way "dilute" the other? Lawsuit aside, Apple will no doubt spend boatloads of money promoting its iPhone. In the wake of this publicity onslaught, it is unlikely that Cisco will be able to make people think "Cisco" when they think "iPhone" – thus weakening their trademark.
This may, however, be a circumstance where Apple's "i-Everything" strategy has already impacted the previously registered trademark. The mere prefix "i" may already serve to identify Apple computer, just as the "Mc" in "Mc[AnyFood]" identifies a certain hamburger company in Oak Brook, Illinois. It may be a circumstance like that in Mel Brooks' Blazing Saddles where the 19th century character Hedley Lamarr is concerned about infringing the name of the 20th century actress of the similar moniker. Mel Brooks' character Governor William J Le Petomane explains: "What the hell are you worried about? This is 1874. You'll be able to sue her."
This is sort of "reverse trademark confusion". Even though the iPod, iPhoto, iMovie, iDVD, iTunes, iSync, iWeb, iWork and iLife (but not iDefense, iLink or some other i-marks) monikers did not exist in 1996 when Infogear registered its trademark, I can bet you that, by 2007, even before Steve Jobs took the stage at MacWorld in San Francisco, if you asked people who made a product called “iPhone” they would invariably think Apple, not Cisco.
So let's look at Cisco's corner: it owns the registered trademark. It got it first. It makes a product called iPhone. It has marketed and sold it in commerce. The phone has something to do with the internet and talking to people. And up until the moment of the MacWorld announcement, it was in negotiations with Cisco to buy or license the trademark.