Here’s the scoop from a PCWorld article:

Cisco Systems sued Apple today [January 10, 2007] to prevent it from using the name iPhone for the new smart phone that it introduced yesterday at the Macworld Conference & Expo in San Francisco.
[…]
The name iPhone is a registered trademark of Linksys, a division of Cisco. Linksys picked up the iPhone name when it bought a company called Infogear Technology in 2000. Cisco’s iPhones are telephone handsets designed for use on a VoIP (voice over Internet Protocol) network.
[…]
Apple and Cisco have been in negotiations for about two years over Apple’s desire to license the iPhone trademark, according to Cisco spokesman John Noh. When Apple CEO Steve Jobs introduced the iPhone at Macworld, Cisco had not yet received a signed trademark licensing agreement from Apple, though the two companies had been negotiating terms as recently as last Monday night.
[…]
In an interview Wednesday afternoon, Greg Joswiak, Apple’s vice president of worldwide iPod marketing, pointed out that Cisco’s iPhone brand applies to a line of voice-over-IP products, whereas Apple’s iPhone is a cell phone. “They’re different products,” Joswiak said.

“Yeah, but they’re both phones,” is what I have to say to that. Cisco seems to agree:

“Today’s iPhone is not tomorrow’s iPhone. The potential for convergence of the home phone, cell phone, work phone, and PC is limitless, which is why it is so important for us to protect our brand,” Chandler [senior vice president and general counsel for Cisco] said.

Cisco seems to be pretty upset, but I’m sure they’re loving this publicity for their product!