Cisco Systems Inc. announced yesterday that government regulators have dropped an investigation into whether the networking giant violated antitrust laws in 1997 by discussing partnerships and cooperation agreements with two major competitors.
Negotiations with Lucent Technologies Inc. and Northern Telecom Inc. broke down soon after they started, all sides have acknowledged, and the three companies have since become fierce competitors in the telecommunications market. But in October 1998, Cisco chief executive John Chambers described the conversations in the media, saying the talks had faltered because of cultural differences among the companies.
News accounts of the talks prompted lawyers at the Federal Trade Commission in October to launch an inquiry into the meetings, apparently worried that Cisco, based in San Jose, was trying to divide up markets by engineering a truce among competitors. But on Friday, FTC lawyers notified Cisco that the case had been closed.
FTC spokeswoman Victoria Streitfeld confirmed yesterday that the investigation had ended.
The commission's lawyers often send letters asking companies to send documents that could clarify public statements. In most instances, the agency and companies maintain a vault-like silence about the inquiry; dozens of such cases are quietly opened and closed every year without making headlines.
But soon after the FTC came knocking, in an unusual step Cisco itself described the investigation in the media. Company officials said yesterday that keeping mum would have been contrary to their culture of openness and full disclosure. There were also worries that news of the inquiry would leak, making it appear as though the company had been hiding something.
In addition, officials described their proactive public relations efforts as part of a campaign to enhance Cisco's Washington presence. In the past year, Cisco has opened a lobbying office in Washington, headed by a former Capitol Hill staffer. In 1998, the company spent $600,000 on lobbying, according to the Center for Responsive Politics, up from $20,000 in 1997.
"We're saying that we need to invest in government," said Dan Scheinman, the company's general counsel. "In the past, Silicon Valley has had a bad habit of doing what my boss calls the Silicon Valley flyby, where we fly in, complain and then leave. Now, we're going to bring quality people in and make an impact on what goes on."
Other high-tech companies, such as Microsoft Corp., have recently concluded that the Washington lobbying game is now too important to their bottom lines to ignore. Cisco, for instance, has been lobbying on topics such as encryption, online privacy and taxes, according to the Center for Responsive Politics.
Having one of the Internet age's highest-flying stocks has caused Cisco's market capitalization to soar in the past few years as the market for networking technology used to route data between computers has exploded. The company's shares closed yesterday at $107.06 1/4, down $1.93 3/4, on the Nasdaq Stock Market as part of the overall tech-stock downturn.
Two years ago, as communications networks moved toward data and away from voice traffic, the company expanded and began to take on telecommunications players such as Lucent.
As that competition began in earnest, CEO Chambers made overtures to Lucent and Nortel. In meetings and phone calls, Chambers and his colleagues reportedly said they would be willing to forgo certain markets if Lucent and Northern Telecom ceded the high-speed Internet switch market to Cisco.
Cisco officials said they were merely trying to develop industry-wide networking standards.