The Justice Department is investigating whether a deal struck in August between Cisco Systems Inc. and IBM violates antitrust laws, officials at the networking giant said yesterday.
At issue is a strategic alliance in which International Business Machines Corp. agreed to sell its router and switcher technology to Cisco, a move that effectively meant that one of the world's largest computer makers was bowing out of the lucrative market for networking equipment. In addition, IBM agreed to sell and support Cisco products.
IBM was reportedly paid $300 million for its router and switching intellectual property, and Cisco agreed to buy $2 billion worth of IBM parts in the coming five years.
The agreement left Cisco, already the dominant player in the networking business, with one less deep-pocketed competitor. The San Jose company, one of the technology sector's highest fliers, commands 72 percent of the worldwide market, according to figures compiled in 1998 by Dataquest Inc., a market research firm. IBM has less than 3 percent of the same market.
Cisco officials said they planned to fully cooperate with the government. "We're confident this will be resolved in the coming weeks," said spokesman Kent Jenkins.
The company released the news late last night. Officials at the Justice Department could not be reached for comment.
In procedural terms, lawyers for the Justice Department have filed a second request, which is a formal demand for additional documents that could shed light on whether a particular merger is anti-competitive. Enforcers now have several options: They can drop the matter and allow the deal to close, demand that its terms be altered, or sue to force the parties to abandon the agreement altogether.
The investigation comes as the Justice Department and the Federal Trade Commission are starting to scrutinize strategic alliances, arrangements that are increasingly common in the technology field but that have yet to attract the same level of enforcement attention as full-scale mergers. The two agencies yesterday announced a new set of guidelines on strategic alliances.