Microsoft's Behavior Is Helping Cisco Learn How to Avoid Trouble

Article excerpt

SAN JOSE, Calif. -- Cisco Systems Inc. is the world's second-most-valuable technology company. It boasts a 62 percent market share for its core product. It aggressively acquires emerging technologies and grafts them into its flagship products. And its market power is so great that three of its most entrenched rivals have surrendered in the past year.

So how has Cisco avoided the antitrust problems that have brought Microsoft Corp. to the brink of a breakup? Part of the answer lies in the dynamic market for Internet switching equipment, where wellfunded start-ups emerge regularly to challenge one or another outpost of Cisco's empire. But Cisco's carefully choreographed conduct also deserves much of the credit.

Where Microsoft seemed to ignore or bully antitrust regulators, Cisco has schmoozed them. Where Microsoft executives left a detailed e-mail trail of potentially incriminating anticompetitive remarks, Cisco has instructed every salesperson and marketer to avoid inflammatory language -- citing Microsoft as an unfortunate example -- and to be careful when writing, on paper or computer.

Cisco's generally clean record demonstrates how it and other high-tech giants have quietly applied lessons from the Microsoft case to stay out of regulatory hot water. Despite a dominant position in database software and price changes that sometimes rankle customers, for example, Oracle Corp. has steered clear of antitrust difficulties. Ditto for America Online Inc., which has six times as many subscribers as the next-largest paid Internet service provider and, by some estimates, signs up half of all newcomers to the Net.

Even before the Microsoft case, Intel Corp. was tutoring its executives and sales staff in the vagaries of antitrust law, starting in 1987, when the chip maker declined to license the design of a new microprocessor to a key rival. Intel has been sued by competitors and by the Federal Trade Commission but has escaped with only minor sanctions. William Baer, a Washington attorney who was head of the FTC's Bureau of Competition during the Intel lawsuit, says the company's compliance program lessened its exposure to antitrust complaints.

Antitrust compliance is "embedded in our culture," says an Intel spokesman. "It colors everything we do."

Cisco has had its own brushes with federal regulators. The FTC investigated 1997 discussions of potential partnerships between Cisco and rivals Lucent Technologies Inc. and Nortel Networks Corp. And the agency took a longer-than-usual look last year before signing off on a complicated deal in which International Business Machines Corp. effectively quit the computer-networking business in exchange for payments from Cisco.

Like Intel, Cisco has so far avoided any serious fallout from these inquiries. One big reason lies in Washington, where Cisco opened an office in 1997 while still a relatively obscure maker of high-tech gear with $6 billion in yearly sales. Its public lobbying has focused on familiar Silicon Valley goals, such as making it harder for disgruntled shareholders to sue companies whose stocks have fallen and preserving merger-friendly accounting rules.

But antitrust issues are an integral part of the Washington office's job. The lobbyists report to Daniel Scheinman, Cisco's senior vice president for legal and government affairs. The Microsoft case, he says, furthered his and Cisco Chief Executive John Chambers's "belief that we were right to invest resources in Washington."

Unlike Microsoft officials, Scheinman goes out of his way to woo regulators. "They are very smart people," Scheinman says of the lawyers in the antitrust division of the Justice Department.

Cisco executives seize on every opportunity to explain themselves to federal decision makers. Following an introduction, Chambers chatted with Justice Department antitrust division chief Joel Klein at the White House correspondents' dinner earlier this year. …

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