Microsoft Takes Stake in Xerox E-Commerce Spinoff to Deliver Total Publishing and Rights Management Solution for eBooks, Digital Content on the Web

PALO ALTO, Calif., April 27, 2000 — Xerox Corp. (NYSE: XRX) and Microsoft Corp. (Nasdaq: MSFT) joined forces today to launch ContentGuard, Inc., a new Internet company that will deliver a comprehensive software system to protect books, documents, music, software and other valuable content distributed over the Web. The system gives publishers and authors more control over their digital material, thus allowing them unprecedented freedom and ability to innovate in the delivery and marketing of digital content to consumers.

Rick Thoman, Xerox president and CEO, and Steve Ballmer, Microsoft president and CEO, announced Microsoft’s investment in ContentGuard, a Xerox spinoff company. ContentGuard’s technology, originally developed at the Xerox Palo Alto Research Center (PARC), is the foundation for various products and services to deliver a secure, user-friendly solution for protecting and distributing digital content over the Internet. The system is designed to allow content developers and publishers to establish and retain control over how their materials are used, copied and purchased.

“This technology, supported by an extensive portfolio of Xerox patents, solves one of the most critical challenges facing Internet commerce: content protection. Our system offers a secure e-commerce environment for publishing and distributing any high-value or copyright material,”
Thoman said.

“A key part of Microsoft’s vision for enabling Web-based commerce is the creation of a seamless and easy-to-use system for protecting the rights of authors and publishers to provide consumers with digital content,”
said Ballmer.
“By investing in ContentGuard and implementing its innovative technology in Microsoft® – software products, we are taking a dramatic step toward realizing this goal.”

Xerox will retain a majority stake in ContentGuard formerly the Xerox Rights Management Group. Microsoft will be a minority investor, and other investors are expected to be announced in the future.
“As an independent entity that is able to draw on the resources of Xerox and Microsoft, ContentGuard can better compete as an ‘Internet company on Internet time’ and raise capital and form partnerships as required,”
said Michael Miron, co-chairman and CEO, ContentGuard.

ContentGuard and Microsoft will also collaborate on future development of digital rights management (DRM) technology and standards, including the establishment of XrML (eXtensible rights Markup Language) as a common standard. The XrML code will be freely licensed to the industry to enable interoperability across rights management systems. Microsoft will support ContentGuard’s licensing and rights labeling format in its own DRM solutions. Microsoft Reader, a new software product for displaying books on screen, will be the first product to incorporate the new ContentGuard technology when it debuts this summer. The technology will also support Microsoft media formats and technologies, including future versions of Windows Media TM Player and Windows Media Rights Manager.

“Controlling intellectual property is a major problem facing companies who are moving their business to the Internet. While there have been a limited number of solutions available to address this issue, this is the first time that two major companies such as Xerox and Microsoft have joined to bring digital rights management to the masses,”
said Alan Weintraub, research director, Gartner Group Inc.

The ContentGuard portfolio includes the ContentGuard Internet content protection software suite and the electronic Publishing Clearing Service (ePCS) it offers jointly with Reciprocal Inc. Today ContentGuard can protect digital content such as market research, business reports, patent applications, books, sheet music and academic course packs. Plans are under way to enable it for audio and video material.

In addition, ContentGuard products and services enable publishers or authors to deploy materials over the Web in new ways; for example, to create free time-restricted previews, single-chapter previews or one-time use scenarios.

“DRM is a prime example of a technology coming to market that will fundamentally change the way organizations and individuals use the Internet,”
said John R. Logan, chairman and co-founder, Aberdeen Group, Inc.
“Recognizing this, we decided to adopt DRM to distribute content within our own business. We chose Reciprocal and ContentGuard’s ePCS because it offered the most simple, flexible and cost-effective option to help us create new business models, reach a broader audience and significantly increase our profits.”

XEROX® , The Document Company® and the digital X®
are trademarks of XEROX CORPORATION. Microsoft and Windows Media are either registered trademarks or trademarks of Microsoft Corp. in the United States and/or other countries.

ContentGuard, XrML and eXtensible rights Markup Language are trademarks of ContentGuard Holdings, Inc.