Statement by Microsoft Corporation on Japanese Fair Trade Commission Recommendation

REDMOND, Wash., July 13, 2004 — Microsoft today received a Recommendation from the Japanese Fair Trade Commission (JFTC) finding that a single provision in Microsofts agreements with computer manufacturers, the non-assertion of patents — or NAP – provision, is inconsistent with Japanese law. The JFTC has directed Microsoft to retroactively nullify such provisions and communicate to the relevant original equipment manufacturers that it will not enforce them.

The NAP provision has been in Microsofts contracts with computer manufacturers for over a decade. The narrow provision is designed to encourage computer manufacturers to raise any intellectual property concerns they may have before shipping a new version of Microsoft Windows. In this manner, the provision was designed to balance respect for intellectual property rights with the avoidance of IP disputes, ensuring that computer manufacturers did not ship a new version of Windows and then raise an IP concern years later. Reflecting gradual changes in the information technology marketplace, Microsoft announced late last year that it would move towards a new IP policy based on expanded licensing of its intellectual property rights with others in the industry. Reflecting this, Microsoft announced on February 21 that it would remove the NAP provision from agreements with computer makers in new contracts going forward. The provision will have a limited ongoing effect based on its inclusion in old agreements.

Microsoft respects the JFTCs role in the implementation of the Fair Trade Law and has cooperated fully with the JFTCs investigation since their inquiry began on February 26. However, we respectfully disagree with the conclusions reached by the JFTC at this stage of the process, and will avail ourselves of the mechanism set out in the Law and regulations to seek a review of this decision. We look forward to explaining the operation of this provision in more detail during the next stage of this process before the JFTC.

We believe that the provision at issue fairly balances IP protection and the need to create a stable environment for the development of the IT industry by avoiding disruptive IP disputes. The industry and consumers have benefited from this stability, and IP owners have always been empowered to raise and exercise their rights in a reasonable manner

While we decided earlier this year to remove this particular provision in contracts going forward, this balancing provision has a limited continuing effect under past agreements.

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