Remarks by Brad Smith, Senior Vice President and General Counsel, Microsoft Corporation

Microsoft Government Leaders Forum Europe 2006

Lisbon, Portugal

January 31, 2006

ANNOUNCER: Ladies and gentlemen, please welcome Brad Smith, senior vice president, general counsel and corporate secretary, Legal and Corporate Affairs, Microsoft Corporation. (Applause.)

BRAD SMITH: Good morning. Thank you for retaking your seats, it’s great to get started again. It’s certainly a pleasure for me to be here and be with you this morning.

In my job I get the opportunity to frequently throughout the year travel around the world and meet with people at events like this. Last year, I was at a session in Mexico City. It was in a room about this size, and I was very pleased to see that just before I got up to speak, the room started to overflow. Eventually they ran out of seats for everyone, and I thought this was wonderful; people are so interested in these issues. It was only later that evening that I learned that there had been a little confusion in the audience that morning. Many people came expecting not to hear from Brad Smith from Microsoft but instead had heard that there was going to be a presentation by the actor Brad Pitt. (Laughter.) I felt particularly sympathetic for two women who were in the front row, and I could have sworn that one of them leaned over to the other and said, “You know, he looks so much better on the big screen than he does in real life.” (Laughter.)

I’ve entitled my presentation this morning a tale of two technologies. It’s really two different stories about two different technologies that I think bring to life a number of the issues that we are here to talk about that make very real the opportunities, the challenges, the problems, and even sometimes the difficulties that we all need to address as we move forward with respect to the Internet and the shrinking planet in which we live.

The first technology and the first story is really, I think, a fascinating story that really brings to life the opportunities that new Internet technologies really provide. It relates to a program that we created last year called IP or Intellectual Property Ventures. As you may know, Microsoft invests more than any company in the ICT sector in research and development per year, not just in product development and applied research but in basic research as well. But like all large institutions, whether it be a government or a company, we often create things that even we are not certain how to use. And sometimes we create things that we think are very interesting and valuable; but the truth is it doesn’t make sense for us to put them into a product. It doesn’t align with our areas of focus.

And we realized about a year or two ago that it made no sense to simply set these technologies aside. Even though we often patented them, we protected them under intellectual property law. It created an opportunity that other people could use to improve their products, renew offerings to the market, and create jobs.

And so we created this program, IP Ventures, to do precisely that, to take technologies that we had created, that we thought were valuable, that we did not know how to use, and instead licensed them out and shared the technology with other companies, especially small and medium enterprises: a sector of the economy that is obviously so innovative, so important, including here in Europe, and yet a sector that could often benefit from more technology transfer, technical assistance, and often financial capital.

The particular technology that I wanted to talk about this morning was actually created in our basic research facility in Beijing by Chinese researchers who are employees of Microsoft. It’s a technology that might seem simple enough to all of us, and yet it was a real advance. When you think about digital photography, when you think about digital images of any sort, we often now know that there are parts of that image that we would like to use and other parts that we might not wish to use; and we might wish to use the parts we like in a variety of software tools, not just in a photography tool, but in a memorandum, in a PowerPoint presentation, in a collage created by students where in education this is particularly popular.

We realized that we weren’t going to use this but we knew that somewhere someone probably would, and the challenge was how to find them.

And the interesting part of this story is the conversation that we struck up with Enterprise Ireland in Dublin. We had the chance to talk with them, and we showed them this and other technologies, and we asked, “Is there anything here that businesses in Ireland might be able to use.” And they looked at our technologies, they narrowed the list, they looked at companies, they narrowed the list, and they introduced us to a small firm in Ireland, a company called SoftEdge Systems, LLC: a small business, a business with 12 employees, a business that itself is headed by an individual who lives today in Ireland, but who was born in India.

And they took a look at this, and we had the chance to meet, and we worked out an agreement. We licensed all of our source code for our technology to them, and they have been able to build a product that incorporates this source code. And they are now shipping this product, and it is in use not only in Ireland but in other countries, not only among individuals, in firms, but in schools where this type of technology is very popular.

And so here we have a story of a research advance in China that moved through a company headquartered in the United States, found its way in partnership with the government of Ireland to a small business there that is creating technology and exporting its products to the world. We think it’s a great lesson of the kinds of opportunities we have to work together.

We’ve recently built on this example and have started to work with CITRA [Charity IT Resource Alliance] in Finland to see if there might be small and medium sized enterprises in Finland with whom we could partner, and indeed we’re very interested in working with governments and with the business community all across Europe.

I think that the answer for us is that as a large company there is a lot we can do but we cannot do it all. We need to work, we need to help fuel growth throughout the economy, and even there we can’t do it all in terms of figuring out who is out there who might be interested in what we have to offer. It’s the public-private partnership here that I think was one of the keys to success.

And so that’s the first tale, that’s the first technology that I wanted to talk about. It is I think a story about opportunity.

The second technology I’d like to talk about is also a story. It is a story about new opportunities. It is a story about new technologies.

In the last couple of years, a technology that has taken the world by storm is the technology involved in blogging. We’ve all seen the way blogging has changed communications. People share information that may be personal details about where they spent their weekend. It may be about their hobbies. It may be about small or great issues of the day. We have both created technology tools for blogging services ourselves, and we have offered blogging services to the world.

Our MSN Spaces blog, for example, has 35 million bloggers, 35 million sites, 35 million individuals who use this every day to share their ideas with anyone who is interested. And indeed they do find that a lot of people are interested; almost a hundred million people around the world access these sites and read this information.

As we also know, given some of the news stories of recent days and weeks, the expanding global reach of blogging has raised new issues of their own. In China, we have 3 million users who have sites on MSN Spaces. Those 3 million users provide information that is read and accessed by 15 million people in China, in addition to the tens of millions of people in the rest of the world.

And yet we have also found, as our entire industry has found, that there is a new set of questions, a new set of important topics in China and to people around the world. People, of course, blog on almost anything and everything in which they are interested. Sometimes the things they do run afoul of our terms of use and standards that apply on a worldwide basis. And those are relatively easy things to address, at least in terms of knowing what to do. For example, if there is child pornography, we take it down, we always have, and we do it everywhere. That’s reflected in our terms of use; I think there is a global standard that says that is the right thing to do.

And yet we’ve also found in recent weeks that there are other forms of expression, forms of expression that may be controversial in one country that are broadly accepted, and indeed sometimes even encouraged in many other parts of the world. This has forced us to think anew: How should a company address such issues? If there is content in one country that is problematic and yet it is not problematic in the rest of the world, what should a technology company do?

We overridingly believe that it is better to provide this technology than to refrain from doing so. It is a technology that is not only a tool for economic development but also for the sharing of ideas and the spreading of creativity. No technology is perfect; but it is fundamentally a technology that does good that we want to provide to our users in China and throughout the world.

And yet we also know that that does not answer all of the questions that people have, it doesn’t answer every question about what we should do when the government says that certain content might be of a controversial or problematic category.

And so as a result of recent discussions, both inside our company and with others, in the broadest sense, we decided to formulate a new framework and articulate some new principles that will help us address this question of how to manage these situations; and I’d like to share this framework and these four principles with you today.

First, we believe in transparency. We want to create explicit standards for protecting content access, and commit to our users that we will remove access to blog content only when we receive a legally binding notice from the government that imposes a legal obligation on us to do so. We’ll still act on our own if we see content such as child pornography, but when we get into this context and this type of expression, we will act when we have a legal duty to do so, and we will act when we are given the kind of notice that clearly makes that duty binding upon us. We indeed have no choice; we must abide by the local laws in the countries in which we operate.

But that’s just the first part of the way we need to think about this. Second, we believe in maintaining global access to the content that our users create, so if we receive a legally binding notice in a particular country, we will remove access to that content only in the country issuing the order; we will ensure that the rest of the world will continue to have access to that blog, so that the Internet can continue to be an important and effective tool for communication and the sharing of ideas.

Third, we will be transparent in the way we let users know what is happening and why. So when users in the affected country find that they are not able to access the content because we have been ordered to remove it, they will not simply receive a message that says that this site is no longer available, they will receive a message that says that access to the content was removed due to a government notice.

We’re, in fact, perfecting in the final stages the technology that will enable us both to provide this kind of notification to users in the country involved, and ensure that the rest of the world continues to have access to the content in question. We have been working on this technology in recent weeks, and we expect to bring it to fruition and incorporate it in our worldwide technological infrastructure very, very shortly.

And finally, most broadly, perhaps even most importantly, there is this: We need to think about this not as a single country issue and not as a single company issue, but an issue that is important around the world. We believe that we will be served best not only as a company but as an industry and a worldwide community if we can be guided by principles, principles that will help us make decisions in the future about blogs, which we’re addressing today, about other technologies that exist today, and about the variety of technologies that almost certainly will come to life in the years and the decades ahead.

These are principles that no company can formulate by itself. We believe they are principles that no country should formulate by itself. They are principles that need to emerge from a broad dialogue, a dialogue that involves companies in our industry, that involve other stakeholders and advocacy groups, and, of course, people who work in governments themselves.

And we call today for such a dialogue to ensue, we believe it is the only constructive path forward that can truly enable us to address these important questions relating to the opportunities the Internet enables for everyone around the world.

We certainly are prepared to roll up our sleeves and engage in precisely those kinds of conversations. We’ve already started to talk with some. We are interested in talking with others, and in working in a collaborative way with all of the stakeholders that have an important interest in this issue.

Finally, I would step back and pose the following question: What is it that these two tales have in common? What is it that these two technologies share? After all, the two stories seem in many respects to be quite a bit different. And yet I also think that there are several themes in common, and especially for an event like this, it’s perhaps most important that we think about these common themes and leave with them in mind so that we can apply them.

Certainly both of these tales are a strong reflection of the expanding Internet technologies we see today and their use in the ever shrinking planet in which we live.

Certainly these two tales are both reflections of the combination of opportunities and challenges that we all face.

And certainly these are two tales that together reflect the way in which business and technology and policy and law and the broad societal interest of the planet have all begun to come together.

When our industry started 30 years ago, we were an industry of small firms, of startups, of technologists, who basically had the ability – you might even say the luxury – of being able to work alone. Those days are long gone. We’re talking here about a technology that is changing the world, that is impacting people, that is raising issues of the broadest sort for economic development, for employability, for free expression, for privacy, and increasingly for every type of issue in which one might have an interest.

We have realized as a company – I think increasingly we’re learning as an industry – that we need to address issues in a new way. We can’t simply turn our backs on questions. We can’t simply choose to leave countries. Internet isolationism is not an option if we’re truly going to address the important problems that lie ahead. And that is certainly what we’re prepared to do.

You know, it was just over a decade ago that Bill Gates published his book “The Road Ahead.” At the time, the Internet had not yet entered the popular vocabulary, and a decade later it is clear that so much has changed. We’ve made huge progress, and I think even more than that, we have learned a great deal. We’re all 10 years older, most of the time I hope that maybe we’re even 15 or 20 years wiser.

There are certainly some things that stand out. Even a decade later, there is a great deal of unfinished business. There is tremendous opportunity, and yet we also know that the road ahead remains uncharted. There will be curves that we can’t anticipate. There will even be bumps and potholes that we cannot foresee. And yet more than anything else, if there is one thing we have learned in the last decade, we know that if we’re going to make the most of the opportunity ahead, we will all need to travel down this road together.

Thank you very much.