"I think we have made a large amount of progress in building bridges with the rest of the industry"

His has to be amongst the most difficult jobs in the world today. Brad Smith is Senior Vice President and General Counsel, Microsoft, and over the past few years, he has become the visible 'legal' face of the company, through the anti-trust case and the consequent settlements in the us, and the anti-trust case in the European Union (see A Brief Legal History of Microsoft). Smith was in India recently and met with Business Today's R. Sukumar for a freewheeling chat about everything; from its anti-trust settlements in the us to the intellectual property rights regime in India to the future of innovation. Excerpts:

How does it feel to be General Counsel for Microsoft? It is not exactly the most popular company in most circles.

I really enjoy technology and I enjoy the law and very few jobs in the world sit at the intersection of those two things in a more dynamic way than this does. Technology in the IT sector keeps changing, that raises new legal issues, the law is evolving, and as the law evolves that leads to an influence on or a change in the technology. In some ways I get to sit at the busiest and most interesting intersection in the world today.

If you had to look back at everything that has happened over the past two to three years, would you say that the ghost of 2000, when Judge Thomas Penfield Jackson ordered that Microsoft be broken up into two, has finally been laid to rest?

I think we have made a large amount of progress in building bridges with the rest of the industry and expanding the kind of dialogue we need to have with governments. We certainly go forward today as a company that appreciates the high level of responsibility we have as an industry leader. We appreciate the impact we have on consumers and competitors around the world. Yet, we also know that we need to innovate as quickly as ever. I won't say that anything is ever completely over, but I think we have moved forward a good deal.

You have also announced a spate of anti-trust settlements with other firms. You have spent a great deal of money on that, haven't you?

Part of what we needed to do is build bridges to the rest of the industry. The most important part of the settlements we have reached has been the opportunity to redefine relationships. We have often learnt that we have more in common than we thought we did. So, with AOL, Time Warner, for example, we realised that there were new things we could work on together. I think some good things have come out of the process.

That's obviously led to the talks Microsoft has been having with AOL-Time Warner (over a marketing arrangement between AOL and MSN, even the possible acquisition of the former by Microsoft, according to some reports, to take on Google)...

I don't want to get into the speculation that is out there...

But if the anti-trust thing with AOL Time Warner been going on, you probably would never have sat together at the table.

You are absolutely right that our relationship with Time Warner is in a very different place compared to just two and a half years ago.

While things look all right on that front, you seem to have run into some trouble in EU where the European Court of First Instance passed a December judgement ordering you to unbundle Media Player from Windows and share your server communication protocol with, essentially, the competition. What's the road ahead for Microsoft in Europe?

It involves two or three things. The first is, I think we have a good set of relationships with industry in Europe; we have been improving our ties; we entered into an important cross-licensing agreement with Siemens; two, I think, very important agreements with Nokia in February-one expands inter-operability between Microsoft Exchange and their phones, and the other is about digital media that really has a place on mobile phones. Second, we have a court case and it will go forward, but it will take time. It may be two years before we get a decision from the European courts. Then, the third part is even while it continues, it is important for us as a company to improve our relationship with the European Commission and governments across Europe. In part, that involves more discussion about competition issues, but it is also much broader than that because the European Commission and the European governments care a lot about privacy issues, security issues. We have to recognise that while the case continues, the rest of life needs to move forward.

Is there a larger issue of the law not keeping pace with technology?

The law is moving forward. Every new technology creates issues for the law to address. It is very difficult for the law to move as quickly as technology does, but the law does move forward and ultimately it does catch up. There is a clear pattern: companies invent new technologies and especially when those technologies become widely distributed throughout society, courts and legislators, all have to grapple with new issues. It takes some time, but then the law changes, and then those of us that create technologies need to ensure that we are following the new legal rules that emerge. That's what is happening today. We are living in interesting times. Both technology and the law are moving and sometimes they move together and sometimes they are a bit at odds with each other.

One way of looking at everything that is happening is that this whole fight is about two schools of thought on innovation. One maintains that if you are a large company like Microsoft, you can set an industry standard and leverage that to push your own new technology at the cost of other emerging new technologies, thereby stifling innovation. The other insists that companies spend a huge amount of money developing technology and should be given time and flexibility to benefit from that. Isn't it strange that this entire conflict about innovation is being fought out in the courtrooms? It has become a legal issue.

I think that if you look at where the information technology sector is today, there are two things that we need to do well. One is we absolutely need to keep moving forward the pace of innovation. In the internet-based, interconnected world in which we live, we need more inter-operability, than we did, say, five or 10 years ago. That inter-operability in turn requires new forms of collaboration between companies and broader licensing agreements of technology and intellectual property rights. It may be the case that the law and lawyers have helped frame these issues first, but I don't think we should leave it to the lawyers and the courts to resolve all the questions.

This is where things like open standards come into play. This is an area where more proactive licensing comes into play. As a company, we decided in December 2003 to, instead of simply having a large patent portfolio, simply licence them out to others; we would use that to stimulate the transfer of technology. I think as a company and an industry, we have the opportunity to solve problems more quickly while they are smaller. Hopefully, lawyers don't have to sort out everything.

Digressing a bit on to patents, a company like Microsoft should surely be a magnet for patent litigation.

When it comes to the IT sector, we probably live on both sides of the fence more than any other company. We spend more on R&D. As a result, we file more patent applications than any other company. And because we are large, we are a target and typically have more lawsuits pending against us than any other company. That has enabled us to see two things pretty clearly. The first is that the patent system does play a healthy and important role in innovation. But the system also needs to be improved. The world needs a healthy software patent system and the system isn't healthy enough. It is not healthy enough in the US, and we have been calling for reform that would improve patent quality and reduce the potential for litigation abuse. From a global perspective what we need to do is to make the global patent system more accessible to companies. If you are GE or Microsoft or IBM, you can afford to file patent applications in countries in continent after continent. But if you are an individual inventor or a start-up, it is just too expensive to protect your inventions the way you should.

I am sure you have studied the intellectual property regime in India. Do you think it needs improvement?

You can really think about the IPR system in India in three ways. First, the laws themselves. There are good laws on the books. Second, you can think about the enforcement of the law. There the big challenge is building more judicial capacity. There are 13 judges for every million people in India; in the US there are 102. Expanding judicial capacity may involve the suggestion some are making of creating an IPR court. We have seen that in Thailand and it seems to be working well. The third is to think about results. In a sense one of the most pragmatic ways to think of the results is the reality that there is still a very high rate of software piracy in India, 74 per cent. What just jumps out sharply is that in India, there is an incredible number of extraordinarily talented young software developers and simultaneously there is this huge hurdle they have to overcome if they want to create a product. Part of what progress should bring to India is the opportunity to create more products in India, and export them. It's probably what is needed for India to create sustainable value in its it sector.