Microsoft Pty Ltd

Submission to the Economic Development and Infrastructure Committee’s Inquiry into Improving Access to Victorian Government Public Sector Information and Data

1 Introduction

1.1 Microsoft Pty Ltd (“Microsoft”) welcomes this opportunity to provide its views to the Economic Development and Infrastructure Committee’s Inquiry into Improving Access to Victorian Government Public Sector Information and Data.

1.2 Microsoft’s comments are primarily confined to the issues raised in Chapter 6 of the Committee’s Discussion Paper, which discusses the use of open source software (“OSS”) by governments and Part b) of the Committee’s Terms of Reference – whether use of open source and open content licensing models, including Creative Commons, would enhance the discovery, access and use of Government information.

2 Summary

2.1 As a matter of principle, Microsoft believes governments should select a licensing framework for the release of Public Sector Information and Data (PSI) that advances an underlying public policy objective and should in general promote the public interest overall while acknowledging, protecting and respecting any personal rights of individuals. In this context a general preference for maximising the availability of PSI with a presumption for openness and non-discriminatory access is an appropriate starting point.

2.2 In respect of software developed with or through the investment of public funds, Microsoft is conscious of the potential for such software to be further developed and potentially commercialised by or in collaboration with the private sector. To enable such commercialisation to occur and potentially generate a return to taxpayers, it is necessary to look to permissive licensing terms that will potentially attract further private investment. Government should determine on a case by case basis the best way for the community to get the greatest return possible on its investments in software.

2.3 Proprietary software and OSS are not mutually exclusive solutions. Today’s computing environments utilise both of these development, business and licensing models, and there is a trend toward proprietary software and OSS developers embracing each other’s principles and moving toward more neutral, often hybrid software. As a result, the question for the Victorian government should not be whether to deploy proprietary software or OSS. Rather, the question is how the Victorian government ought to go about ensuring that its software procurement processes lead to the government deploying the optimum software to meet its computing needs.

2.4 Microsoft considers that the adoption of a neutral software procurement policy is an essential pre-requisite to the Victorian government making optimum procurement decisions. By a neutral software procurement policy, Microsoft means a policy that refrains from referring to, mandating or preferring particular software business or licensing models, and that instead promotes choice based on reasonable, objective criteria established to promote efficient and effective outcomes from the use of the software. The adoption of a neutral software procurement policy will also help to maximise competition, innovation, investment and consumer choice within the software industry - all of which are desirable outcomes in their own right. 2.5 Microsoft therefore submits that as part of the present inquiry, the Committee give consideration to whether the Victorian government has a neutral software procurement policy. To the extent that the Committee considers that the Victorian government has not adopted and implemented policies or practices that require or facilitate a neutral software procurement policy, Microsoft submits that the Committee recommend to the Victorian government that it take appropriate measures to do so.

3 Overview of OSS and proprietary software business and licensing models, and the trend toward hybrid products

What is OSS?

3.1 As the Committee recognises in its Discussion Paper, OSS is software that is subject to a particular type of licence, e.g., one of more than 70 licences approved by the “Open Software Initiative.” Although most such licences make broad intellectual property grants to licensees, allowing them to modify and further distribute the work, and to sublicense these rights at no charge, key differences among OSS licences arise with respect to how they restrict modification and/or redistribution of the software’s “source code” as part of a commercial product. Some OSS licences are quite “permissive” (such as the Berkeley Software Distribution licence or “BSD” in that they contain few restrictions and allow licensees, if they wish, to modify and redistribute the source code as part of a commercial product subject to standard commercial licensing terms. Others are more restrictive, such as the General Public License, or “GPL”, which requires licensees to distribute any source code or modified source code at no charge – or indeed under any terms that are not essentially identical to the original restrictive licence.

3.2 OSS has existed for many years and has long been an important part of the software ecosystem. Over time OSS has evolved with increasingly commercial development models being implemented across the ecosystem. Today, commercial companies leverage OSS to drive associated hardware, services, and proprietary software revenue, as further discussed in paragraph 3.8 below.

3.3 It is important for the Committee to note and specifically differentiate the fact that OSS is not the same thing as “open standards” (i.e., publicly available technical instructions and requirements). Open standards are neutral with respect to software licensing and business models and it is equally possible for an open standard to be implemented in proprietary software as it is in OSS.

What is proprietary software?

3.4 Proprietary software is software that is subject to licences that typically grant limited rights to a licensee to copy, redistribute, or modify the software, and normally do not grant access to the software’s source code. These restrictions help to protect the developer’s investment in the software by preventing third parties from expropriating the software’s economic value without the developer’s authorisation. The significant innovation that has occurred in the software industry in the past two decades confirms that intellectual property (IP) and IP licensing for proprietary software are both pro- competitive and pro-consumer. The business model of companies deploying proprietary software is based on generating revenue primarily through the licensing to customers of the intellectual property contained in software products (e.g., IBM’s Software Division, SAP, Microsoft).

OSS and proprietary software vendors are learning to draw upon each other’s strengths

3.5 The software industry is sometimes depicted as irreconcilably divided into mutually exclusive, rival camps of proprietary software and OSS. However, increasing customer demand for the industry to enable the most suitable and cost-effective software solutions, which often combine OSS and proprietary software within complex, heterogeneous IT systems, has resulted in a technology marketplace far different from this simplified portrayal. Both models have the capacity to provide benefits in given circumstances to technology customers. As a consequence proponents of both OSS and proprietary software increasingly find themselves embracing each other's principles and moving toward the development of neutral, often hybrid software solutions.

3.6 For proprietary software providers such as Microsoft, this “middle ground” is represented by programs like the “Shared Source Initiative,” through which source code is made broadly accessible without forfeiture of IP protections that have served as the linchpin of proprietary software innovation for decades. Currently more than 80 source code offerings are being used by more than two million developers worldwide.

3.7 Similarly, working with the OSS community, Microsoft launched its Open Specification Promise (“OSP”) in 2006 to facilitate easier and more efficient access by all developers, no matter what their development model, to Microsoft technologies and IP. The OSP provides royalty-free patent coverage across proprietary and OSS platforms to implement Web Services specifications, virtual hard drive formats, security technologies, file formats, and synchronization, all of which support interoperability. In addition, Microsoft is actively participating in open source projects through Microsoft engineers and product teams, with industry partners, and with other OSS developers to enable interoperable solutions that meet customer needs. Microsoft has and will continue to champion projects with JBoss, Zend (PHP), and SugarCRM and many more.

3.8 For many OSS providers, this “move to the middle” involves the adoption of some commercial licensing and business strategies. While many OSS developers create OSS purely for non-commercial reasons (academic researchers and computer hobbyists largely fall into this non-commercial category), OSS has evolved significantly over time, and is now increasingly commercial in nature. For example, estimates are that leading companies such as IBM, Hewlett-Packard, Intel, Fujitsu, Red Hat, and Novell currently spend at least $1 billion annually on the development of Linux. These and other companies often give away OSS packages for no or minimal cost in the expectation of making a commercial return on other related proprietary products and service offerings.

4 Choice in procurement is essential given the existence of mixed source computing environments

4.1 As discussed in section 3 above, today’s computing environments embrace software built using myriad business and licensing models. In these circumstances, Microsoft submits that it is crucial that government software procurement and information technology policies support and indeed promote choice among these different software business and licensing models by embracing a policy of software procurement neutrality.

4.2 Governments should not mandate or extend preferences to specific business models or licensing models, or specify particular means of achieving interoperability to the exclusion of others. Such actions may:

(a) chill innovation and competition;

(b) impede customers from deploying the best technical solutions available (which can include deploying proprietary software and OSS solutions side-by-side);

(c) restrain local economic growth; and

(d) ignore the other critical facets of interoperability (including people interoperability) that must be in place to accomplish the widespread adoption of interoperable technologies.

4.3 Neutral procurement policies, on the other hand, utilise reasonable, objective criteria that inform the IT sourcing decision; they do not mandate or prefer specific business or licensing models. Instead they acknowledge a range of public policy, legal and financial goals for government and require procurement officers to seek the best possible outcomes for citizens/taxpayers commensurate with those critieria.

4.4 In the software context, a neutral procurement policy might include the following criteria:1

(a) the total cost of ownership for the software and the value for money it represents;

(b) the software’s reliability;

(c) the availability of vendor support for the software;

(d) the extent to which the software is interoperable with other products or relies on industry standards for interoperability;

(e) the software’s ease of use – including user familiarity;

(f) the software’s security features; and

(g) the legal structure of the software including the availability of warranties and indemnities for intellectual property claims arising out of the use of the software.

4.5 Microsoft considers that neutral government procurement policies deliver substantial benefits for consumers, governments and local economies. In particular:

(a) neutral procurement policies allow governments to deploy the best technical solutions to meet their computing needs, be they OSS, proprietary or a combination of proprietary software and OSS;

(b) neutral procurement policies encourage companies of all types – both OSS and proprietary software – to vigorously compete for the government’s purchase decision, which, in turn, fosters greater innovation, increased customer choice,

1 Nicos L. Tsilas Enabling open innovation and interoperability: recommendations for policy-makers in ICEGOV '07: Proceedings of the 1st international conference on Theory and practice of electronic governance (ACM, New York, 2007) 53-56.

lower costs, and enhanced interoperability. Neutral procurement policies also promote a vibrant IT ecosystem with many different business models competing to best meet customer needs; and

(c) neutral procurement policies that promote choice allow companies to pursue IP protection for their innovations without fear that in doing so they will be disadvantaged in a procurement process that penalises IP-based solutions (as is often the case where OSS is mandated or preferred). Such respect for IP will, for example, encourage small businesses to identify and exploit core competencies of local economies, which, in turn, will attract investment capital to help them compete in areas where their expertise is often the greatest.

4.6 Lawyer McLean Sieverding has succinctly put it thus:2

Governmental preferences for particular types of software (such as open source software or proprietary software) are increasingly considered bad public policy in that they arbitrarily force product uniformity and vendor lock-in. As a result, such preferences significantly impede the benefits of choice, competition and innovation that flow from technical solutions based on multiple interoperable sources. This approach is particularly improvident in light of the rapid convergence of technologies in the current heterogeneous IT eco-system that permits the ability to choose and combine the best proprietary and best open source products to forge an ideal solution.

5 The global trend toward the adoption of neutral procurement policies

5.1 Microsoft notes that a significant number of governments and leading institutions around the world have adopted neutral procurement policies in recognition of the benefits that those policies offer. Moreover, the adoption of preferential software procurement policies favouring OSS has been held to contravene equal protection and non-discrimination laws in certain jurisdictions, including in Brazil and Belgium.3

5.2 Attached to this submission as Annexure A is a list of governments and leading institutions that have rejected preferences in software and IT procurement decisions and embraced a neutral policy based on choice and objective criteria. In particular, Microsoft draws the Committee’s attention to Australia’s participation in the APEC Technology Choice Principles Pathfinder, pursuant to which participants have agreed to “promote technology neutral policies and regulations…that will allow flexibility in the choice of technologies in order to ensure competition, maximize benefits for governments, businesses, and consumers, and bridge the development gap.”

5.3 Domestically, the federal Government has endorsed neutrality in software procurement practices. The AGIMO OSS guide referred to throughout Chapter 6 of the Committee’s Discussion Paper4 states that:

This guide is not intended to either advocate or reject OSS products…Decisions about open source software should be made according to the same metrics and decision-making processes that are used for other ICT solutions. The primary

2 McLean Sieverding Choice in Government Software Procurement: A Winning Strategy Journal of Public Procurement, Vol. 8, No. 1, pp 70-97, 2008. 3 See further Sieverding, above note 1. 4 Australian Government Information Management Office A guide to open source software for Australian Government agencies (Australian Government Department of Finance and Administration, Canberra, 2005) 23.

considerations are fitness for purpose and value for money. Agencies should consider open source software on its merits, disregarding any industry fads or novelty value.

5.4 At the state and territory levels, the commitment of the respective Australian Governments to neutral software procurement practices has generally been clear. Even before the adoption of Competition Policy Principles in the early 1990s, Australian governments of all political persuasions had recognised the economic and probity advantages of embracing neutral procurement policies across all forms of government procurement.

5.5 Microsoft notes that for a three year period between 2003 and 2006, ACT government agencies were required by statute, as far as practicable, to consider open source software.5 The provision established no formal requirements for ACT procurement officers. No discernible value or benefit was obtained by taxpayers through this measure and there was no evidence that procurement officers in any way altered their already thorough consideration of software alternatives in order to satisfy the statutory requirement. A similar provision was proposed in South Australia in 2003,6 but never enacted. Microsoft considers that these provisions constitute derogations from the general consensus among governments that a neutral procurement policy which makes no specific reference to any particular form of technology will lead to the best outcomes for governments, consumers and local economies.

5.6 Microsoft therefore submits that as part of the present inquiry, the Committee give consideration to whether the Victorian government has a neutral software procurement policy. To the extent that the Committee considers that the Victorian government has not adopted and implemented policies or practices that require or facilitate a neutral software procurement policy, Microsoft submits that the Committee recommend to the Victorian government that it take appropriate measures to do so.

6 Microsoft’s OSS strategy

6.1 Microsoft is a platform company committed to building technologies that empower communities of developers and partners to deliver compelling software solutions to customers. This approach is reflected in the size and health of the technology ecosystem in which Microsoft participates:

 750,000 partner businesses around the world and over 14,000 in Australia that build commercial opportunities and generate employment and revenue based on exploitation of some or all of the Microsoft platform technology stack; and

 5,000,000 developers around the world who have created a vast array of applications using Microsoft platform technologies such as Microsoft Windows, Windows Live, Microsoft Office, .NET platform, Microsoft Windows Server, and Microsoft Xbox.

6.2 The Microsoft OSS strategy is focused on helping customers and partners be successful in today’s heterogeneous technology world. This includes increasing opportunities for business partners regardless of their underlying development or business model. In addition, it includes increasing opportunities for developers to learn and create by

5 Government Procurement (Principles) Guideline 2002 (No 2) DI2002-58 (ACT) 6 State Supply (Procurement of Software) Amendment Bill 2003 (SA)

combining community-oriented OSS with traditional commercial approaches to software development.

6.3 By way of example, to date:

(a) developers have created more than 79,000 OSS applications using Microsoft platform technologies that are available on the Sourceforge.net and Codeplex.com repositories; and

(b) many companies who have chosen to build businesses around OSS are working with Microsoft to deliver value to our shared customers, including Sugar CRM, MySQL, Novell, Jboss, Zend, XenSource, Sun Microsystems, Mozilla, Aras, SpikeSource and Xorp.

6.4 For more information on Microsoft’s OSS projects and engagement with the OSS community, please visit http://www.microsoft.com/opensource.

7 Further consultation

7.1 Microsoft would welcome the opportunity to further discuss with the Committee the points made in this submission and to contribute to the other issues raised by the Committee in its Discussion Paper. If the Committee would like Microsoft to appear before it or respond to any further inquiries, please contact Simon Edwards, Manager Government and Industry Affairs, Australia and New Zealand, email [email protected] or phone 02 9870 2252.

Annexure A

GOVERNMENTS AND LEADING INSTITUTIONS SUPPORTING NEUTRALITY AND CHOICE IN PROCUREMENT DECISIONS

 Asia-Pacific Economic Cooperation (APEC) The APEC countries, including, among others, Australia, Canada, Chile, China, Japan, Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, the Philippines, Singapore, Thailand, the United States, and Viet Nam, have collectively recognized the importance of having a technology neutral procurement policy; and, in November 2006, adopted the APEC Technology Choice Principles, under which each of the members agreed to “promote technology neutral policies and regulations… that will allow flexibility in the choice of technologies in order to ensure competition, maximize benefits for governments, businesses, and consumers, and bridge the development gap.”

 European Union The EU Directive on Public Procurement Law establishes the principle that “[c]ontracting authorities shall treat economic operators equally and non-discriminatorily and shall act in a transparent way.” Derived from this principle, Article 23 of the directive says that “technical specifications shall afford equal access for tenderers and not have the effect of creating unjustified obstacles to the opening up of public procurement to competition.”

 United Nations

A United Nations report focused on e-government in Asia concluded that supporting the core principles of standards choice and technology neutrality will improve results and drive interoperability. The report also specifically warned of the dangers of narrow government mandates. “[T]he rigid insistence of using any particular standard may constrain a government from using old standards that respond to all previous needs as well as to new ones. Mandating a particular technology will not only prevent government from using the latest and the best but also consign it to using older and perhaps outmoded standards.”

 Argentina: City of Buenos Aires

As initially drafted, the bill that created Buenos Aires‟ Information Systems Agency included preferences for open source software and open standards, and even mandated that the city itself own any source code that operated in its IT systems. After hearing from local businesses and associations, the city reaffirmed its commitment to e-government and its new technology agency, but it removed preferences for OSS and incorporated the principle of technology neutrality.

 Belgium: After the Assembly of the French-speaking community of Brussels adopted a proposal mandating the exclusive use of open source software, the Belgian Supreme Administrative Court issued an opinion finding the proposal illegal. “The technical prescriptions… have to be necessarily determined on a case-by-case basis, according to each market, by the contracting authority itself… and not by legislative act or an implementing decree.”

 Brazil: Upholding the principles of equal treatment and non-discrimination, the Brazilian Supreme Court ruled unanimously to bar enforcement of a Rio Grande do Sul state law giving preferential treatment to open source software. The Court determined that IT procurement decisions must be made on a case-by-case basis and before-the-fact preferences were not legal.

 Canada: Canada‟s IT procurement policy (the Federated Architecture Program) seeks to ensure that “policies and guidelines do not bias one software business model over another.” To this end, the Canadian Government will “review and monitor federal procurement practices to ensure a level playing field.” Specifically, Canada‟s OSS position requires agencies and departments to base all software decisions on both their business needs and several key factors, including: (1) reduction in integration complexity, (2) security/privacy, (3) proven standards/technologies, and (4) total cost of ownership.

 Chile: ChileCompra, the Chilean national procurement agency, has established technology neutrality as a key criterion for government purchases of technology products and services, and requires that each competing bid for government contracts be analyzed on its own merits. ChileCompra‟s technology procurement directive governs more than 600 public entities of the Chilean government and expands prior executive branch guidance on technology neutrality. The directive followed passage of an official statement in the Chilean Camera de Diputados (lower house) requesting that President Michelle Bachelet apply the principle of technology neutrality to all IT acquisitions made by the executive branch of government.

 Denmark: Three levels of government in Denmark—the Danish Government (federal), Danish Regions, and Local Government Denmark—established a balanced policy supporting choice among open standards for software in the public sector. The agreement allows use of seven sets of open standards for new IT solutions, including choice between Open XML and ODF for document formats.

 Germany: The German Parliament passed a Resolution that supports competition among open standards, allows for choice among multiple open document format standards in government, and supports the protection of intellectual property rights in standards, as established by international standards organisations. Federal ministries are now developing plans to comply with the Resolution.

 Italy: Several regional governments in Italy have examined open document formats, but proposed ODF preferences have been rejected. In addition, several organizations have also rejected ODF preferences, and the National Trade Association issued a public statement in support of file format neutrality.

 Japan: In 2007, Japan issued new Guidelines for IT, which established that government contracting decisions should consider compliance with open international standards as one criterion among others. The agency drafting the rules publicly stated that the guidelines did not favor one standard over another.

 Malaysia: In November 2006, Malaysia‟s Minister of Science, Technology, and Innovation, Datuk Seri Dr Jamaludin Jarjis, announced that the Malaysian government had decided to reverse course on its OSS preference policy established in 2004, and that procurement policies henceforth would be based on merit. In explaining the government‟s elimination of OSS preferences, the Minister noted that “[t]here has been a lot of negative reaction towards open source [from the IT market] and that‟s why [choosing] the technology platform should be neutral … It‟s about choice. Let the market decide.”

 New Zealand: Under New Zealand‟s policy on software procurement, “„Value for money‟ and „fitness for purpose‟ principles should continue to underlie any software procurement decisions,” as well as issues of functionality, interoperability, and security. The State Services Commission published guide to legal issues that arise from using OSS, states that “[a]gencies should base their [procurement] decisions on the overall merits of the software concerned.”

 Peru: Before acquiring software, governmental agencies must produce a public report comparing the value of alternatives and identifying the software that best meets their needs. Peru‟s law (which marked a dramatic reversal of Peru‟s prior attempts to enact a procurement policy that would have established an express preference for OSS over proprietary software) requires that procuring entities apply the principles of technology neutrality, transparency, efficiency, and austerity when making acquisitions.

 Poland: Poland‟s National Computerization Program (NCP), which is the regulatory framework implementing the country‟s IT Act, establishes technology neutrality as a central tenet. The NCP specifically establishes neutrality to ensure equal treatment of different IT solutions by government administrators and to prevent discrimination against any vendors.

 Slovenia: Under Slovenia‟s policy, the Government “will treat open-source and proprietary software solutions equally … [and] selection of the solution will be based on the financial and functional efficiency of an individual solution.”

 Spain: The Spanish Parliament enacted legislation establishing neutral principles concerning the use of IT in government. The Electronic Access to Public Services law affirms that information should be accessible to people with disabilities, that neutrality and market-based decisions should guide the use of technologies, that open and de facto standards can be used by the Spanish Public Administration, and that no citizen shall be discriminated against due to his or her technological choices.

 United Kingdom: The UK Government‟s policy concerning the use of OSS concludes that “UK Governments will consider OSS solutions alongside proprietary ones in IT procurements. Contracts will be awarded on a value for money basis.”

 United States: U.S. Office of Management and Budget memorandum reminds agencies that the policies and procedures covering acquisition of software to support agency operations are intentionally technology and vendor neutral and, to the maximum extent practicable, implementation should be similarly neutral.

 Venezuela: A Venezuelan public procurement law asserts the principle of technological neutrality in electronic purchasing and applies to federal, state, and local governments. The law establishes the principles of transparency, efficiency, equality, and competition in the selection of providers of goods and services and also provides that the processes for electronic bidding and procurement shall be technologically neutral.

 International Chamber of Commerce: The ICC Commission on E-Business, IT and Telecoms issued a policy statement that said, in part: “ICC opposes government procurement preferences and mandates that favor one form of software development or licensing over others.” The statement advocated that governments, like all potential and

existing customers, should choose software on a technology-neutral and vendor-neutral basis, examining the merits of the technology. This provides the best range of user choice in selecting technology for their specific needs. “As a general rule, governments should not discriminate against or ban the procurement of software based on its licensing or development model. Such preferential policies prevent public authorities from effectively weighing all relevant factors in their procurement decisions.”

 Harvard Berkman Center for Internet and Society: In a 2007 report, this prestigious Harvard group determined that interoperability is achieved in multiple ways and that private sector leadership, rather than government intervention, is the best method for promoting interoperability and innovation. In a 2005 report, Berkman similarly concluded that “[t]echnology and brand neutrality in procurement specifications… reduces the possibility of vendor or technology lock-in by emphasizing choices and procurement decisions based upon what works best. It will also reduce costs, increase competition and help smaller vendors to compete. Use metrics that focus on performance characteristics, business needs and contributions that help open the ICT ecosystem.‟‟