Under fire for removing a Chinese journalist's postings, it sets out how it will respond to government censorship orders.
Microsoft's new MSN Spaces policy states that the company will remove content only when it "receives a legally binding notice from the government indicating that the material violates local laws" or when the content violates MSN contract terms. When it does take down content, it will only be done in the country issuing the order, and the company said it will also "ensure that users know why that content was blocked."
"We really felt a need to step back and make sure that we are being thoughtful," Microsoft general counsel Brad Smith said in a telephone interview from Lisbon, Portugal, where the new policy was announced at a forum for government leaders.
The move follows a torrent of criticism that was directed at Microsoft after it removed an MSN Spaces blog posted by Chinese journalist Zhao Jing, also known as Michael Anti.
Even some within Microsoft, including corporate blogger Robert Scoble, had spoken up in Anti's defense.
"Guys over at MSN: Sorry, I don't agree with your being used as a state-run thug," Scoble said in a blog posting of his own. "It's one thing to pull a list of words out of a blog using an algorithm. It's another thing to become an agent of a government and censor an entire blogger's work."
Microsoft had previously acknowledged that it had filtered certain words, including "democracy" and "freedom," out of its MSN page in China.
Smith said the new policy was the result of discussions inside the company as well as with government leaders and advocacy groups, including meetings he had last week at the World Economic Forum in Davos, Switzerland. Among those he met with was Mary Robinson, the former Irish president and former head of the UN Human Rights Commission.
Smith reiterated the stance taken by Microsoft, and many of its rivals, that it is better to be doing business in China under the restrictions than to boycott the country. Google, for example, last week launched a censored Chinese version of its Web site.
"We certainly think it is better for us to be present around the world rather than not," Smith said. "I emphatically think it is good for us to be offering these services. Part of being present is the obligation to comply with local law."
Smith said more dialogue is needed and added that Microsoft hopes to see the arrival of a broader, industrywide standard on how to handle government regulations.
"This is not a single-country issue, and this is not a single-company issue," Smith said. "At the end of the day, we are going to need a broad set of principles for (the) full range of Internet technology. More steps will be needed to address other technologies."
In addition to engaging in dialogue, Microsoft has been working over the past few weeks on the technology needed to allow the company to block access to a site from within one country, while allowing those in other countries to view the same content, he said.
When Microsoft does block a site, it will post a notice saying that it did so in response to a valid legal order from a local authority. Smith said the new policies will be applied "prospectively," meaning from now on, but declined to say whether Anti's blog, in particular, would be allowed to be seen from other countries.
Amnesty International representative Amy O'Meara said the human rights organization welcomed Smith's suggestion of industrywide standards for handling oppressive government regulations but felt that Microsoft's move represented only a "very small step" toward progress.
"We're pleased to see that a company like Microsoft is responsive to public concerns," she said, "but we still think there's much more to be done to ensure that companies are not complicit in the human rights abuses perpetrated by repressive regimes such as the Chinese government."
CNET News.com's Anne Broache contributed to this report