Microsoft will sell its stake in AnyVision, an Israeli facial recognition start-up, and said it no longer would make minority investments in companies that sell the controversial technology.
The decision marks a policy change for the Redmond, Washington-based software maker, which has aimed to shape how the technology industry approaches facial recognition. Microsoft has laid out principles to guide its own development of the technology, saying it should perform without bias and must not impinge on democratic freedoms.
Civil liberties groups have said police use of facial recognition could lead to unfair, arbitrary arrests and limit freedom of expression.
Microsoft came under scrutiny last summer for participating in a U.S.$74 million funding round for AnyVision, which critics said contradicted the company's principles.
AnyVision, based outside Tel Aviv, came under scrutiny following media reports that its technology was used to surveil Palestinians who lived in the occupied West Bank. Microsoft later hired former U.S. Attorney General Eric Holder and a team from Covington & Burling to investigate the claims.
The law firm found that AnyVision's technology was in use at checkpoints in border crossings between Israel and the West Bank -- as the startup had said -- but that it had not fueled a mass surveillance program there, according to a copy of the audit's findings posted on the website of M12, Microsoft's venture fund.
Even so, Microsoft said that as a result of the probe it decided to exit the business of investing in facial recognition startups altogether.
"For Microsoft, the audit process reinforced the challenges of being a minority investor in a company that sells sensitive technology, since such investments do not generally allow for the level of oversight or control that Microsoft exercises over the use of its own technology," Microsoft and AnyVision said in a joint statement posted on M12's website.
Microsoft did not have a timeline to share for when the divestment will occur and who will buy its stake, a spokesman said. It was not immediately clear if other M12 investments were impacted by the policy change.
AnyVision did not immediately comment.
While Microsoft has turned down some facial recognition sales on human rights grounds, such as declining a deal for the capital city of a country that nonprofit Freedom House said was not free, it continues to develop the software for other commercial and public sector uses.
Microsoft said there was no change to its internal work on facial recognition.
(Reporting by Jeffrey Dastin in San Francisco and Munsif Vengattil in Bengaluru; Editing by David Gregorio and Leslie Adler)