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Microsoft, Kodak face off over Windows XP

The corporate behemoths exchange harsh words over the digital photography features that are built into Windows XP.

Corporate behemoths Microsoft and Eastman Kodak exchanged harsh words Tuesday over the digital photography features that are built into Windows XP, the forthcoming upgrade to Microsoft's ubiquitous operating system.

The showdown took place at an event in New York City where Microsoft and 20 companies extolled the features in Windows XP for loading, manipulating, storing and printing digital photos. Kodak, however, sought to grab the spotlight and divert it to some features of XP that it claims limit consumer choice.

"We believe that Windows XP restricts consumers' choice when it comes to digital photography applications," Kodak spokesman Anthony Sanzio said in an interview. "We also believe that Microsoft gives its own application preferential treatment...and steers consumers' transactions toward Microsoft's (offerings) or Microsoft-preferred vendors."

Microsoft spokesman Jim Cullinan countered that "Kodak is just not being forthcoming in the truth about the situation." He added that Kodak, which launched an expanded photo service with America Online on Tuesday, would like to limit consumers to its own photography software. "They want their software in Windows (XP) to basically handle everything to do with pictures."

Windows XP is scheduled to be released Oct. 25 and includes several advanced features in areas such as instant messaging, digital photography, and audio and video playback. Some of the enhancements have raised concerns among legislators, state attorneys general and competitors that Microsoft is--once again--extending its monopoly in the operating-system market to capture new markets.

"Microsoft is bound and determined to leverage its control of the desktop into making money from Web-based services," said Guernsey Research analyst Chris LeTocq. "It's saying that 'if you're in the business of capturing digital images--or anything else for that matter--we're going to roll this into formats and links that will feed our revenue streams.'"

Sen. Charles Schumer, a New York Democrat and member of the Senate Judiciary Committee, recently asked federal and state trustbusters to consider taking action that would delay Windows XP's release. He also called on Judiciary Committee Chairman Sen. Patrick Leahy, D-Vt., to hold hearings on the matter.

As for competitors, Sun Microsystems said earlier this month it was "disappointed" by Microsoft's decision not to include Java software in its Windows XP and Internet Explorer products. And AOL Time Warner failed to reach an agreement with Microsoft over including its software in Windows XP; it is working with PC manufactures to include AOL software in new PCs.

Meanwhile, Microsoft still faces an antitrust suit alleging it violated antitrust laws by leveraging its Windows monopoly to dethrone Netscape Communications as the leader in the browser market. In late June, the U.S. Court of Appeals for the District of Columbia Circuit upheld eight separate antitrust claims against the company but overturned a trial judge's decision to break the company into two pieces.

Because of this backdrop, Kodak's complaints could extend beyond a simple business dispute between two high-profile and powerful corporations.

Default lines
Kodak's concerns are focused on two areas: the ability to choose the default application for manipulating photos, and Web-based photo printing services that are built into Windows XP.

In a statement released Tuesday, Kodak said "Windows XP makes it difficult for consumers to set as the default the digital photo application of their choice."

In addition, Kodak said that Windows XP includes a list of "Microsoft-preferred" services for sending digital photos to a Web-based photo-printing service. "Microsoft plans to charge an up-front listing fee and a transaction revenue share to those companies included on this list, in effect 'taxing the Internet.'"

"We feel in essence Microsoft is attempting to take our customers and then steer them to Web sites other than Kodak and take a cut of that transaction," Sanzio said.

Without providing details, Microsoft's Cullinan acknowledged that the company is charging fees to be included on the list, but noted that consumers can add their own vendors. For example, a person could add a link for easily sending digital photos to Walgreens to be printed.

As for the ease in selecting a photo application, Cullinan countered that Kodak's own device driver defaults to Kodak software. Drivers are pieces of software that allow a PCs to recognize various peripherals such as scanners, printers or digital cameras.

According to Cullinan, Kodak's software would launch even if a camera from a different maker is plugged into the PC.

Significantly, Microsoft has "not signed off" on the driver, and the driver is not included in the current version of Windows XP, called Release Candidate 2. Although the driver could be downloaded, a dialog box will appear on the PC stating that the driver has not been tested for use with Windows XP and may not be reliable, Cullinan said.

Kodak's Sanzio concurred that the Kodak driver "works with all current version of Windows, but it doesn't work with Windows XP."

"We have asked Microsoft whether they would sign our driver and they have told us 'no,' they would not. Microsoft has given us no indication of why they would not sign (the driver), nor have they have given us indication of the requirements."

Sanzio added that "when the camera was connected and pictures were transferred, it would launch our application and that's the only time we're asking that our application be the default--is when it's a Kodak camera that's connected."

Sanzio was unsure if the Kodak software launches if a non-Kodak camera is connected. "To my knowledge, it would not do that." If it does, "that's not our intent."

Kodak is still hopeful of getting the driver included in Windows XP. "We will officially submit our driver to Microsoft later this week," Sanzio said.

However, Cullinan indicated time is running out. "The product is pretty much closed," he said. Kodak is free to work with PC makers to include the driver, he said, much in the way that AOL is doing for its software.

News.com's Evan Hansen and Gwendolyn Mariano contributed to this report.