Calif., N.Y. Call for Changes in Windows XP

In another sign that the coalition of federal and state antitrust officials may splinter over what punishment to seek for Microsoft Corp., New York and California authorities said Friday that they will insist on changes to the new Windows XP operating system.

The attorneys general of both states, which are home to Microsoft’s fiercest competitors, said in an unusual joint statement that they might seek restrictions beyond those being weighed by the Justice Department.

“It is imperative that Microsoft not have another opportunity to use Windows XP to suppress competition in emerging Internet areas,” said New York Atty. Gen. Eliot Spitzer and California Atty. Gen. Bill Lockyer.

“The states of New York and California will insist that Windows XP . . . receive close scrutiny in arriving at a judicially ordered remedy,” said the two men, both Democrats. They added, “If necessary to protect the public, [we will] press for remedies that go beyond those requested by the Department of Justice.”

The statement Friday by New York and California was not joined by the other 16 states in the landmark antitrust case.

The Justice Department and Microsoft both declined to comment on the statement. Spitzer, Lockyer and the attorneys general of Iowa and Connecticut, who have been leading the coalition of states, couldn’t be reached.

On Thursday, the Justice Department said it would no longer seek a breakup of Microsoft and instead would ask a U.S. district judge to impose restrictions on the software giant’s business tactics. At the time, the states joined the Justice Department and said they would not pursue a breakup either.

If the states begin making legal motions separate from the Justice Department, or some states file their own actions, it could complicate resolution of the case. If Microsoft’s current licensing deals with computer companies installing XP are not changed by the new federal judge overseeing the case, New York and California might file a lawsuit, people working with the officials said.

Iowa spokesman Bob Brammer said the states are united in their general view that any remedy short of a company breakup should be explored.

“We’re all together now and moving as quickly as possible toward the most effective remedy,” Brammer said. “We hope and we think we’ll be together all the way through this.”

Windows XP already is being installed in personal computers for sale next month. Only later sales probably would be affected by new rules.

Authorities have faulted XP because it comes bundled with other Microsoft programs, allowing the company to use its monopoly on desktop operating systems to move forcefully into new markets. The software includes digital photography tools, instant-messaging functions, an Internet commerce service, a music and video player and a Web-based audio communications system.

The Justice Department indicated Thursday that it will investigate XP, but said it will seek remedies modeled on an earlier judge’s proposed conduct restrictions.

Those remedies include allowing computer makers to add and remove Windows icons and programs and forbidding Microsoft to reward manufacturers that excluded the company’s competitors.

Some states said they want to make sure Microsoft ships versions of its flagship products without the add-ons or at least allows computer companies to disable those features.

Earlier in the Microsoft case, New York was lobbied by Eastman Kodak Co. and by AOL Time Warner Inc., which are based in that state.

Kodak has publicly complained that XP’s photography system steers users to Microsoft services instead of its own. And AOL, which has the most popular instant-messaging system and the No. 1 Internet access service, has the most to lose from Microsoft extending its reach in those categories.

Kodak declined to comment on any recent conversations with Spitzer’s office, and an AOL spokesman couldn’t be reached.

Big computer maker Sun Microsystems Inc. and database software firm Oracle Corp., both headquartered in California, also have been among the most vocal critics of Microsoft’s tactics.

This summer, a federal appeals court found that Microsoft illegally tried to maintain its monopoly and ordered hearings on how to punish the firm.

Attorneys for the U.S., the states and Microsoft are scheduled to file a joint memo about the remaining issues in the case by Friday, with a status hearing to be held a week after that.

Meanwhile, the states are debating how final conduct restrictions could prevent Microsoft from arguing over the interpretation of each step.

The Redmond, Wash.-based company believes the previous judge’s proposed conduct remedies should be weakened, because some of his findings of wrongdoing were overturned, a source working on the case said.

Microsoft shares fell 62 cents on Friday to close at $52.40 on Nasdaq.