Shortly after Thanksgiving last year, Philip Gerskovich, who was deep into the design of a new digital camera for Eastman Kodak, discovered his company was headed for a collision with Microsoft. His team was developing new software to manipulate digital photos and needed to make sure it was compatible with Microsoft's latest version of Windows, the basic software that runs most new computers. An early version of Microsoft's newest software, code-named Whistler, had just arrived at Kodak's software labs. When Mr. Gerskovich and his team loaded it onto their computers, they were shocked by what they saw. When Kodak cameras were plugged into a PC loaded with Kodak software, it was Microsoft's own photo software that popped up--not Kodak's. Camera customers would have to go through a cumbersome process to get Kodak's software to pop up every time, and most would probably just use Microsoft's. More troubling, the Kodak team found that the new program steered orders for picture prints to companies that would have to pay to be listed in Windows, and that these companies also would be asked to pay Microsoft a fee on every photo sent through Windows. The Kodak team felt double-crossed. They had worked with Microsoft and the camera industry for a year on a new photo-transfer standard that allowed Windows to recognize when a camera was plugged in. Now, Kodak felt, the standard was being used against Kodak and other digital-camera makers, because it favored Microsoft's competing camera software, embedded in the planned new version of Windows.