June 20 (Bloomberg) -- Microsoft Corp. agreed to change the Vista operating system after Google Inc. complained the software violates a 2001 antitrust settlement by hindering its search engine.

Microsoft, the world's biggest software maker, negotiated the agreement with the U.S. Justice Department and state antitrust officials. Microsoft is barred by a court order that enforces the 2001 settlement from harming desktop software made by rival companies. Google is the owner of the world's most popular Internet search engine.

The Justice Department and the states ``are collectively satisfied that this agreement will resolve any issues the complaint may raise under the final judgments, provided that Microsoft implements it as promised,'' the agency and the states said in a joint filing yesterday in federal court in Washington.

The changes are a ``step in the right direction,'' Google chief legal officer David Drummond said in a statement yesterday. ``But they should be improved further to give consumers greater access to alternate desktop search providers.''

A desktop search engine allows users to search files, e- mails, documents and spreadsheets on their hard drives using keywords.

Default Search Program

Microsoft will create a mechanism for customers and manufacturers to select a default program to handle desktop searches, and that application will be launched whenever a new window is opened to provide search results, the filing says. Vista will continue to display search results, and Microsoft will add a link that, if clicked, will launch the default desktop search program and display its results, the filing said.

A version of the changes will be available by year's end, the filing says. Vista is the latest version of the Windows operating system, which runs on 95 percent of the world's personal computers.

Microsoft will also inform customers and manufacturers that certain mechanisms of desktop searching in Vista are designed to run in the background and give way to competing desktop search products.

The agreement was disclosed as part of a six-month status report to U.S. District Court Judge Colleen Kollar-Kotelly in Washington. A hearing is scheduled for June 26.

``We're pleased we were able to reach an agreement with all the states and the Justice Department that addresses their concerns so that everyone can move forward,'' Brad Smith, Microsoft's general counsel, said in a statement.

Trying to Close Gap

Google's stock fell $4.34 to $509.97 as of 4 p.m. in trading on the Nasdaq Stock Market. The stock has gained 11 percent this year. Microsoft shares fell 45 cents to $30.01.

Google's Web search users outnumber Microsoft's 6-to-1, and Microsoft has sought to narrow that gap for the past four years. Microsoft built its new desktop search function to keep Google's similar program from taking over that market too.

A federal appeals court in 2001 found that Microsoft illegally defended its Windows monopoly by taking steps to discourage computer makers from promoting a rival browser.

The Justice Department and state attorneys general were studying whether the problems cited by Google violated a 2001 consent decree that ended a government antitrust suit against Microsoft, Connecticut Attorney General Richard Blumenthal said June 11.

The case is U.S. v Microsoft, 98-1232, U.S. District Court (Washington).

To contact the reporter on this story: Karen Gullo in San Francisco at kgullo@bloomberg.net.

Last Updated: June 20, 2007 16:40 EDT