The ultimate insult was the reimbursement they sent him for the great distress and hardship they caused him. After, in a very real sense, holding his bag hostage for three months, they sent him a check for about............ $4.
The airline said they had about 300 bags whose tags had been ripped off. I don't think any reasonable person could justify an airline taking three months to identify 300 bags.
What are a passenger's rights? What is an airline responsible for?
Each airline has their own airline procedure. It will be either online or in the ticket jacket. I don't know if there are any DOT regulations, but most airlines are more generous than you mentioned. http://airconsumer.ost.dot.gov/publications/flyrights.htm#baggage has the rules, but they are pretty vague. It also shows action your friend can take.