What are the specific respsonsibilities an airline has for delayed baggage?

A friend of mine flew on December 17, the day the airlines got spooked and suddenly forced everyone to check their carry on baggage. My friend had everything important in his carry on: laptop, phone, etc. The airline did not locate his suitcase for over THREE MONTHS. Previously, he even tried going to the airline in an attempt to identify his bag. They refused to allow him to show them which bag was his.

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.