He's back. No, I'm not talking about Arnold in Terminator 3 (although don't you wish!). I'm referring to the bully boy of the software world, Microsoft Corp. The belligerent software giant is like the tough kid on the block who, after years of being reprimanded, kept after school, and even threatened with time in the boys' reformatory, keeps returning to the same neighborhood to beat up the other kids. And make no mistake, we're not talking about simple truancy here. Microsoft has been branded a monopolist by two federal courts. Time and again the company has used its 90%-plus Windows software monopoly to promote other products to the detriment of would-be competitors such as the former Netscape Communications, which didn't enjoy such powerful access to millions of potential customers. You may remember Netscape -- the company that virtually created the Internet browser market and at one point had an 80% share of that business. Well, Netscape, later suffering from a hemorrhaging of market share to Microsoft's Internet Explorer Web browser, finally threw in the towel and was acquired by America Online in 1999. The federal appeals court remanded to a lower court the question of whether Microsoft illegally incorporated the Explorer Web browser into Windows. Microsoft sees nothing wrong with its business activities, then or now. In fact, this "kid" last year publicly thumbed his nose at the federal judicial process. When the entire nation witnessed a videotape deposition of the wealthiest man in the world, Microsoft CEO Bill Gates, responding to simple questions with his own evasive counter-questions about what the questioner implied by some very simple terms, the real definition of corporate insolence became clear. Other Microsoft executives were caught being less than candid in their testimony. These people not only just don't get it, they don't believe anybody has the right to tell them what "it" is. As the Los Angeles Times put it, the appeals court's "unanimous decision solidly defines Microsoft as little more than a gang of thugs whose contempt for the law is exceeded only by its hubris." Arrogance is nothing new to the world of business and government. Plenty of chieftains -- both corporate and public -- have believed themselves so powerful as to be above and beyond what they perceived as the impotent reach of the law. And the law is what the U.S. and 18 state attorney generals vs Microsoft is all about. Free enterprise doesn't entitle the biggest company on the block to pull switchblades and brandish brass knuckles to beat the competition. That's why there are laws against corporations fixing prices, paying bribes to get business, and using their monopoly to further extend their already unfair advantage to other markets. There are a number of solid indications that Microsoft fully plans to continue its bully-boy behavior with its forthcoming products. For instance, in the planned new version of Windows, Microsoft set up the system so that its own digital camera software is favored, to the detriment of Eastman Kodak Co. The manufacturer of film and digital cameras had worked with the software giant to make sure its new camera would be compatible with the latest edition of Windows, only to find that Microsoft plans to charge consumers a fee for every photo sent to film processors via Windows. And the new Windows XP reportedly contains some of the same tactics ruled illegal by the appeals court, according to judicial and software experts. That fact alone may lead the government to seek an injunction against the release of the new product, they say. The only thing left open in the latest ruling by a federal appeals court is what sort of penalty or corrective action will be needed to prevent the overreaching software giant from continuing to act like a corporate delinquent. Apparently the federal appellate judges didn't see sufficient merit for consumers in a breakup of the company, or else they felt it was a remedy that went too far. That may be good judgment, in this case. Unlike the situation that existed prior to AT&T's breakup by the government years ago, Microsoft's product franchise is not as easily separated as the birthing of Baby Bells from a larger corporate underbelly. The Windows operating system and applications, as well as Windows CE for handheld devices, not to mention the browser business, stretch far and wide across business and consumer desktops. Plus, the company has a large and growing entertainment-oriented business that is only going to expand when it plunges full-bore into the lucrative game hardware/software market later this year. The problem with Microsoft is its behavior, not its structure or products. This is why finding a solution -- i.e., an effective remedy -- will be particularly trying for the courts. Among the solutions that have been put forward is the possibility of requiring Microsoft to allow other software firms to make their products available on its platform. In other words, imagine that Windows serves as a pipeline to a nation of subscribers to various services. Competing software companies would be able to run their wares through that conduit to make them available to consumers and businesses. In the interim, Microsoft's rollout of its .Net initiative now looks to be in jeopardy. Similarly, its pending launch of Windows XP appears clouded, given all the concerns that exist over whether the new software further entrenches Microsoft's "bundling" of services strategy. According to his statement following the ruling, Microsoft chairman and chief software architect Bill Gates disagrees. "Today's decision is consistent with our ability to go forward with these crucial and innovative products," he said. "There is nothing in today's ruling that changes our plans for our future products, including Windows XP." That may be, but it's unlikely Microsoft will be permitted to operate with a "business as usual" attitude. Besides portending the likelihood of sanctions against the company, the federal appeals court decision strengthens the case of other plaintiffs seeking redress for what they claim was anticompetitive behavior on the part of Microsoft that damaged their business. Sure, it may look as if the tough kid has avoided being sent to reform school. But it's really more like the neighborhood has forced him to wear a "bully" sign around his neck until it can think of a way to make him behave. Doug Bartholomew is a senior technology editor for IW. He is based in San Francisco .