A small lawsuit that


(MSFT) - Get Report

had buried in a Connecticut court came back to haunt the company this week in the form of punitive damages and a ruling that it recklessly deceived a tiny software maker.

U.S. District Judge Janet C. Hall ordered Microsoft to pay $1 million in damages to closely held

Bristol Technology

, a Danbury, Conn.-based company that sued for violations of antitrust law and the state's fair trade statutes. A year ago, a jury awarded compensatory damages of just $1 for the unfair trade violations and dismissed the antitrust claims.

The new ruling responds to Bristol's request for punitive damages under the state law. Hall ruled Microsoft was wanton and reckless in its licensing practices, unfairly denying access to the code for its Windows operating system.

In the intervening year, Microsoft has seen its legal fortunes fall. Another federal judge has ordered the software giant split in two for violations of U.S. antitrust law.

The Connecticut judge ruled Bristol suffered at Microsoft's hands, but she stopped short of finding antitrust violations.

"It's like salvation, having spent a year living in wonder as to why the jury hadn't taken our damage case seriously," said Patrick Lynch, a Los Angeles lawyer from the firm

O'Melveny & Myers

who represented Bristol. "We think it's also an antitrust violation. That will be something we'll deal with in our motion for a new trial."

The Connecticut rulings will not become final until either side requests, and the judge approves, a final order, which could carve the unfair trade portion of the case away from the antitrust portion. Sept. 15 is the deadline for that petition.

"We will likely appeal this ruling," said Rick Miller, a Microsoft spokesman. "Yesterday's ruling was not consistent with the jury decision of July 1999."

Microsoft proclaimed the initial verdict vindication of its licensing practices. During the trial, the Redmond, Wash. company had argued that closely held

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of Sunnyvale, Calif., licensed the same technology under the same terms that Bristol rejected, and MainSoft testified that Microsoft¿s terms were reasonable.

At issue was the 1994 WISE Agreement, a contract between the two companies named after an acronym for Windows Interface Source Environment. Bristol, founded in 1991, made a software called Wind/U, which could be installed on UNIX operating systems to enable programs designed for Microsoft's ubiquitous Windows operating system to function.

The deal was to include source code for Windows 3.1 and Windows NT 3.5, as well as "any Version Releases and Update Releases" during its three-year term. The definitions of the deal covered only versions of Windows with a numeral three before the decimal point. But Bristol said Microsoft had assured it Windows NT 4 would be included. After negotiations to replace the deal failed, Bristol sued. Microsoft quickly signed a deal with


, Bristol's top competitor.

Bristol continued to contend that Microsoft was driving it out of business by failing to provide a bridge back to the UNIX system. In closing arguments, David Tulchin, lawyer for Microsoft, characterized Bristol's claims as "the pouting of young children."

"Sue Microsoft for money," he said. "That's their business plan."

When it lost the antitrust claim, Bristol signed on to the Mainsoft licensing deal on Aug. 2, 1999. Judge Hall's ruling addresses the unfair trade claims without addressing the antitrust issues. But it sets the stage for further trial of both disputes.

In the federal antitrust action brought by the

Department of Justice

and 17 states, a federal judge has ordered the company split in two. The case is on appeal. Dozens of civil cases based on the ruling are pending, though they must prove harm to consumers despite the ruling that Microsoft practically gave away its software.

Acting on complaints from one of Microsoft's chief rivals, the

European Commission

has formally opened an antitrust case against the software company, accusing it of unlawfully extending its dominance in the market for PC operating systems to that for server operating systems.

Microsoft's shares finished trading up 38 cents at $70.81. The fine represents around 0.0106% of Microsoft's annual revenues, which were $9.42 billion last year.