Microsoft appears to be arguing that since the restore disks were missing, there is no way to restore windows and access the license that the computer already has.

Therefore, microsoft wants the recycler to buy a fresh copy of windows, with a new license at full price. And it's these lost sales which they appear to be complaining about.

Maybe the fact that these computers already had licenses got lot at the original trial.

It didn't "get lost". Microsoft deliberately obscured it.

[Microsoft] “testified that a free restore CD was worth the same price as a new Windows operating system with a license. … This was false and inaccurate testimony provided by Microsoft in an attempt to set a precedent that will scare away future recyclers and refurbishers from reusing computers without first paying Microsoft again for another license. … Anyone successfully extending the life cycle of computers or diverting these computers from landfills for reuse in society is essentially standing in the way of Microsoft’s profits.”

It's so absurd because for those old machines, the license is literally on a sticker on the side of the machine.

It's actually worse today since the license is tied to the CPU id, so it's not really easy to transfer it to another machine.

> Lost sales because they might have bought a new PC with Windows?

Right.

> Odds are that the PCs already came with Windows,

So? MS still gets paid.

> so maybe he installed a newer version of Windows....

No. He was making copies of the original restore disks that the original owners had discarded.

The law is the law and no doubt they helped write it, but morally MS has no case--if the original PC already had a Win license.

Yes, I completely agree.