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Section I (Attempt only Two case studies)
Section II (Attempt only 5 question.)
Section I
Case – 1:- GlaxoSmitbKine, Bristol – Myers Squibb, and AIDS in Africa
In 2004, the United Nations estimated that the previous year 5 million more people around the world had contracted the
AIDS virus, 3 million had died, and a total of 40 million people were living with the infection. Seventy percent, or about 28
million of these, lived in sub – Saharan Africa, where the epidemic was at its worst. Sub – Saharan Africa consists of the 48
countries and 643 million people who reside south of the Saharan desert. In 16 of these countries, 10 percent are infected
with the virus, in 6 other nation, 20 percent are infected. The UN predicted that in these 6 nations two – thirds of all 15 – year
olds would eventually die of AIDS and in those where 10 percent were infected, half of all 15 – year – olds would die of
AIDS.
For the entire sub –Saharan region, the average level of infection among adults was 8.8 percent of Botswana‟s
population was infected, 34 percent of Zimbabwe‟s, 31 percent of Lesotho‟s, and 33 percent of Swaziland‟s. Family life had
been destroyed by the deaths of hundreds of thousands of married couples, who left more than 11 million orphans to fend for
themselves. Gangs and rebel armies forced thousands of orphans to join them. While crime and violence were rising,
agriculture was in decline as orphaned farm children tried desperately to remember had to manage on their own. Labor
productivity had been cut by 50 percent in the hardest – hit nations, school and hospital systems were decimated, and entire
national economies were on the verge of collapse.
With its huge burden of AIDS illnesses, African nation desperately needed medicines, both antibiotics to treat the many
opportunistic diseases that strike AIDS victims and HIV antiretrovirals that can indefinitely prolong the lives of people with
AIDS. Unfortunately, the people of sub – Saharan Africa could not afford the prices that the major pharmaceutical drug
companies charged for their drugs. The major drug companies, for example, charged $10,000 to $ 15,000 for a year‟s supply
the antiretrovirals they marketed in the United States. Yet the average per –person annual income in sub – Saharan Africa
was $500. The AIDS crisis in sub – Saharan Africa posed a major moral problem for the drug companies of the developed
world: How should they respond to the growing needs of this terribly destitute region of the world? These problems were
especially urgent for the companies that held patents on several AIDS antiretrovirals, such as GlaxoSmithKline and Bristol-
Myers Squibb.
GlaxoSmithKline, a British pharmaceutical company founded in 1873, with 2003 revenues of $38.2 billion and profits
of $8 billion, held the patents to five antiretrovirals it had created. Formed from the merger of three large drug companies
(Glaxo, Burroughs Wellcome, and SmithKline Beecham), it was one of the world „s largest and most profitable companies.
Bristol – Myers Squibb, an American pharmaceutical company founded in 1858, was also the result of mergers (between
Squibb and Bristol – Myers). It had 2003 profit of $$3.1 billion on revenues of $20.8 billion ad had created and now held the
patents to two antiretrovirls.
Although AIDS was first noticed in the United State in 1981 when the CDC noted an alarming increase of a rare
cancer among gay man, it is now known to have afflicted a Bantu male in 1959, and possibly jumped from monkeys to
humans centuries earlier. In 1982, with 1,614 diagnosed cases in the United State, the disease was termed AIDS (for
“acquired immune deficiency syndrome”), and the following year French scientists identified HIV (Human
Immunodeficiency Virus) as its cause.
HIV is a virus that destroys the immune system that the body uses to fight off infections and diseases. If the immune
system breaks down, the body is unable to fight off illnesses and becomes afflicted with various “opportunistic diseases “-
infections and cancers. The virus, which can tack up to 10 year to break down a person‟s immune system, is transmitted
through the exchange of body fluids including blood, semen, vaginal fluids, and breast milk.
The main modes of infection are through unprotected sex, intravenous drug use, and child birth. In 1987, Burroughs
Wellcome (now part of GlaxoSmithKline) developed AZT, the first FDA-approved antiretroviral, that is, a drug that attacks
the HIV virus itself. When wellcome priced AZT at $10,000 for a year‟s supply, it was accused of price gouging, forcing a
price reducing of 20 percent the following year. In 1991, Bristol- Myers Squibb developed didanosine, a new class of
antiretroviral drug called nucleoside reverse transcriptase inhibitors. In 1995, Roche developed saquinavir, a third new class
of antiretroviral drug called a protease inhibitor, and the following year Roxane Laboratories announced nevirapine, another
new class of antiretrovirals called nonnucleoside reverse transcriptase inhibitors . By the middle 1990s, drug companies had
developed four distinct classes of antiretrovirals, as several drugs that attacked the opportunistic diseases that afflict AIDS
patients.
In 1996, Dr. David Ho was honored for his discovery that by taking a combination- a “cocktail”- of three of than four
classes of antiretroviral drags, it is possible to kill off virtually all of than HIV virus in a patient‟s body, allowing the immune
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system to recover, and thereby effectively bringing the disease into remission. Costing upwards of $20,000 a year (the
medicines had to be taken for the rest of the patient‟s life), the new drug treatment enabled AIDS patients to once again live
normal, healthy lives. By 1998, the large drug companies would have developed 12 different antiretroviral drugs that could
be used in various combination to from the “cocktails” that could bring the disease into remission. The combination drug
regimes, however, were complicated and had to be exactly adhered to. Several dozen pills had to be taken at various specific
times during the day and night, every day, or the treatment would fail to work and the patient‟s HIV virus could be come
resistant to the drugs. If the patient then spread the disease to others, it would give rise to drug – resistant version of the
disease. To ensure patients were carefully following the regimes, doctors or nurses carefully monitored their patients and
made sure patients took the drugs on schedule. In 1998, as more U.S AIDS patients began the new combination drug
treatment, the number of annual AIDS deaths dropped for the fist time in the United states.
Globally, however, the situation was not improving. By 2000, according to the United Nations, there were
approximately 5 million people who were being newly infected with AIDS each year, bringing the worldwide total to about
34,300,000, more than the entire population of Australia. Approximately 3,000,000 adults and children died of AIDS each
year.
The price of the new combination antiretroviral treatment limited the use of these drugs to the United States and other
wealthy nation. Personal incomes in sub – Saharan Africa were too low to afford what the combination treatments cost at the
point. Yet the countries of sub – Saharan Africa were emerging as the ones most desperately in need of the new treatment. Of
the 5 million annual new cases of ADIS, 4 million -70 percent – were located in sub- Saharan countries.
Numerous global health and human rights groups – such as Oxfam – urged the large drug companies to lower the
prices of their drugs to levels that patients in poor developing nations could afford. By 2001, a combination regime of three
antiretroviral AIDS drugs still cost about $10,000 a year. Although the formulas for making the antiretroviral drugs were
often easy to obtain, few poor countries had the ability to manufacture the drugs, and in most nations that had the capacity to
manufacture drugs the large drug companies of the developed world had obtained “patents” that gave them the exclusive
right to manufacture those drugs in effect making the drug formulas the private property of the large drug companies.
GlaxoSmithKline, Bristol – Myers Squibb, and the other big drug companies did not at this time want to lower their
prices. First, they argued that it was better for poor countries to spend their limited resources on educational programs that
might prevent new cases of AIDS than on expensive drugs that would merely extend life for the small number of patients that
might receive the drugs. Second, they argued that the combination drug “cocktails” had to be administered by hospitals,
clinics, doctors, or nurses who could monitor patients to make sure they were taking the drugs according to the prescribed
regimes and to ensure that drug- resistant versions of the virus did not develop. But most AIDS patients in developing nations
such as those in sub-Saharan Africa, the big drug companies argued, had limited access to medical personnel. Third, they
argued, the development of new drugs was extremely expensive. The cost of the research, development, and testing required
to bring a new drug to market, they claimed, was between $100 million. Besides the research involved, new drugs had to be
tested in three phases: Phase I trials to test for initial safety: Phase II trials to test to make sure the drugs work: and Phase
III trials that were wide-scale tests on hundreds of people to determine safety, efficacy, and dosage. If the big drug companies
were to recover what they had invested in developing the drugs they marketed, and were to retain the capacity to fund new
drug development in the future, they argued, they had to maintain their high prices. If they started giving away their drugs,
they would stop making new drugs. Finally, the drug companies of the developed nations feared that any drugs they
discounted or gave away in the developing world would be smuggled back and sold in the United States and other developed
nations.
Critics of the drug companies were not convinced by these arguments. Doctors Without Borders- a group of
thousands of doctors who contributed their services to poor patients in developing nations around the world- said that
although prevention programs were important, never- the less hundreds of thousands of lives-even millions-could be saved if
drug companies lowered their antiretroviral and opportunistic disease drug prices to levels poor nations could afford.
Moreover, a September 2003 report by the International AIDS Society stated that studies in Brazil, Haiti, Thailand, and
South Africa showed that patients in remote rural areas adhered exactly to their drug regimes with the help of low-skilled
paramedics and that the development of resistance was not a major problem. In fact, in the United States 50 percent of AIDS
patients had developed drug resistance but only 6.6 percent of AIDS patients studied in developing nations had developed
resistance. By now, some of the antiretroviral combination treatments were being combined into blister packs that were
easier to administer and monitor.
Other critics challenged the financial arguments of the drug companies. The cost estimates of new drug development
used by the drug companies, they claimed, were inflated. For example, the figure of $500 million that drug companies often
cited as the cost of developing a new drug was based on a study that inflated its cost estimates by doubling the actual out-ofpocket
costs companies invested in a drug to account for so-called “opportunity” costs (what the money would have earned if
it had been invested in some other way). Moreover, these cost estimates assumed that the drug was being developed from
scratch, when in fact most of the new drugs marketed by companies were based on research for other drugs already on the
market or on research conducted by universities, government, and other publicly funded laboratories. Critics also questioned
whether companies would be driven to stop investing in new drugs if they lowered the pries of their AIDS drugs. Since 1988
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the average return on equity of drug companies averaged an unusually high 30 percent a year. Public Citizen, in a report
entitled “2002 Drug Industry Profits,” noted that the ten biggest drug companies had total profits in 2002 of $35.9 billion,
equal to more than half of the $69.6 billion in profits netted by all other companies in the Fortune 500 list of companies (the
500 largest U.S. companies). The ten big drug companies made 17 cents for every dollar of revenue, while the median
earnings for other Fortune 500 companies was 3.1 cents per dollar of revenue; the return on assets of the big companies was
14.1 percent while the median for other companies was 2.3 percent. During the 1990s, the big drug companies in the Fortune
500 had a return on revenues that was 4 times the median of all other industries, and in 2002 it was at almost 6 times the
median. Finally, the report noted, while the big drug companies spent only 14 percent of their revenues on drug research,
they plowed 17 percent of their revenues into profit and 31 percent into marketing and administration. GlxoSmithKline itself
had a 2003 profit margin of 21 percent, a return on equity of 122 percent, and a return on assets of 26 percent; Bristol-Myers
Squibb had a profit margin of 19 percent, return on equity of 36 percent, and return on assets of 14 percent. These figures,
critics argued, showed that it was well within the capacity of the big drug companies to lower prices for AIDS drug to the
developing nations, even if a small portion of these drug ended up being smuggled back into the United States.
GlaxoSmithkline, Bristol-Myers Squibb, and the other big drug companies, however, held their ground. Throughout
the 1990s, they had lobbied hard to ensure that governments around the world in the medicines they had created. Before
1997, countries had different protection on so-called “intellectual property” (intellectual property consists of intangible
property such as drug formulas, designs, plans, software, new inventions, etc.) some countries, like the United States, gave
drug companies the exclusive right to keep anyone else from making their newly invented drug for a period of 15-20 year
(this right was called a “patent”); other countries allowed companies fever year of protection for their patents, and many
developing countries (where little research was done and where few things intellectual property as something that belonged
to everyone and so something that should not be patented. Some countries, like India, offered patents that protected the
process by which a drug was made but allowed others to make the same drug formula if they could figure out another process
by which to make it.
Arguing that research and development would stop if new invention such as drug were not protected by strong laws
enforcing their patents, GlxoSmithKline, Bristol- Meyers Squibb, and the other major drug companies intensely lobbied the
World Trade Organization (WTO) to require all WTO members to provide uniform patent protections on all intellectual
property. Pressured by the governments of the large drug companies (especially the United States), the WTO in 1997 adopted
an agreement known as TRIPS, shorthand for Trade-Related aspects of Intellectual Property rights. Under the TRIPS
agreement, all countries that were members of the WTO were required to give patent holders (such as drug companies)
exclusive right to make and market their inventions for a period of 20 yea in their countries. Developing countries like India,
Brazil, Thailand, Singapore, China, and the sub – Saharan nation-were give until 2006 before they had to implement the
TRIPS agreement. Also, I a “national emergency” WTO developing countries could use “compulsory licensing” to force a
company that owned a patent on a drug to license another company in the same developing country to make a copy of that
drug. And in a national emergency WTO developing countries could also import drug from foreign companies even if the
patent holder had not licensed those foreign companies to make the drug. The new TRIPS agreement was a victory for
companies in developed nation, which held patents for most of the world‟s new inventions, while it restricted developing
nation whose own laws had earlier allowed them to copy these inventions freely. The big drug companies were not willing in
2000 to surrender their hard-won 1997 victory at the WTO.
Because the AIDS crisis was now a major global problem, the United Nation in 2000 launched the “Accelerated
Access Program,” a program under which drug companies were encouraged to offer poor countries price discounts on their
AIDS drug. GlaxoSmithKline and then Bristol-Myers Squibb joined the program, but the price discounts they were willing to
make were insufficient to make their drug affordable to sub-Saharan nations, and only a few people in few countries received
AIDS drug under the program.
Everything changed in February 2001 when Cipla, an Indian drug company, made a surprise announcement: It had
copied three of the patented drug of three major pharmaceutical companies (Bristol-Myers Squibb, GlxoSmithKline, and
Boehringer Ingelheim) and put them together into a combination antiretroviral course of therapy. Cipla said it would
manufacture and sell a year‟s supply of its copy of this antiretroviral “cocktail” for $350 to Doctors Without Borders. This
was about 3 percent of the price the big drug companies who held the patents on the drugs were charging for the same drugs.
GlxosmithKline and Bristol-Myers Squibb objected that Cipla was stealing their property since it was copying the
drug that they had spent million to create and on which they still held the patent. Cipla responded that its activities were legal
since the TRIPS agreement did not take effect in India until 2006, and Indian patent low allowed it to make the drugs so long
as it used a new “process.” Moreover, Cipla claimed, since AIDS was a national emergency in many developing countries,
particularly the sub-Saharan nations, the TRIPS agreement allowed sub-Saharan nation to import Cipla „s AIDS drugs. In
August 2001, Ranbaxy, another Indian drug company, announced that it, too, would start selling a copy of the same
antiretroviral combination drug Cipla was selling but would price it at $295 for a year‟s supply. In April 2002, Aurobindo,
also an Indian company, announced it would sell a combination drug for $209. Hetero, likewise an Indian company,
announced in March 2003 that it would sell a combination drug at $201. By 2004, the Indian company were producing
versions of the four main drug combination recommended by the World Health Organization for the treatment of AIDS. All
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four combination contained copies of one or two of GlaxoSmithKline‟s patented antiretroviral drugs and two of the
combination contained copies of Bristol-Meyer Squibb‟s patented drugs.
The CEO of GlaxoSmithKline branded the Indian companies as “pirates” and asserted that what they were doing
was theft even if they broke no laws. Pressured by the discounted prices of the Indian companies and by world opinion,
however, GlaxoSmithKline and Bristol-Myers Squibb now decided to further discount the AIDS drugs they owned. They did
not, however, lower their prices down to the levels of the Indian companies; their lowest discounted prices in 2001 yielded a
price of $931 for 1-year supply of the combination of AIDS drugs Cipla was selling for $350. In 2002 and 2003, new
discounts brought the combination down to $727, still too high for most sub-Saharan AIDS victims and their government.
With little to impede its progress, the AIDS epidemic continued in 2994. Swaziland announced in 2003 that 38.6
percent of its adult population was now infected with AIDS. THE United Nation estimated that every day 14,000 people
were newly infected with AIDS. The World Health Organization announced that only 300,000 people in developing
countries were receiving antiretroviral drugs, and of the 4.1 million people who were infected in sub-Saharan Africa only
about 50,000 had access to the drugs. The World Health Organization announced in 2003 that it would try to collect from
governments the funds needed to bring antiretrovirals to at least 3 million people by the end of 2005.
Questions
1. Explain, in light of their theories, what Locke, Smith, Ricardo, and Marx would probably say about the events in
this case.
2. Explain which view of property-Locke‟s or Marx‟s- lies behind the positions of the drug companies
GlaxoSmithKline and Bristol-Myers Squibb and of the Indian companies such as Cipla. Which of the two group-
GlaxoSmithKline and Bristol-Myers Squibb on the one hand, and the Indian companies on the other –do you think
holds the correct view of property in this case? Explain your answer.
3. Evaluate the position of Cipla and of GlaxoSmithKline in terms of utilitarianism, right, justice, and caring. Which of
these two positions do you think is correct from an ethical point of view?
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Case – 2:- Playing Monopoly: Microsoft
On November 5, 1999, then the richest man in the world, learned that a federal judge, Thomas Jackson, had just issued
“findings of fact” declaring that his company, Microsoft, “enjoys monopoly power” and that it had used its monopoly power
to “harm consumers” and crush competitors to maintain its Windows monopoly and to establish a new monopoly in Web
browsers by bundling its Internet Explorer with Windows. On the day the judgment was issued, Microsoft stock began its
decline. The decline was hastened by an announcement in February 2000 that the European Commission, which enforces
European Union lows on competition and monopolization, had been investigating Microsoft‟ anticompetitive practices in
server software since 1997 and was extending its investigation to look into Microsoft‟s bundling of its Windows Media
Player with Windows. Two months later, on April 3,2000,U.S. judge Thomas Jackson issued a second verdict, concluding on
the basis of his earlier findings of fact that Microsoft had violated U.S. antitrust low and was subject to the penalties allowed
by the low. The price of Microsoft stock plunged, bringing the entire stock market down with it. Two short months later, on
June 7,2000, Judge Jackson ordered that Microsoft should be broken up into two separate companies-one devoted to
operating systems and the other to applications such as word processing, spreadsheets, and Web browsers. With the price of
Microsoft stock now skidding, Gates, who was no longer the richest man in the world, vowed that Microsoft would appeal
this and any similar verdict and would never be broken apart.1
Bill Gates was born in 1955 in Bremerton, Washington. When he was 13 years old, his grammar school acquired a
computer terminal, and by the end of the year he had written his first software program (for playing tictac-toe). During high
school, he held a few entry-level programming jobs. Gates enrolled in Harvard University in 1974, but quickly lost interest in
classes and quit to start a software business in Albuquerque, New Mexico, with a friend, Paul Allen, whom he had known
since grammar school in Seattle. At the time, the first small but primitive personal computers were being manufactured as
kits for hobbyists. These computers, like the Altair 8080 computer (which used Intel‟s new 8080 microprocessor, had no
keyboard, no screen, and only 256 bytes of memory), had no accompanying software and were extremely difficult to
program because they had to use “machine code” (consisting entirely of sequences of zero and ones), which is virtually
incomprehensible to humans. Gates and Allen together revised a program called BASIC (Beginner‟s All – Purpose
Symbolic Instruction Code, a program written several years earlier by two engineers who gave it away for free), which
allowed users to write their own programs using an understandable set of English instructions, and they adapted it so that it
would work on the Altair 8080. They sold the adaptation to the maker of the Altair 8080 for $3,000.
In 1977, Apply Computer marketed the first personal computer (PC) aimed at consumers, and by 1978, more than 300
dealers were selling the “Apply II.” That year, Gates and Allen began writing software programs for the Apply II, renamed
their company Microsoft, and moved it to Seattle, where, with 13 employees, it ended the year with revenues of $1.4 million.
In 1979, two hobbyists developed VisiCalc, the first spreadsheet program, for the Apply II, and Microsoft developed MS
Word, a rudimentary word processor for the Apply II. With these new software “applications,” sales of the Apply II took off
and the personal computer market was born. By 1980, Microsoft, which continued writing programs for the growing personal
computer market, had earning of $8 million.
In 1980, IBM belatedly decided to enter the growing market for personal computers. By now many other companies
had flocked into the PC market, including Radio Shack, Commodore, COMPAQ, AT&T, Xerox, DEC, Data General, and
Wang. By 1984, some 350 companies around the world would be making PCs. Because IBM needed to enter the market
quickly, it decided to assemble its computer from components that were readily available on the market. A key component
that IBN needed for its computer was an operating system. An operating system is the software that allows application
programs (like a world processor, spreadsheet, browser, or game) to run on a particular machine. Every computer must have
an operating system or it cannot run any application programs. The operating system coordinates the various components of
the computer (keyboard inputs, monitor, printer, ports, etc. and contains the application programming interface (API), which
consists of the codes that application use to “command” the computer to carry out its function. Application programs, such as
a games or world processors, are written so that they will run on a specific operating system by making use of that operating
system‟s API to make the computer carry out the program‟s commands. Unfortunately, a program written for one operating
system will not work on another operating system. Most of the companies making PCs had developed their own operating
systems, although several made use of one called CP/M, which was written to work on many different computers,
applications developed to run on CP/M. This meant that an application did not have to be rewritten for each different kind of
computer, but could be written once for CP/M and would then on any computer using CP/M.
IBM needed an operating system quickly and approached the maker of CP/M for a license to use CP/M but was turned
down. The somewhat desperate IBM representatives then met with Bill Gates to ask whether Microsoft had one available.
Although Microsoft at the time did not own an operating system, Bill Gates told IBM that he could provide one to them.
Immediately after the IBM meeting, Bill Gates went to a friend who he knew had written an operating system that was a
“knock-off of CP/M” and that could work on the computer IBM was planning. Without telling his friend about the meeting
with IBM, Gates offered to buy his friend‟s operating system for $60,000. The friend agreed. After some tweaking, Microsoft
licensed the system to IBM as MS-DOS, with the proviso that Microsoft could also license MS-DOS to other computer
manufactures. When IBM started mass-producing its personal computer in 1981 (IBM‟s share of the market went froe
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nothing in 1981, to 10 percent in 1983, and 40 percent in1987) and other computer makers began producing copies of IBM‟s
computer, MS-DOS become the standard operating system for personal computers built according to IBM‟s standards. Bill
Gates‟s company was on its way to becoming a billion-dollar firm.
Because an application program has to be written to work on a specific operating system, and because so many
personal computers were now using the MS-DOS operating system, software companies were much more willing to created
programs for the large market of MS-DOS users than for the much smaller numbers of people using other competing
operating system numbers of people using other competing operating systems. As thousands of new software programs were
developed for MS-DOS-including Microsoft‟s own spreadsheet, Multiplan, and its word processor, MS Word even more
people adopted MS-DOS, initiating what economists call a network effect. A product creates a network effect when the value
of the product to a buyer depends on how many other people have already bought the product. A standard example of a
product that creates a network effect is a communication network like a telephone network. The more people that are
connected to a telephone network, the more valuable it will be for a new subscriber to be connected to the network since he
can communicate with more people. Many products besides communication networks can give rise to network effects,
including, of course, operating systems. The more people that own an operating system, the more that software companies
are willing to write programs for that operating system. The more software program they write for the operating system, the
more people want to buy that operating system. Because of this network effect, the proportion of computers using MS-DOS
quickly increased, and the proportion of computers using other operating systems (such as CP/M, Apply computer‟s, or
Atari‟s or commodore‟s) declined.
However, in 1984, Apple Computer developed an innovative new operating system for its own computers that used
intuitive graphics or pictures that let users issue commands to the computer by selecting icons and pull-down manus on the
screen using the mouse. The new operating system was tremendously popular, and Apple sales began to climb. In 1987,
however, Microsoft began selling Windows, a new operating system for IBM-compatible computers that copied Apple‟s
operating system. Unlike MS-DOS, which had used obscure combinations of characters to issue commands to the computer,
Windows used graphics that were similar to Apple‟s, had virtually the same pull-down menus and icons, and the same usage
of the same mouse. Apple sued Microsoft on the grounds that, in copying the “look and feel” of their operating system,
Microsoft had stolen a key piece of their copyrighted property. Apple lost the suit and, with the loss of its key software
advantage, its market share withered away.
Although early versions of Windows were not very good quality improved over the years. In 1995 Microsoft issued
Windows 95, in 1998 it issued windows 98, in 2000 it issued the Millennium version of Windows, and two years later it
issued Windows XP. The next version of Windows was code-named “Longhorn.” As the new millennium began, Microsoft
controlled 90 percent of the personal computer operating system market-a virtual monopoly- and Bill Gates was fabulously
rich. .
In the early 1990s, however, two threats to Microsoft‟s monopoly had emerged.2 one was Netscape, an Internet
browser, and the other was Java, a programming language. The Internet is a network through which digital information,
pictures, sounds, text, and other digital data can be sent from one computer to another. To make these data usable, a user‟s
computer must be connected to the Internet and must have a software program called a browser. The browser takes the digital
data that come through the Internet and transforms them into an intelligible picture or text that can be displayed on the user‟s
computer screen or into a sound that can be played on the computer‟s speakers. However, a browser is not only capable of
interpreting digital data that come over the Internet, it can also execute the instructions of software programs, whether those
programs are sent over the Internet or reside in the user‟s own computer. In this respect, a browser functions much like an
operating system. Some people predicted that someday every computer might rely on a browser instead of an operating
system to run software programs. Although the browser would still need some rudimentary operating system to run, this
operating system did not have to be Windows. Windows could become obsolete. Netscape, a company that began selling a
browser named Navigator on December 15, 1994, quickly captured 70 percent of the browser market. In May 1995, Bill
Gates wrote an internal memo to his executives, warning:
A new competitor “born” on the Internet is Netscape. Their browser is dominant, with a 70% usage share, allowing
them to determine which network extension will catch on. They are pursuing a multi-platform strategy where they move the
key API [applications programming in derlying operating system.]
In addition to the browser threat, Microsoft was also worried about Java, a programming language that Sun
Microsystems, a manufacture of computer hardware and software, had developed in May 1995. programs that are written in
the Java language can operate on any computer equipped with java software, regardless of the operating system the computer
used. In this respect, java software also could function like an operating system and also threatened to make Widows
obsolete. In an internal memo, a Microsoft senior executive stated that Java was “our major threat,” and in September 1996,
Bill Gates wrote an e-mail saying, “This scares the hell out of me,” and asked manager a to make it a top priority to
neutralize Java.
To make matters worse, Java and Netscape joined forces. Netscape agreed to incorporate the Java software into its
Navigator browser so that any programs written in Java would work on a computer that was using Netscape. This meant that
short programs written in Java could be sent over the Internet and then run on the user‟s computer through its Netscape
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browser. This also meant that Java programs did not need windows, but could run on any computer using any operating
system so long as it was also using Netscape‟s Navigator Browser. Because Java was now being distributed together with
Netscape, the number of computers equipped with Java rapidly multiplied. A Microsoft had become the “major distribution
vehicle” for Java.
According to the “findings of fact” accepted by the judge presiding over the” major distribution vehicle” for Java.
According to the “findings of fact” accepted by the judge presiding over the Microsoft antitrust trial, Microsoft quickly
embarked on a campaign to undercut the threat that Netscape now posed to its monopoly. First, a team of Microsoft
executives met with Netscape‟s executives in June 1995. Microsoft‟s people proposed that Microsoft should provide the
browser for Windows computers while Netscape should provide browsers for all other computers essentially the 10 percent
of computers that ran on Apple‟s operating system, on OS/2, or on other relatively minor operating system. A memo written
the next day by a Microsoft executive who was percent stated that a goal of the meeting was to “establish Microsoft
ownership of the Internet client platform for Win95.” Netscape refused to go along with this plan to divide the browser
market. Microsoft then refused to share the codes for Windows 95 so that Netscape would be unable to develop a browser for
Windows 95. Netscape had to wait several months after Windows 95 was released before it finally got hold of its codes and
was finally able to develop a new version of Navigator that would take advantage of the Windows 95 applications interface.
Microsoft also develop its own browser by borrowing a browser program it had earlier licensed from Spy-glass Inc,
renaming it Interner Explorer, and copying many of Netscape‟s features onto its. (The chairman of Spyglass later
complained that “whenever you license technology to Microsoft, you have to understand it can someday build it itself, drop it
into the operating system, and put you out of that business.” Unfortunately, when Microsoft tried to sell its browser in 1995 ,
users felt it was inferior to Netscape and sales lagged. Microsoft continued working on its browser and its fourth version,
Internet Explorer 4.0, released in late 1997, finally began to be compared favorably to Netscape‟s browser. Still, few people
were buying internet Explorer. Microsoft then decided to use its operating system monopoly to undercut Netscape. In
February 1997, Christian Wildfeuer, a Microsoft executive, suggested in an internal memo that it would “be very hard to
increase browser share on the merits‟ of internet Explorer 4 alone. It will be more important to leverage our Operating
System asset to make people use Internet Explorer instead of Netscape‟s Navigator.” If Internet Explorer was bundled
together with Windows, so that when Windows was installed on a computer Internet Explorer was also automatically
installed, then users would tend to use Internet Explorer rather then go through the expense and trouble of purchasing and
installing Netscape. Accordingly, Microsoft incorporated a copy of Internet Explorer into Windows 95 that automatically
installed itself when Windows was installed. Windows 98 went farther by integrating Internet Explorer into the operating
system so that it was extremely difficult for a user even to remove Internet Explorer. Moreover, when a user “uninstalled”
Internet Explorer, it stayed in the computer and still appeared when Windows 98 was running certain commands. Although
this integration made Windows 98 run more slowly and consumed resources on the user‟s computer, it also made it much
more difficult and risky for users to try to replace Internet Explorer with Netscape Navigator. Microsoft claimed that it was
now giving Internet Explorer away “for free,” but skeptics pointed out that the costs of developing the browser had to be
recovered from sales of Windows and so a portion of what the consumer paid for a copy of Windows went to pay for the
costs of developing the browser.
Microsoft did more than bundle Internet Explorer with Windows. According to the court‟s “findings of fact,” Microsoft
required any computer maker that wanted Windows on its computers to agree that it would not remove Windows Explorer
and would not promote Netscape‟s browser. If a computer maker also agreed to not even give its customers a copy of
Netscape, Microsoft discounted the price of Windows. Because Microsoft‟s monopoly meant that computer manufacture
either had to install Windows on their computers or make them virtually useless, manufactures had no choice but to sign the
agreements that shut Netscape out of the market. Although users were still able to buy a copy of Netscape from a retailer, the
number of users doing this declined. Not only would purchasing a copy of Netscape require paying extra for software that
would do much of what their installed Internet Explorer could already do but also required that trick task of removing
Internet Explorer from their computers and in selling Netscape in its place. Not surprisingly, Netscape‟s share of the market
rapidly dropped, and Internet Explorer‟s rapidly rose- a successful outcome of Wildfeuer‟s strategy “to leverage our
Operating System asset to make people use Internet Explorer instead of Navigator.”
Microsoft dealt with its Java threat by asking Sun Microsystems for the right to license and distribute Java with its
Windows system. Sun Microsystems gave Microsoft that right, not knowing that Microsoft was planning to change Java. The
version of Java that Microsoft distributed was a version that incorporated several changes that would no longer allow regular
Java programs to run on computers using Microsoft‟s Java. Thus, there were now two versions of Java, and the version that
most users were getting installed with their Windows computers was a version that was incompatible with the regular version
of Java and that Microsoft now owned. Microsoft had apparently planned this move because an earlier internal Microsoft
document stated that it was a “strategic objective” for Microsoft to “Kill cross-platform Java” by expanding the “polluted
Java market”- a reference to Microsoft‟s own “polluted” version of Java. Because all Windows-based computers now
incorporated a copy of Microsoft‟s Java, not Sun‟s. Microsoft encouraged these developers by offering them special
technical support and inducements. In effect, Microsoft had turned Java into a part of Windows so that there was now little
threat that Windows would be rendered obsolete by Java.
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But on May 18, 1998, the U.S. Department of Justice (DOJ), then headed by U.S. Attorney General Janet Reno (an
appointee of Democratic President Bill Clinton), filed an antitrust suit Microsoft in Judge Jackson‟s court, claiming that the
company had violated the Sherman Antitrust Act by engaging in “a pattern of anticompetitive practices designed to thwart
browser competition on the merits, to deprive customers of choice between alternative browsers, and to exclude Microsoft‟s
Internet browser competitors,” especially Netscape and java.3 the DOJ claimed that Microsoft had violated the antitrust act in
four ways: (a) Microsoft had forced computer companies that used its Windows operating system to sing agreements that
they would not license, distribute, or promote software products that competed with Microsoft‟s own software products; (b)
Microsoft “tied” its own browser, Internet Explorer, to its Windows operating system so that customers who purchased
Windows also had to get Internet Explorer, although these were separate products and tying the two products together
degraded the performance of Windows; (c) Microsoft had attempted to use its operating system monopoly to gain a new
monopoly in the Internet browser market by forcing computer companies that used its Windows operating system to agree to
leave Internet Explorer as the default browser and to preinstall or promote the browser of any other company; and (d)
Microsoft had a monopoly in the market for PC operating system and had used anticompetitive and predatory tactics to
maintain its monopoly power. As a penalty to ensure that Microsoft not engaged in such behaviors again, the DOJ
recommended that that the part of the company devoted to cresting Windows should be spun off and separated from the part
that developed browsers and other software applications.
On June 7, 2000, Judge Jackson found Microsoft guilty of counts b, c and d, and ordered that the company be broken up
into two separate companies-one to develop and market operating systems and the other to develop and market all other
Microsoft programs. Although the judge could have simply ordered Microsoft to cease engaging in the illegal practices, he
feared that policing such an order would require so much government oversight that it was simply not practical. The judge
also ruled that the two new companies would not be allowed to share any technical information with each other that they did
not share with all their other customers. Not could Microsoft punish or threaten any computer manufacturers for distributing
or promoting the products or services of its competitors. Finally, Judge Jackson ordered that Microsoft had to let computer
manufactures remove any Microsoft applications from its Windows operating system.4 the Judge ruled, however, that
Microsoft would not have to implement his orders until it had time to appeal his decision. In a defensive “white paper,”
Microsoft stated:
Antitrust policy seeks to promote low prices, high output, and rapid innovation. On all three measures, the personal computer
software industry generally-and Microsoft in particular-is a model of competitiveness…. Market share numbers do not reflect
the highly dynamic nature of the software industry, where entire business segment can disappear virtually overnight as new
technologies are developed.
Microsoft claimed that it was responsible for much of the innovation that characterized the software industry. In addition, it
claimed that its actions, including its decision to bundle Internet Explorer with Windows and its decision to “improve” Java
by changing it, were all done to help consumers and give them more value for their money.
Microsoft appealed the judge‟s verdict, and on June 28, 2001, a federal appeals court reversed Judge Jack-son‟s breakup
penalty. The federal appeals court held that, based on interviews he gave to the news media during the case, Jackson
appeared to be biased against Microsoft, and this bias might have affected the severity of the penalty he had imposed on the
company. Although Jackson‟s findings of fact were to remain in place, the appeals court held that a new penalty would have
to be devised for the company.
The previous year, however, George W. Bush had been inaugurated president and his administration had as signed a
new person, John Ashcroft, as the new attorney general to head up the Department of Justice. According to Edward Roeder,
an expert on corporate political contributions, in the previous 5 year Microsoft had begun contributing heavily to the
Republican Party‟s election campaigns, contributing about 75 percent of its $6million-dollar-a-year 2000 political
contributions to Republicans, creating “an unprecedented campaign to influence the new Administration‟s antitrust policy,”
and to “escape from the trial with its monopoly intact.”5 on September 6,2001, the new Republican-appointed head of the
DOJ announced that it would no longer seek the breakup of Microsoft but would, instead, seek a lesser penalty. Two months
later, on November 2,2001, the DOJ announced that it had reached a settlement with Microsoft. According to the agreement,
Microsoft would share its application programming interface with other rival software companies who wanted to write
applications (such as word processing programs or games) that could run on Windows; it would have to give computer
makers and users the ability to hide icons for Windows applications, such as the icon for Internet Explorer or for Microsoft‟s
digital media player; it could not prevent competing programs from being installed on a Windows computer; it could not
retaliate against computer makers who used competing software. A three-person panel would be given complete access to
Microsoft‟s records and source code for the next 5 years to ensure that Microsoft complied with the agreement. Microsoft;
however, would not be prevented from bundling whatever software programs it wanted with its Windows operating system.
The new judge appointed to case, Judge Colleen Kollar-Kotelly, reviewed the settlement and on November 1,2003, she
handed down a decision essentially ratifying the settlement between Microsoft and the DOJ. The state of Massachusetts and
two computer trade groups, however, who objected to the settlement as a mere slap on the wrist, filed an appeal, arguing that
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Subject: Business Ethics Marks: 100
Microsoft‟s monopolistic behaviors drserved tougher sanctions. That appeal came to an end on June 30, 2004, when a federal
appeals court ruled that the 2001 settlement satisfied the legal requirements for addressing Microsoft‟s violations of antitrust
laws. By that time,, when a federal appeals court ruled that the 2001 settlement satisfied the legal requirements for addressing
Microsoft‟s violations of antitrust laws. By that time,, when a federal appeals court ruled that the 2001 settlement satisfied
the legal requirements for addressing Microsoft‟s violations of antitrust laws. By that time, Microsoft had settled several suits
with other states and companies and had paid a total of $1.5 billion to these parties.
Microsoft‟s monopoly woes were not quite over, however. In 1997, the European Union‟s “Competition
Commissioner” had announced that the European Union was investigating allegations that Microsoft had illegally used its
Windows monopoly power to try to establish a new monopoly in the server market by refusing to share its Windows
application programming interface with companies making software for servers (servers are computers that connect several
other computers together). If other companies are not given the Windows application programming interfaces, they cannot
write server programs that can smoothly connect computers running Windows. Since only Microsoft had full access to its
Windows application programming interface, only Microsoft would be able to write server programs for Windows
computers, thereby giving it a new monopoly in the server market.
In 2000, the European Commission expanded its investigation to look into how Microsoft had bundled its Windows
Media Player together with the company‟s new Widows 2000 operating system. Because all buyers of Windows 2000already
had Microsoft‟s Digital Media Player installed on their computers, they were not likely to buy a competitor‟s digital media
player. In this way, suggested the commission, Microsoft would gain a new monopoly in the market for digital media
players.
In April 2004, the European Commission issued its final ruling on its investigations. It concluded that “Microsoft
Corporation broke European Union competition law by leveraging its near monopoly in the market for PC operating systems
onto the markets….for servers…and for media players.” The commission fined Microsoft 497 million euros (equivalent to
about $613 million) and ordered it (1) to disclose to competitors the interface required for their server software to work wi th
Windows computers and (2) to offer a version of Windows without Microsoft‟s own Digital Media Player.
Microsoft immediately appealed this ruling to the European Court of First Instance. In addition, it asked that the
second order be suspended until the European Court of First instance had ruled on its appeal. In June 2004, the European
Commission agreed that until the court ruled on the appeal, Microsoft did not have to offer a version of Windows without its
Digital Media Player. Experts on European law said the appeal could take several years.
Meanwhile, some government had stopped purchasing Windows and had instead adopted Linux, a free “open source”
operating system. Among these were Italy, Germany, Great Britain, France, India, South Korea, China, Brazil and South
Africa. Several Companies, including Amazon.com, FedEx, and Google, had moved to Linux. A study by Forrester Research
found that 72 percent of companies it surveyed were increasing their use of Linux, and over half of them were planning to
replace Windows with Linux.
Questions
1. Identify the behaviors that you think are ethically questionable in the history of Microsoft. Evaluate the ethics of these
behaviors.
2. What characteristics of the market for operating systems do you think created the monopoly market that Microsoft‟s
operating system enjoyed? Evaluate this market in terms of utilitarianism, rights, and justice (your analysis should make
use of the textbook‟s discussion of the effects of monopoly markets on the utility of participants in the market, on the
moral rights of participants in the market, and on the distribution of benefits and burdens among participants in the
market), giving explicit examples from the operating systems industry to illustrate your points.
3. In your view, should the government have sued Microsoft for violation of the antitrust laws? In your view, was Judge
Jackson‟s order that Microsoft be broken into two companies fair to Microsoft? Was Judge Kollar-Kotelly‟s November
1, 2004 decision fair? Was the April 2004 decision of the European Commission fair to Microsoft? Explain your
answers.
4. Who, if anyone, is harmed by the kind of market that Microsoft‟s operating system has enjoyed? Explain your answer.
What kind of public policies, if any, should we have to deal with industries like the operating system industry?
The Indian Institute of Business Management & Studies
Subject: Business Ethics Marks: 100
Case – 3:- Gas or Grouse?
The Pinedale Mesa (sometime called the Pinedale Anticline) is a 40-mile-long mesa extending north and south along the
eastern side of Wyoming‟s Green River Basin, an area that is famous as the gateway to the hunting, fishing, and hiking
treasures of the Bridger-Teton wilderness. The city of Pinedale sits below the mesa, a short distance from its northern end,
surrounded by hundreds of recently drilled wells ceaselessly pumping natural gas from the vast pockets that are buried
underneath the long mesa. Questar Corporation, an energy company with assets valued at about $4 billion, is the main
developer of the gas wells around the city and up on the mesa overlooking the city. Occasionally elk, mule deer, pronghorn
antelope, and other wildlife, including the imperiled greater sage grouse, descend from their habitats atop the mesa and
gingerly make their way around and between the Questar wells around Pinedale. Not surprisingly, environmentalists are at
war with Questar, whose expanding operations are increasingly encroaching on the wildlife habitat that lies atop the mesa.
Yet the mesa is a desperately needed resource that provides the nation with a clean and cheap source of energy.
Headquartered in Salt Like City, Questar corporation drilled its first successful test well on the pinedale Mesa in 1998.
Extracting the gas under the mesa was not feasible earlier because the gas was trapped in tightly packed sandstone that
prevented it from flowing to the wills and no one knew how to get it out. it was not until the mid-1990s that the industry
developed techniques for fracturing the sandstone and freeing the gas. Full-scale drilling had to await the completion of an
environmental impact statement, which the Bureau of Land Management (BLM) finished in mid-2000 when it approved
drilling up to 900 wells on federal lands sitting on top of the Pinedale Mesa. By the beginning of 2004, Questar had drilled 76
wells on the 14,800 acres it leased from the federal government and the Wyoming state government and had plans to
eventually drill at least 400 more wells. Energy experts welcome the new supply of natural gas, which, because of its simple
molecular structure (CH4), burns much more cleanly than any other fossil fuel such as coal, diesel oil, or gasoline. Moreover,
because natural gas in extracted in the United States, its use reduced U.S. reliance on foreign energy supplies. Businesses in
and around Pinedale also welcomed the drilling activity, which brought numerous benefits, including jobs, increased tax
revenues, and a booming local economy. Wyoming‟s state government likewise supported the activity since 60 percent of the
state budget is based on royalties the state receives from coal, gas, and oil operations.
Questar‟s wells on the mesa averaged 13,000 feet deep and cost $3.6 million each, depending on the amount of
fracturing that had to be done.1 Drilling a well typically required clearing and leveling a 2- to 4- acre “pad” to support the
drilling rig and other equipment. One or two wells could be drilled at each pad. Access road had to be run to the pad, and the
well had to be connected to a network of pipes that drew the gas from the wells and carried it to where it could be stored and
distributed. Each well produced waste liquids that had to be stored in tanks at the pad and periodically hauled away on tanker
trucks.
The BLM, however, imposed several restrictions on Questar‟s operations on the mesa. Large areas of the mesa provide
habitat for mule deer, pronghorn sheep, sage grouse, and other species, and the BLM imposed drilling rules that were
designed to protect the wildlife species living on the mesa. Chief among these was the sage grouse.
The sage grouse is a colorful bird that today survives only in scattered pocket in 11 states. The grouse, which lives at
elevations of 4,000 to 9,000 feet and is dependent on increasingly rare old-growth sagebrush for food and to screen itself
from predators, is extremely sensitive to human activity. Houses, telephone poles, or fences can draw hawks and ravens,
which prey on the ground-nesting grouse. It is estimated that 200 years ago the birds-known for their distinctive spring
“strutting” mating dance-numbered 2 million and were common across the western United States. By the 1970s, their
numbers had fallen to about 400,000. a study completed in June 2004 by the Western Association of Fish and Wildlife
Agencies concluded that there were only between 140,000 and 250,000 of the birds left and that “we are not optimistic about
the future.” The dramatic decline on their number was blamed primarily on the destruction of 50 percent of their sage brush
nesting and mating grounds (called leks), which in turn was blamed on livestock grazing, new home construction, fires, and
the expanding acreage being given over to gas drilling and other mining activities. Biologists believe that if its sagebrush
habitats are not protected, the bird will be so reduced in number by 2050 that it will never recover. According to Pat Deibert,
a U.S. Fish and Wildlife Service biologist, “they need large stands of unbroken sagebrush” and anything that breaks up those
stands such as roads, pipelines, or houses, effects them.2
In order to protect the sage grouse, whose last robust population had nested for thousands of years on the ideal
sagebrush fields up on the mesa, the BLM required that Questar‟s roads, wells, and other structures had to be located a
quarter mile or more from grouse breeding grounds, and at least 2 miles from nesting areas during breeding season. Some
studies, however, conclude that these protections were not sufficient to arrest the decline in the grouse population. As wells
proliferated in the area, they were increasingly taking up land on which the grouse foraged and nested and were disturbing
the sensitive birds. Conservationists said that the BLM should increase the quarter-mile buffer area around the grouse
breeding grounds to at least 2-mile buffers.
In May 2004, the U.S. Fish and Wildlife Service announced that it would being the process of studying whether the sage
grouse should be categorized as an endangered species, which would bring it under the protection of the Endangered Species
Act, something conservationists had been urging the Fish and Wildlife Service to do since 2000. Questar and other gas, oil,
and mining companies adamantly opposed having the grouse listed as an endangered species because once this was done,
The Indian Institute of Business Management & Studies
Subject: Business Ethics Marks: 100
large areas of federal land would be off-limits to drilling, miming, and development. Since 80 percent of Wyoming is
considered sage grouse habitat, including much of the Pinedale Mesa, Questar‟s drilling plans would be severely
compromised.
Questar and other companies formed a coalition-the Partnership for the West-to lobby the Bush administration to keep
the grouse off the endangered species list. Led by Jim Sims, a former communication director for President George W.
Bush‟s energy Task Force, the coalition established a website where they called on members to lobby “key administration
players in Washington” and to “unleash grass-roots opposition to a listing, thus providing some cover to the political
leadership at Department of Interior and throughout the administration.” The coalition also suggested “funding scientific
studies” designed to show that the sage grouse was not endangered. According to Sims, the attempt to categorize the grouse
as endangered species was spearheaded by “environmental extremists who have converged on the American west in an effort
to stop virtually all economic growth and development. They want to restrict business and industry at every turn. They want
to put our Western lands of –limits to all of us.”3 Dru Bower, vice president of the petroleum Association of Wyoming,
said,”[endangered species] listings are not good for the oil and gas industry, so anything we can do to prevent a species from
being listed is good for the industry. If the sage grouse is listed, it would have a dramatic effect on oil and gas development
in the state of Wyoming.”4
The sage grouse was not the only species affected by Questar‟s drilling operations. The gas fields to which Questar
held drilling rights was an area 8 miles long and 3 miles wide, located on the northern end of the mesa. This property was
located in the middle of the winter range used by mule deer, elk, moose, and pronghorn antelope, some of which migrate to
the mesa area from as far away as the Grand Teton National Park 170 miles to the north.Migration studies conducted
between 1998 and 2001reveled that the pronghorn antelope herds make one of the longest annual migration among North
American big game animals.the area around pinedale is laced with migration corridors used by thousand of mule deer and
pronghorn every fall as they make their way south to their way south to their winter grounds on the mesa and the Green River
Basin. Traffic on highway 191 which cuts across some of the migration corridors sometimes has to be stopped to let
bunched-up pronghorn herds pass.5 Environmentalists feared that if the animals were prevented from reaching their winter
ranges or if the winter ranges became inhospitable, the large herds would wither and die off.
Unfortunately, drilling operations create a great deal of noise and require the constant movement of many truck and other
large machines, all of which can severely impact animals during the winter when they are already physically stressed and
vulnerable due to their low calorie intake. Some studies had suggested that even the mere presence of humans disturbed the
animals and led them to avoid an area. Consequently, the BLM required Questar to cease all drilling operations on the mesa
each winter from November 15 to May 1. in fact, to protect the animals the led them to avoid an area. Consequently , the
BLM required Questar to cease all drilling operation on the mesa each winter from November 15 to May 1. In fact, to protect
the animals the BLM prohibited all persons, whether on foot or on automobile, from venturing into the area during winter.
The BLM, however, made an exception for Questar truck and personnel who had to continue to haul off liquid wastes from
wells that had already been drilled and that continued to operate during the winter (the winter moratorium prohibited only
drilling operations, and completed wells were allowed to continue to pump gas throughout the year).
Being forced to stop drilling operations during the winter months was extremely frustrating and costly to Questar. Drilling
crew had to be laid off at the beginning of winter, and new crews had to be hired and retrained every spring. Every fall the
company had to pack up several tons of equipment, drilling rigs, and trucks and move them down from the mesa. Because of
seasonal interruption in its drilling schedule, the full development of its oil fields was projected to take 18 years, much longer
than it wanted. In 2004, Questar submitted a proposal to the Bureau of Land Management. Questar proposed to invest in a
new kind of drilling rig that allowed up to 16wells to be dug from a single pad, instead of the traditional 1or2. the new
technology (called directional drilling) aimed the drill underground at a slanted angel away from the pad-like the outstretched
tentacles on an octopus-multiple distant locations could be tapped by several wells branching out from a single pad. This
minimized the land occupied by the wells: while traditional drilling required 16 separate 2-4 acre pads to support 16 wells,
the new “directional drilling” technology allowed a single pad to hold 16 wells. The technology also reduced the number of
required road ways and distribution pipes since a single access road and pipe could now service the same number of wells
that traditionally required 16 different road and 16 different pipes. Questar also proposed that instead of carrying liquid
wastes away from operating wells on noisy tanker trucks, the company would build a second pipe system that would pump
liquid wastes away automatically. These innovations, Questar pointed out, would substantially reduce any harmful impact
that drilling and pumping had on the wildlife inhabiting the mesa. Using the new technology for the 400 additional wells the
company planned to drill would require 61 pads instead of 150, and the pads would occupy 533 acres instead of 1,474.
The new directional drilling technology added about $500,000 to the cost of each well and required investing in several
new drilling rigs. The added cost for the 400 additional wells Questar noted, however, that “the company anticipates that it
can justify the extra cost if it can drill and complete all the wells on a pad in one continuous operation” that continued
through the winter.6 if the company was allowed to drill continuously through the winter, it would be able to finish drilling
all its wells in 9 years instead of 18, thereby almost doubling the company‟s revenues from the project over those 9 years.
This acceleration in its revenues, coupled with other saving resulting from putting 16 wells on each pad, would enable it to
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justify the added costs of directional drilling. In short, the company would invest in the new technology that reduced the
impact on wildlife, but only if it was allowed to drill on the mesa during the winter months.
Although environmentalists welcomed the company‟s willingness to invest in directional drilling, the y strongly
opposed allowing the company to operate on the mesa during the winter when mule deer and antelope were there foraging
for food and struggling to survive. The Upper Green River Valley Coalition of environmental group, issued a statement that
read: “The company should be lauded for using directional drilling, but technological improvement should not come at the
sacrifice of important safeguards for Wyomings‟s wildlife heritage.” To allow the company to test the feasibility of
directional drilling and to study its effects on wintering deer herds, the Bureau of Land Management allowed Questar to drill
wells at a single pad through the winter of 2002-2003 and again through the winter of 2003-2004. the 5-year study would
continue until 2007, and Questar hoped to be permitted limited drilling on the mesa during winter until then. In a preliminary
report on the study, the Bureau of Land Management said there was “no conclusive data to indicate quantifiable, adverse
effects to deer” from the drilling. The Upper Green River Vslley Coslition, however, sued the bureau for failing to adhere to
its own rules when it allowed Questar and other companies to drill on mule deer range on the mesa during winter and for
failing to conduct an analysis of the potential impact before granting the permits, as required by the National Environmental
Policy Act. As of this writing, the suit has not been resolved.
Question
1. What are the systemic, corporate, and individual issues raised in this case?
2. How should wildlife species like grouse or deer be valued, and how should that value be balanced against the
economic interests of the of company like Questar?
3. In light of the U.S. economy‟s dependence on oil, and in light of the environmental impact of Questar drilling
operation, is Questar morally obligated to cease its drilling operation on the Pinedale Mesa? Explain
4. What, if anything, should Questar be doing differently?
5. In your view, have the environmental interest groups identified in the case behaved ethically? `
The Indian Institute of Business Management & Studies
Subject: Business Ethics Marks: 100
Section II: Attempt only 5 question.
1) What are the ethical theories and approaches for decision making? Explain
2) Explain the ethics to be followed in marketing
3) What are the ethical aspects to be followed in the selection of employees?
4) What is insider trading? Give illustrations.
5) Explain the following:
a) Cyber crime.
b) Information technology.
c) Intellectual property rights.
6) What is the purpose of corporate governance?
The Indian Institute of Business Management & Studies
Subject: Supply Chain & Logistic Management Marks: 100
1
Section 1 – Answer Both Case Study
CASE I - A CASE OF ALPHA TELENET LIMITED
Alpha Telecom Ltd., a part of Alpha Group was established in 1976 by its visionary Chairman and Managing Director,
A. S. Verma. The company started with manufacturing of Electronic Push Button Telephones (EPBT) and Cordless phones in
1985 in Allahabad. On July 7, 1995 Alpha Tele-Ventures Limited was incorporated. A mobile service called 'Web-Tel' was
launched in Kochin, which eventually expanded its operations in Andhra Pradesh in 1996.
Till 1994, fixed telephone services were provided by Department of Telecommunications (DoT) which had a monopoly
in this business. This was regarded as self-defeating because DoT was a regulator as well as a competitor. With increasing
pressure for privatisation, the government agreed to give license to private operators. Finally in December 1996, the bill of
privatisation of fixed telephone services was passed. The New Telecom Policy (NTP) with its targets for improving tele-density
was an ambitious policy. The NTP planned to achieve a tele-density (number of telephones per 100 people) of 7 by the year 2005
and 15 by the year 2010, which translated into 130 mn lines. The policy also planned an investment of Rs. 4000 billion by the year
2010. The above factors combined with the fact that the domestic long distance telephony was open to private players, led to
considerable demand for the company's products. But to get the tenders from Ministry of Telecommunication, Government of
India, a license fee was to be paid over a period of 15 years and the viability of telecom projects was also affected by the
guidelines that required private operators to earmark at least 10% of their telephone lines for villages. The operating companies
did not like the idea of having to pay for the maintenance of lines that might not be used most of the times. The license fee of
Maharashtra state was minimum at Rs.643 crores. Thus, Alpha Telenet, a pioneer in every field wanted to avail this opportunity
and started the survey for extending the services in Pune. Their marketing survey team provided the statistics of existing
customers of DoT, the waiting list of DoT, potential of users for successive years and so on.
Alpha Telenet Ltd. (ATL) decided to start their fixed line telephone operations in technical collaboration with Telecom Italia at
Pune in Maharashtra. Initially, they received permission for installing their exchanges covering 0.5 km. of radius which was too
small with respect to the cost involved and thus difficult to achieve lucrative returns. After struggling for a year, they finally got
permission to set up exchanges covering 1 km. of radius. They set up their exchanges in potential areas in the city. Another
problem was that the consumer's mindset fixated was with DoT and they were not ready to accept the services of Alpha Telenet
Ltd. This was due to opposite tariff rates for household consumers. Consumers did not rely on ATL as they were private players.
ATL initially had attracted the customers from the areas where the waiting line for DoT connections was high. Further, they had
provided the connections with wireless CDMA receivers for only Rs. 3000 (movable within the area of 5 km radius) though its
actual cost was Rs.15,000. The connection between exchanges by optical fibre ensured high quality of voice and data
transmission, which was later to be shifted to the conventional copper wires for consumer connections. The company made the
connection using Ring Topology stay connected even in case of line disturbances.
They also installed a Submarine Optical Fibre Cable to Singapore with an 8.4 Tbps (terabits per second) capacity providing highclass
worldwide connectivity. Alpha Telenet installed the latest Digital Switches from Tiemens and other devices, which were
fully compatible with the equipment of other telecom providers in India. The company installed a digital Geographical
Information System (GIS) for network surveillance. A 24-hr Internal Network Management System for technical support and
infrastructure maintenance were also installed with a dedicated round-the-clock toll-free call centre to ensure prompt services.
In 1997, Alpha Telenet Ltd. obtained a license for providing fixed-line services in Maharashtra state circle and formed a joint
venture with Behrin Telecom, Alpha BT, for providing VSAT services. On June 4, 1998 they started the first private fixed-line
services launched in Pune in the Maharashtra circle and thereby ending fixed-:-line services monopoly of DoT (now TSNL).
Alpha entered into a license agreement with DoT in 2002 to provide international long distance services in India and became the
first private telecommunications service provider. The company also launched fixed line services in the states of Goa, Uttar
Pradesh, Gujarat and Delhi.
The Indian Institute of Business Management & Studies
Subject: Supply Chain & Logistic Management Marks: 100
2
With the start of basic telephony services in the .state of Maharashtra, residents of the area and others felt a great sense of
breaking away from the old and traditional government monopoly. The kind of ill-treatment of customers and also the red-tapism
and bureaucracy which prevailed earlier, was about to end. It was observed that no private telecom company wanted to start their
operations in less profitable areas like Bihar and other eastern states .
. The tariff plans of the TSNL and Alpha Telenet Ltd. were opposite to each other. TSNLS tariff structure was upwards i.e., price
per unit increase with number of calls and vice versa for Alpha Telenet. This was the beginning of the entry of private players in
the sector.
Question -:
1. Give a critical analysis of the privatisation of telecom sector in India.
2. Highlight the secrets of success of Alpha Telenet Ltd. in terms of technological advancements and service~
provided.
The Indian Institute of Business Management & Studies
Subject: Supply Chain & Logistic Management Marks: 100
3
CASE II - INTELLIGENT MOVEMENTS: ANYWHERE ANYTIME
Deepak Pai, an engineering graduate and a postgraduate in management from United States, was working in Transport
Corporation of India (TCI), the market leader in conventional transportation. He established Speed Cargo as an express cargo
distribution company after leaving TCI. Speed Cargo, started with its head office at Hyderabad, as a small cargo specialist in
1989, upgrading itself to desk-to-desk cargo in 1992, cargo management services in 1995 and became a public limited company
when it was listed in Bombay Stock Exchange in 1999. The company was maintaining a strong customer base of prestigious
companies like Acer, Cadilla, Sony, Panasonic, Titan, Dabur and Hitachi to name a few.
Speed Cargo Limited (SCL), a leader in the express cargo movement pioneered in distribution and supply chain
management solutions in India. It differentiated the concept of cargo, from conventional transport industry by offering door
pickup, door delivery, assured delivery date and containerized movement. It had a turnover of Rs.3600 million in 2005-06. The
company had a strong team of 6400 employees with the fleet of 2000 vehicles on road and an extensive network covering
3,20,000 kilometers per day and a reach of 594 out of 602 districts in India. In addition to this, it was having a well -structured
multimodal connectivity and 6lakh square feet mechanized warehousing facility. Warehousing facilities were comprised of the
most modern storied system and material handling equipment offering very high level of operational efficiency. The four modes
of transport - Road, Air, Sea and Rail were seamlessly integrated, enabling SCL to effortlessly reach anytime anywhere.
The international wing of SCL took care of the SAARC countries and Asia Pacific region covering 220 countries with a
specialized India-centric perspective. The company had gone online by connecting 90 percent of its offices to provide web-centric
solutions to its customers. The company also offered money back guarantee to express cargo services. The services offered were
customized for corporate, small and medium enterprises, cluster markets, wholesale markets and individuals. The state-of-the-art
technology made things easier for the customers whose cargo could be tracked and traced in the simplest manner, because SCL
had an effective tracking system. SCL believed that best of technology enabled best of service, and its outlays on providing the IT
edge had always resulted in innovative services and solutions. SCL, in its day-to-day operations, used technologically advanced
equipments like Fork Lifters, Hydraulic Trucks, Hand Trolly, Drum Trolly, Rubber Pads cushioning, Taper Rollers to move big
crates, color codes for identification to delivery what it promised.
Between 1989, when company was born, and 1995, SCL started a unique value added service called Cash-On-Delivery
for the advantage of its customers. SCL introduced Call Free Number for the first time in the logistics industry in India. To
establish largest network in air and to facilitate faster delivery of shipments, SCL entered into a tie-up with Indian Airlines in
1996; The Company introduced the concept of 3rd party logistics and later started offering complete logistics and supply chain
solutions in 1997. The courier service Suvidha later rechristened as Zipp was launched in 1998. The company entered into a tieup
with Bhutan and Maldives Postal Departments to expand its operations to SAARC countries in 1999. The Speed Cargo
Development Center was set up at Pune in India for training of its employees in the same year.
An exclusive cargo train in association with Indian Railways between Mumbai and Kolkata was launched in 2001. Based
on a survey conducted by Frost and Sullivan, SCL was conferred the Voice of Customer Award for being the best logistics
company in 2003. After simplifying the internal process for faster and better communication, and a smarter way to work, SCL set
up its corporate office at Singapore in 2003 to create an international hub with an aim to reach out to the world. The company
introduced a mechanized racking system in the automated warehouse at Panvel (Maharastra) in 2004.
SCL was sensitive to the avenues where it could contribute to building a better society. Displaying continuous social
responsibility, SCL associated itself with several community development programs and contributed generously to many social
causes. SCL was the first to build makeshift houses for 400 families who were affected during a massive earthquake in Bhuj
district of Gujarat in India during January 2001. They reached the devastated village the same day to provide food, clothes,
medication and water to the affected people.
In 2003, SCL accepted to develop one of the government schools located at Banjara Hills in Hyderabad, and built a
building with basic facilities like classrooms, staff rooms and toilets, and provided furniture for students and staff. The
The Indian Institute of Business Management & Studies
Subject: Supply Chain & Logistic Management Marks: 100
4
housekeeping and security of the school, which was now having 1100 students, was also taken care of by the company. After
Tsunami, one of the worst natural disasters that struck South East Asia in December 2004 leaving over 10 lakh people dead and
over 4 million displaced, SCL was on the rescue scene as it brought in food, water, clothing, medication, a team of doctors and
cooks, and provided the affected people with essential utensils. After rehabilitating the people in Nagapattnam and Cuddalore, it
took up the development of a high school in Nagore where 500 students came in from the Tsunami affected families. SCL also
actively participated in Kargil contributions and other rescue and rehabilitation works in India.
LOOKING AHEAD
SCL believed that in the age of convergence, it had kept pace with time with its infrastructure, people and technological
capabilities for moving cargo to its destination on time, by making intelligent movements in air and sea, as well as on road and
rail. The company had experience of handling wide range of materials including confidential papers related to University
examination and sensitive goods like polio drops and life-saving medicines. In view of the strengths of its competitors such as
DHL, Safexpress and Blue Dart, the company had enhanced services with a greater focus on cargo management and customer
satisfaction with the new operations backed by better strategic planning. To achieve its aim, SCL had strategically tied-up with
Jubli Commercials, an lATA accredited freight forwarder, which started its operations as Air Cargo Agent.
The company was confident that it was set to become 24 x 7 one-stop solution provider for all freight forwarding services
including customs clearance for international cargo. SCL having 40 percent share in express distribution business was developing
a huge centralized warehouse on 22 acres of land at Nagpur in India. The centralized warehouse, which was about to be
commissioned, was designed as a major hub or express distribution center for 200 smaller hubs as its spokes catering to the needs
of its customers across India. SCL believed that it is a concept, a vision and an idea ahead of its time, which looked at a global
perspective and was constantly reinventing itself in delivering the future of logistics.
Questions
1. What made SCL a leader in the logistics industry?
2. Discuss the strategies adopted by SCL for its survival in the competitive scenario.
3. Comment on the contributions of SCL to society.
4. What steps the company should take to globalize its network reach?
5. Discuss the strategies adopted by SCL for expansion.
The Indian Institute of Business Management & Studies
Subject: Supply Chain & Logistic Management Marks: 100
5
Section 2 – Answer any 4 Question
1) (a) How does the supply chain management render services to customers?
(b) To what extent customers are satisfied with reference to services rendered by Logistics
management?
2) What are the different modes of Logistics Management? State the advantages and disadvantages of
each mode.
3) What are various models of transportation? Explain with an example in Indian context.
4) What is the modern logistics infrastructure that could act as a boon for organizations.
5) What is the mechanism that followed in planning and managing inventories in supply chain?
6) What are the differences between inter functional co-ordination and inter corporate co-ordination?
7) What is meant by networking operations? How do we plain it? What are its limitations?
