Attempt All the case
Case - 1
GlaxoSmitbKine, Bristol – Myers Squibb, and AIDS in Africa 1
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 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-of-pocket 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 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 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?
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 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 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 Oper
violated antitrust laws and harmed consumers and numerous health care workers by using the GPO system to monopolize the safety needle market.19 In 2003, Premier and Novation settled with Retractable out of court, agreeing to henceforth allow its member hospitals to purchase Retractable’s safety syringes when they wanted. In 2004, Becton Dickinson also settled out of court, agreeing to pay Retractable $ 100 million in compensation for the damage Becton Dickinson inflicted on Retractable. During the 6 years that Becton Dickinson’s contracts prevented Retractable and other manufacturers from selling their safety needles to hospitals and clinics, thousands of health workers continued to be infected by needlesticks each year.
Questions
1. In your judgment, did Becton Dickinson have an obligation to provide the safety syringe in all its sizes in 1991? Explain your position, using the materials from this chapter and the principles of utilitarianism, rights, justice, and caring.
2. Should manufacturers be held liable for failing to market all the products for which they hold exclusive patents when someone’s injury would have been avoided if they had marketed those products? Explain your answer.
3. In your judgment, who was morally responsible for Maryann Rockwood’s accidental needlestick: Maryann Rockwood? The clinic that employed her? The government agencies that merely issued guidelines? Becton Dickinson?
4. Evaluate the ethics of Becton Dickinson’s use of the GPO system in the late 1990s. Are the GPO’s monopolies? Are they ethical? Explain.
Case - 1
GlaxoSmitbKine, Bristol – Myers Squibb, and AIDS in Africa 1
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 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-of-pocket 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 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 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?
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 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 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 Oper
violated antitrust laws and harmed consumers and numerous health care workers by using the GPO system to monopolize the safety needle market.19 In 2003, Premier and Novation settled with Retractable out of court, agreeing to henceforth allow its member hospitals to purchase Retractable’s safety syringes when they wanted. In 2004, Becton Dickinson also settled out of court, agreeing to pay Retractable $ 100 million in compensation for the damage Becton Dickinson inflicted on Retractable. During the 6 years that Becton Dickinson’s contracts prevented Retractable and other manufacturers from selling their safety needles to hospitals and clinics, thousands of health workers continued to be infected by needlesticks each year.
Questions
1. In your judgment, did Becton Dickinson have an obligation to provide the safety syringe in all its sizes in 1991? Explain your position, using the materials from this chapter and the principles of utilitarianism, rights, justice, and caring.
2. Should manufacturers be held liable for failing to market all the products for which they hold exclusive patents when someone’s injury would have been avoided if they had marketed those products? Explain your answer.
3. In your judgment, who was morally responsible for Maryann Rockwood’s accidental needlestick: Maryann Rockwood? The clinic that employed her? The government agencies that merely issued guidelines? Becton Dickinson?
4. Evaluate the ethics of Becton Dickinson’s use of the GPO system in the late 1990s. Are the GPO’s monopolies? Are they ethical? Explain.
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