Business Ethics - Case - PUBLIUS.doc

1. Xaviers Institute of Business Management Studies
MARKS : 80
SUB : BUSINESS ETHICS
N. B. : 1) Attempt any Four Cases
2) All cases carries equal marks.
No : 1
PUBLIUS
Although many people believe that the World Wide Web is anonymous and secure
from censorship, the reality is very different. Governments, law courts, and other
officials who want to censor, examine, or trace a file of materials on the Web need
merely go to the server (the online computer) where they think the file is stored.
Using their subpoena power, they can comb through the server’s drives to find the
files they are looking for and the identify of the person who created the files.
On Friday June 30, 2000, however, researches at AT & T Labs announced the
creation of Publius, a software program that enables Web users to encrypt (translate
into a secret code) their files – text, pictures, or music – break them up like the
pieces of a jigsaw puzzle, and store the encrypted pieces on many different servers
scattered all over the globe on the World Wide Web. As a result, any one wanting to
examine or censor the files or wanting to trace the original transaction that produced
the file would find it impossible to succeed because they would have to examine the
contents of dozens of different servers all over the world, and the files in the servers
would be encrypted and fragmented in a way that would make the pieces impossible

2. to identify without the help of the person who created the file. A person authorized
to retrieve the file, however, would look through a directory of his files posted on a
Publius – affiliated website, and the Publius network would reassemble the file for
him at his request. Researchers published a description of Publius at
www.cs.nyu.edu/waldman/publius.
Although many people welcomed the way that the new software would
enhance freedom of speech on the Web, many others were dismayed. Bruce Taylor,
an antipornography activist for the National Law Center for Children and Families,
stated : “It’s nice to be anonymous, but who wants to be more anonymous than
criminals, terrorists, child molesters, child pornographers, hackers and e-mail virus
punks.” Aviel Rubin and Lorrie Cranor, the creators of Publius, however, hoped that
their program would help people in countries where freedom of speech was repressed
and individuals were punished for speaking out. The ideal user of Publius, they
stated, was “a person in China observing abuses of human rights on a day – to – day
basis.”
Questions :
1. Analyze the ethics of marketing Publius using utilitarianism, rights,
justice, and caring. In your judgement, is it ethical to market Publius ? Explain.
2. Are the creators of Publius in any way morally responsible for any
criminal acts that criminals are able to carry out and keep secret by
relying on Publius ? Is AT & T in any way morally responsible for these ?
Explain your answers.
3. In your judgment, should governments allow the implementation of
Publius ? Why or why not ?

3. NO. 2
A JAPANESE BRIBE
In July 1976, Kukeo Tanaka, former prime minister of Japan, was arrested on
charges of taking bribes ($ 1.8 million) from Locjheed Aircraft Company to secure the
purchase of several Lockheed jets. Tanaka’s secretary and serial other government
officials were arrested with him. The Japanese public reacted with angry demands
for a complete disclosure of Tanaka’s dealings. By the end of the year, they had
ousted Tanaka’s successor, Takeo Miki, who was widely believed to have been trying
to conceal Tanaka’s actions.
In Holland that same year, Prince Bernhard, husband of Queen Juliana,
resigned from 300 hundred positions he held in government, military, and private
organizations. The reason : He was alleged to have accepted $ 1.1 million in bribes
from Lockheed in connection with the sale of 138 F – 104 Starfighter jets.
In Italy, Giovani Leone, president in 1970, and Aldo Moro and Mariano
Rumor, both prime ministers, were accused of accepting bribes from Lockheed in
connection with the purchase of $ 100 million worth of aircraft in the late 1960s. All
were excluded from government.
Scandinavia, South Africa, Turkey, Greece, and Nigeria were also among the
15 countries in which Lockheed admitted to having handed out payments and at
least $ 202 million in commissions since 1970.
Lockheed Aircraft’s involvement in the Japanese bribes was revealed to have
begun in 1958 when Lockheed and Grumman Aircraft (also an American firm) were
competing for a Japanese Air Force jet aircraft contract. According to the testimony
of Mr. William Findley, a partner in Arthur Young & Co. (auditors for Lockheed), in
1958 Lockheed engaged the services of Yoshio Kodama, an ultra right – wing war
criminal and reputed underworld figure with strong political ties to officials in the
ruling Liberal Democratic Party. With Kodama’s help, Lockheed secured the
Government contract. Seventeen years later, it was revealed that the CIA had been
informed at the time (by an American embassy employee) that Lockheed had made
several bribes while negotiating the contract.
In 1972, Lockheed again hired Kodama as a consultant to help secure the sale
of its aircraft in Japan. Lockheed was desperate to sell planes to any major
Japanese airline because it was scrambling to recover from a series of financial
disasters. Cost overruns on a government contract had pushed Lockheed to the

4. brink of bankruptcy in 1970. Only through a controversial emergency government
loan guarantee of $ 250 million in 1971 did the company narrowly avert disaster.
Mr. A. Carl Kotchian, president of Lockheed from 1967 to 1975, was especially
anxious to make the sales because the company had been unable to get as many
contracts in other parts of the world as it had wanted.
This bleak situation all but dictated a strong push for sales in the biggest
untapped market left-Japan. This push, if successful, might well bring in
revenues upward of $ 400 million. Such a cash inflow would go a long way
towards helping to restore Lockheed’s fiscal health, and it would, of course,
save the jobs of thousands of firm’s employees. (Statement of Carl Kotchian)
Kodama eventually succeeded in engineering a contract for Lockhed with All –
Nippon Airways, even beating out McDonnell Douglas, which was actively competing
with Lockheed for the same sales. To ensure the sale, Kodama asked for and
received from Lockheed about $9 million during the period from 1972 to 1975. Much
of money allegedly went to then – prime minister Kukeo Tanaka and other
government officials, who were supposed to intercede with All – Nippon Airlines on
behalf of Lockheed.
According to Mr. Carl Kotchian, “ I knew from the beginning that this money
was going to the office of the Prime Minister.” He was, however, persuaded that, by
paying the money, he was sure to get the contract from All-Nippon Airways. The
negotiations eventually netted over $1.3 billion in contracts for Lockheed.
In addition to Kodama, Lockheed had also been advised by Toshiharu Okubo,
an official of the private trading company, Marubeni, which acted as Lockheed’s
official representative. Mr. A. Carl Kotchian later defended the payments, which he
saw as one of many “Japanese business practices” that he had accepted on the advice
of his local consultants. The payments, the company was convinced, were in keeping
with local “ business practices.”
Further, as I’ve noted, such disbursements did not violate American laws. I
should also like to stress that my decision to make such payments stemmed
from my judgment that the (contracts) …… would provided Lockheed workers
with jobs and thus redound to the benefit of their dependents, their communities,
and stockholders of the corporation. I should like to emphasize that the payments to
the so-called “ high Japanese government officials” were all requested y Okubo
and were not brought up from my side. When he told me “ five hundred million
yen is necessary for such sales,” from a purely ethical and moral standpoint I would
have declined such a request. However, in that case, I would most certainly

5. have sacrificed commercial success….. (If) Lockheed had not remained competitive
by the rules of the game as then played, we would not have sold (our planes) ………
I knew that if we wanted our product to have a chance to win on its own merits, we
had to follow the functioning system. (Statement of A. Carl Kotchian)
In August, 1975, investigations by the U.S. government led Lockheed to admit
it had made $ 22 million in secret payoffs. Subsequent senate investigations in
February 1976 made Lockheed’s involvement with Japanese government officials
public. Japan subsequently canceled their billion dollar contract with Lockheed.
In June 1979, Lockheed pleaded guilty to concealing the Japanese bribes from
the government by falsely writing them off as “marketing costs”. The Internal
Revenue Code states, in part. “ No deduction shall be allowed….. for any payment
made, directly or indirectly, to an official or employee of any government …. If the
payment constitutes an illegal bribe or kickback.’ Lockheed was not charged
specifically with bribery because the U.S. law forbidding bribery was not enacted
until 1978. Lockheed pleaded guilty to four counts of fraud and four counts of
making false statements to the government. Mr. Kotchian was not indicated, but
under pressure from the board of directors, he was forced to resign from Lockheed.
In Japan, Kodama was arrested along with Tanaka.
Questions :
1. Fully explain the effects that payment like those which Lockheed made
to the Japanese have on the structure of a market.
2. In your view, were Lockheed’s payments to the various Japanese parties
“bribes” or “extortions” ? Explain your response fully.
3. In your judgment, did Mr. A. Carl Kotchian act rightly from a moral point
of view ? (Your answer should take into account the effects of the payments on
the welfare of the societies affected, on the right and duties of the various
parties involved, and on the distribution of benefits and burdens among the
groups involved.) In your judgment, was Mr. Kotchian morally responsible for
his actions ? Was he, in the end, treated fairly ?
4. In its October 27, 1980, issue, Business Week argued that every corporation
has a corporate culture – that is, values that set a pattern for its employee’s
activities, opinions and actions and that are instilled in succeeding generations

6. of employees (pp.148-60) Describe, if you can, the corporate culture of Lockheed and
relate that culture to Mr. Kotchian’s actions. Describe some strategies for changing
that culture in ways that might make foreign payments less likely.
NO. 3
THE NEW MARKET OPPORTUNITY
In 1994, anxious to show off the benefits of a communist regime, the government of
China invited leading auto manufacturers from around the world to submit plans for
a car designed to meet the needs of its massive population. A wave of rising
affluence had suddenly created a large middle class of Chinese families with enough
money to buy and maintain a private automobile. China was now eager to enter
joint ventures with foreign companies to construct and operate automobile
manufacturing plants inside China. The plants would not only manufacture cars to
supply China’s new internal market, but could also make cars that could be exported
for sale abroad and would be sure to generate thousands of new jobs. The Chinese
government specified that the new car had to be priced at less than $5000, be small
enough to suit families with a single child (couples in China are prohibited from
having more than one child), rugged enough to endure the poorly maintained roads
that criss-crossed the nation, generate a minimum of pollution, be composed of parts
that were predominantly made within China, and be manufactured through joint –
venture agreements between Chinese and foreign companies. Experts anticipated
that the plants manufacturing the new cars would use a minimum of automation
and wuld instead rely on labor – intensive technologies that could capitalize on
China’s cheap labor. China saw the development of a new auto industry as a key
step in its drive to industrialize its economy.

7. The Chinese market was an irresistible opportunity for General Motors, Ford
and Chrysler, as well as for the leading Japanese, European and Korean automobile
companies. With a population of 1.2 billion people and almost double digit annual
economic growth rates, China estimated that in the next 40 years between 200 and
300 million of the new vehicles would be purchased by Chinese citizens. Already
cars had become a symbol of affluence for China’s new rising middle class, and a
craze for cars had led more than 30 million Chinese to take driving lessons despite
that the nation had only 10 million vehicles, most of them government – owned
trucks.
Environmentalists, however, were opposed to the auto manufactures’ eager
rush to respond to the call of the Chinese government. The world market for energy,
particularly oil, they pointed out, was based in part on the fact that China, with its
large population, was using relatively low levels of energy. In 1994, the per-person
consumption of oil in China was only one sixth of Japan’s and only a quarter of
Taiwan’s. If China were to reach even the modes per person consumption level of
South Korea, China would be consuming twice the amount of oil the United States
currently uses. At the present time, the United States consumes one forth of the
world’s total annual oil supplies, about half of which it must import from foreign
countries.
Critics pointed out that if China were to eventually have as many cars on the
road per person as Germany does, the world would contain twice as many cars as it
currently does. No matter how “ pollution – free” the new car design was, the
cumulative environmental effects of that many more automobiles in the world would
be formidable. Even clean cars would have to generate large amounts of carbon
dioxide as they burned fuel, thus significantly worsening the greenhouse effect.
Engineers pointed out that it would be difficult, if not impossible, to build a clean car
for under $5000. Catalytic converters, which diminished pollution, alone cost over
$200 per car to manufacture. In addition, China’s oil refineries were designed to
produce only gasoline with high levels of lead. Upgrading all its refineries so they
could make low-lead gasoline would require an investment China seemed unwilling
to make.
Some of the car companies were considering submitting plans for an electric
car because China had immense coal reserves which it could burn to produce
electricity. This would diminish the need for China to rely on oil, which it would
have to import. However, China did not have sufficient coal burning electric plants

8. nor an electrical power distribution system that could provide adequate electrical
power to a large number of vehicles. Building such an electrical power system also
would require a huge investment that the Chinese government did not seem
particularly interested in making. Moreover, because coal is a fossil fuel, switching
from an oil – based auto to a coal – based electric auto would still result in adding
substantial quantities of carbon dioxide to the atmosphere.
Many government officials were also worried by the political implications of
having China become a major consumer of oil. If China were to increase its oil
consumption, would have to import all its oil from the same countries that other
nations relied on, which would create large political, economic and military risks.
Although the United States imported some of its oil from Venezuela and Mexico,
most of its imports came from the Middle East – an oil source that China would have
to turn to also. Rising demand for Middle East oil would push oil prices sharply
upward, which would send major shocks reverberating through the economics of the
United States and those of other nations that relied heavily on oil. State
Department officials worried that China would begin to trade weapons for oil with
Iran or Iraq, heightening the risks of major military confrontations in the region. If
China were to become a major trading partner with Iran or Iraq, this would also
create closer ties between these two major power centres of the non-Western world –
a possibility that was also laden with risk. Of course, China might also turn to
tapping the large reserves of oil that were thought to be lying under Taiwan and
other areas neighboring its coast. However, this would bring it into competition with
Japan, South Korea, Thailand, Singapore, Taiwan, the Phillippines, and other
nations that were already drawing on these sources to supply their own booming
economies. Many of these nations, anticipating heightened tensions, were already
puring money into their military forces, particularly their navies. In short, because
world supplies of oil were limited, increasing demand seemed likely to increase the
potential for conflict.
Questions :
1. In your judgment, is it wrong, from an ethical point of view, for the auto
companies to submit plans for an automobile to China ? Explain your
answer ?
2. Of the various approaches to environmental ethics outlined in this
chapter, which approach sheds most light on the ethical issues raised by
this case ? Explain your answer.

9. 3. Should the U.S. government intervene in any way in the negotiations
between U.S. auto companies and the Chinese government ? Explain.
NO. 4
WAGE DIFFERENCES AT ROBERT HALL
Robert Hall Clothes, Inc., owned a chain of retail stores that specialized in clothing
for the family. One of the Chain’s stores was located in Wilmington, Delaware. The
Robert Hall store in Wilmington had a department for men’s and boy’s clothing and
another department for women’s and girl’s clothing. The departments were
physically separated and were staffed by different personnel : Only men were
allowed to work in the men’s department and only women in the women’s
department. The personnel of the store were sexually segregated because years of
experience had taught the store’s managers that, unless clerks and customers were
of the same sex, the frequent physical contact between clerks and customers would
embarrass both and would inhibit sales.
The clothing in the men’s department was generally of a higher and more
expensive quality than the clothing in the women’s department. Competitive factors
accounted for this : There were few other men’s stores in Wilmington so the store
could stock expensive men’s clothes and still do a thriving business, whereas
women’s clothing had to be lower priced to compete with the many other women’s
stores in Wilmington. Because of these differences in merchandise, the store’s profit
margins on the men’s clothing was higher than its margins on the women’s clothing.
As a result, the men’s department consistently showed a larger dollar volume in
gross sales and a greater gross profit, as is indicated in Table 7.11.
Because of the differences shown in Table 7.11 women personnel brought in
lower sales and profits per hour. In fact male salespersons brought in substantially
more than the females did (see Tables 7.12 and 7.13)
Men’s Department Women’s Department
Year
Sales
($)
Gross
Profit
($)
Percent
Profit
($)
Sales
($)
Gross
Profit
($)
Percent Profit
($)
1963 210,639 85,328 40.5 177,742 58,547 32.9
1964 178,867 73,608 41.2 142,788 44,612 31.2
1965 206,472 89,930 43.6 148,252 49,608 33.5
1966 217,765 97,447 44.7 166,479 55,463 33.5
1967 244,922 111,498 45.5 206,680 69,190 33.5
1968 263,663 123,681 46.9 230,156 79,846 34.7
1969 316,242 248,001 46.8 254,379 91,687 36.4
TABLE 7. 12
Male Sales per Hour Female Sales Per Hour Excess M Over F

10. Year ($) ($) (%)
1963
1964
1965
1966
1967
1968
1969
38.31
40.22
54.77
59.58
63.18
62.27
73.00
27.31
30.36
33.30
34.31
36.92
37.20
41.26
40
32
64
73
71
70
77
As a result of these differences in the income produced by the two
departments, the management of Robert Hall paid their male salespersons more
than their female personnel. Management learned after a Supreme Court ruiling in
their favor in 1973 that it was entirely legal for them to do this if they wanted.
Wages in the store were set on the basis of profits per hour per department, with
some slight adjustments upward to ensure wages were comparable and competitive
to what other stores in the area were paying. Over the years, Robert Hall set the
wages given in Table 7.14. Although the wage differences between males and
females were substantial, they were not as large as the percentage differences
between male and female sales and profits. The management of Robert Hall argued
that their female clerks were paid less because the commodities they sold could not
bear the same selling costs that the commodities sold in the men’s department could
bear. However, the female clerks argued, the skills, sales efforts, and
responsibilities required of male and female clerks were “substantially” the same.
TABLE 7. 13
Year
Male Gross Profits per
Hour
($)
Female Gross Profits Per
Hour
($)
Excess M Over F
(%)
1963
1964
1965
1966
1967
1968
1969
15.52
16.55
23.85
26.66
28.74
29.21
34.16
9.00
9.49
11.14
1143
12.36
12.91
15.03
72
74
114
134
133
127
127
TABLE 7. 14
Year
Male Earnings per
Hour
($)
Female Earnings Per
Hour
($)
Excess M Over F
(%)
1963
1964
1965
1966
2.18
2.46
2.67
2.92
1.75
1.86
1.80
1.95
25
32
48
50

11. 1967
1968
1969
2.88
2.97
3.13
1.98
2.02
2.16
45
47
45
Questions :
1. In your judgment, do the managers of the Robert Hall store have any ethical
obligations to change their salary policies ? If you do not think they should change,
then explain why they have an obligation to change and describe the kinds of
changes they should make. Would it make any difference to your analysis if,
instead of two departments in the same store, it involved two different Robert
Hall Stores, one for men and one for women ? Would it make a difference if two
stores (one for men and one for women) owned by different companies were
involved ? Explain each of your answers in terms of the relevant ethical
principles upon which you are relying.
2. Suppose that there were very few males applying for clerks’ jobs in
Wilmington while females were flooding the clerking job market. Would
this competitive factor justify paying males more than females ? Why ? Suppose
that 95 percent of the women in Wilmington who were applying for clerks’ jobs
were single women with children who were on welfare while 95 percent of the men
were single with no families to support. Would this need factor justify paying
females more than males ? Why ? Suppose for the sake of argument that men
were better at selling than women; would this justify different salaries ?
3. If you think the managers of the Robert Hall store should pay their male
and female clerks equal wages because they do “substantially the same work”
then do you also think that ideally each worker’s salary should be pegged to the
work he or she individually performs (such as by having each worker sell on
commission) ? Why ? Would a commission system be preferable from a utilitarian
point of view considering the substantial book keeping expenses it would
involve ? From the point of view of justice ? What does the phrase substantially
the same mean to you ?

12. NO. 5
NAPSTER’S REVOLUTION
Eighteen – year old Shawn “NAPSTER” Fanning, then a freshman at Northeastern
University, dropped out of school and founded Napster Inc. (website was at
w.w.w.napster.com) in San Mateo, California in May 1999. Two months earlier,
working in his college dorm room, he had developed both a website that let users
locate other users who were willing to share whatever music files they had in MP3
format on the hard drives of their computers and a software program (called
“Napster) that let users copy these music files from each other over the Internet.
When an early free version of the program he posted on Download.com received more
than 300,000 hits and was named “Download of the week,” he decided to devote
himself full time to developing his program and website. The final version of his
version of his program was officially released August 1999, and in May 2000, with
more than 10 million people – most of them students on college campuses where
Napster was especially popular – signed up at its website, Shawn’s company received
$ 15 million of start – up funds from venture capital firms in California’s “Silicon
Valley.”

13. Fanning grew up in Brockton, Massauchettes, the son of a nurse’s aid and the
stepson of a truck driver, in a family of four half-brothers and half-sisters. He got the
nickname “Napster” during a basketball game when a player commented on his
closely cropped sweaty head of hair. Fanning had taught himself programming and
had held several summer programming jobs.
The company Shawn helped establish gave the Napster program away for free
and charged users nothing to use its website to post the URL addresses where
personal copies of music could be downloaded. Nevertheless, a month later, Shawn
found himself embroiled in a legal and ethical controversy when two record tables,
two musicians (Metallica and Dr. Dre), and two industry trade groups of music
companies (the National Music Publishers Association and the Recording Industry
Association of America) filed suits against his young company claiming that
Napster’s software was enabling other to make and distribute copies of copyrighted
music that the musicians and companies owned.
On June 12, the two industry trade groups filed preliminary injunctions
against the company demanding that it remove all the songs owned by their member
companies from Napster’s song directories. According to the two groups, a survey of
2555 college students showed a correlation between Napster use and decreased CD
purchases. College students were outraged, especially fans of Metallica and Dr. Dre.
Supporters of Napster argued that Napster allowed people to hear music that they
then went out and purchased, so Napster actually helped the music companies.
Music sales had increased by over $500 million a year since Napster had started to
operate, but the music companies claimed that this was a result of a booming
economy. Supporters of Napster also argued that individuals had a moral and legal
right to lend other individuals a copy of the music on the CDs that they had
purchased. After all, they argued, the law explicitly stated that an individual could
make a copy of copyrighted music he or she had purchased to hear the music on
another player. Moreover, according to Fanning, Napster was not doing anything
illegal, and the company was not responsible if other people used its software and
website to copy music in violation of copyright law any more than a car company was
responsible when its autos were used by thieves to rob banks. Much of the music
that was downloaded using Napster, they claimed, was in the public domain (i.e.not
legally owned by anyone) and was being legally copied. The music companies
countered that an individual had no right to give multiple copies of their music to
others even if the individual had paid for the original CD. If everyone was allowed to

14. copy music without paying for it, they charged, eventually the music companies
would stop producing music and musicians would stop creating it. Other musicians
claimed, however, that Napster and the Web gave them a way to put their music
before millions of potential fans without having to beg the music companies to
sponser them.
In March 2000, the band Metallica hired consultant PDNet to electronically
“evesdrop” on users who assumed they were anonymously accessing Napster’s
website. The following week the band’s lawyers handed Napster a list with the
names of 300, 000 people that Metallica claimed had violated its copyrights using
Napster’s service and that Metallica now wanted removed from Napster’s services.
Fanning complied with the demand of Metallica, whose drummer, Lars Ulrich, was
one of his musical heros. “If they want to steal our music,” said Ulrich, “ why don’t
they just go down to Tower Records and grab them off the shelves ?” Many young
people protested that the bands should not be alienating their own fans in this way.
One fan posted a note on an MP3 chat room : “Give me a break ! I have been
dropping 16 bucks an album for Metallica’s music since I was a teenager. They made
a fortune off us and now they accuse us of stealing from them. What nerve !”
Howard King, a Los Angeles lawyer for Metallica and Dr. Dre, stated that “I don’t
know Shawn Fanning but he seems to be a pretty good kid who came up with a
sensational program. But this sensational program has allowed people to take music
without paying ………. Shawn probably had no idea of the legal ramifications of
what he created. I’m sure the though never crossed his mind.”
In August 2000, a federal judge in San Francisco, Marilyn Patel, responded to
the suit against Napster. Judge Patel called Shawn’s company a “monster” and
charged that the only purpose of Napster was to copy pirated music without paying
for it. The judge ordered Napster to remove all URLS from its website that
referenced material that was copyrighted.
Judge Patel’s ruling would have shut down the company’s website
immediately. But a few days later, an appeals court reversed Judge Patel and
allowed the company to continue operating. The reprieve was only temporary. On
Monday February 12, 2001, the Ninth Circuit Court of Appeals in San Francisco
affirmed Judge Patel’s ruling. The company attempted to circumvent the ruling by
negotiating agreements with the music companies that would pay them certain
annual fees in return for withdrawing the suit.
Napster was not the only software that allowed individuals to swap files from

15. One personal computer to another over the Internet. The software program named
“Gnutella” let individuals swap any kind of files – music, text, or visuals – over the
Internet, but Gnutella did not operate a centralized index like the website that
Napster had established. Observers predicated that if Napster was put out of
business, numerous underground websites would be created providing the kind of
listing service that the company had earlier provided on its website. Already a
website named zeropaid.com provided free copies of Gnutella and many other
Napster clones that users could download and use to share digital music files with
each other. Unlike Napster, these software products did not require a central
website to connect users to each other, making it impossible for music companies to
find and target single entity whom they could sue. Many observers predicated that
Napster was only the beginning of an upheaval that would revolutionize the music
industry, forcing music companies to lower their prices, make their music easily
available on the Internet, and completely change their business models.
Questions :
1. What are the legal issues involved in this case, and what are the moral
issues ? How are the two different kinds of issues different from each other,
and how are they related to each other ? Identify and distinguish the
“systemic, corporate and individual issues” involved in this case.
2. In your judgment, was it morally wrong for Shawn Fanning to develop and
release his technology to the world given its possible consequences ? Was it
morally wrong for an individual to use Napster’s website and software
to copy for free the copy righted music on another person’s hard drive ? If you
believe it was wrong, then explain exactly why it was wrong. If you believe it
was not morally wrong, then how would you defend your views against t he
claim that such copying is stealing ? Assume that it was not I illegal for an
individual to copy music using Napster. Would there be anything immoral with
doing so ? Explain ?
3. Assume that it is morally wrong for a person to use Napster’s website and
software to make a copy of copyrighted music. Who, then, would be
morally responsible for this person’s wrong doing ? Would only the person
himself be morally responsible ? Was Napster, the company, morally
responsible ? Wash shawn Fanning morally responsible ? Was any employee
of Napster, the company, morally responsible ? Was the operator of the server
or that portion of the Internet that the person used morally responsible ? What
if the person did not know that the music was copyrighted or did not think that it
was illegal to copy copyrighted music ?
4. Do the music companies share any of the moral responsibility for what
has happened ? How do you think technology like Napster is likely to change the
music industry ? In your judgment, are these changes ethically good or
ethically bad ?

16. NO. 6
WORKING FOR ELI LILLY & COMPANY
Eli Lilly, the discoverer of Erythromycin, Darvon, Ceclor, and Prozac, is a major
pharmaceutical company that sold $6.8 billion of drugs all over the world in 1995,
giving it profits of $2.3 billion. Headquartered in Indianpolis, Minnesota, the
company also provides food, housing, and compensation to numerous homeless
alcoholics who perform short-term work for the company. The work these street
people perform, however, is a bit unusual.
Before approving the sale of a newly discovered drug, the U.S. Food and Drug
Administration requires that the drug be put through three phases of tests after
being tested on animals. In phase I, the drug is taken by healthy human individuals
to determine whether it has any dangerous side effects. In Phase II, the drug is
given to a small number of sick patients to determine dosage levels. In Phase III,
the drug is given to large numbers of sick patients by doctors and hospitals to
determine its efficacy.
Phase I testing is often the most difficult to carry out because most healthy
individuals are reluctant to take a new and untested medication that is not intended
to cure them of anything and that may have potentially crippling or deadly side
effects. To secure test subjects, companies must advertise widely and offer to pay
them as such as $250 a day. Eli Lilly, however, does not advertise as widely and
pays its volunteers only $85 a day plus free from and board, the lowest in the
industry. One of the reasons that Lily’s rates are so low is because, as a long time
nurse at the Lily Clinic is reported to have indicated, “ the majority of its subjects
are homeless alcoholics” recruited through word of mouth that is spread in soup
kitchens, shelters, and prisons all over the United States. Because they are
alcoholics, they are fairly desperate for money. Because they alcoholics, they are
fairly desperate for money. Because phase I testes can run several months, test
subjects can make as $4500 – an enormous sum to people who are otherwise
unemployable and surviving on handouts. Interviews with several homeless men
who have participated in Lily’s drug tests and who describe themselves as alcoholics
who drink daily suggest that they are, by and large, quite happy to participate in an
arrangement that provides them with “easy money”. When asked, one homeless
drinker hired to participate in a Phase I trail said he had no idea what kind of drug
was being tested on him even though he had signed an informed – consent form. An

17. advantage for Lilly is that this kind of test subject is less likely to sue if severely
injured by the drug. The tests run on the homeless men, moreover, provide
enormous benefits for society. It has been suggested, in fact, that in light of the
difficulty of securing test subjects, some tests might be delayed or not performed at
all if it were not for the large pool of homeless men willing and eager to participate in
the tests.
The Federal Drug Administration requires that people who agree to
participate in Phase I tests must give their “ informed consent” and must take a “
truly voluntary and a uncoerced decision.” Some have questioned whether the
desperate circumstances of alcoholic and homeless men allow them to make a truly
voluntary and uncoerced decision when they agree to take an untested potentially
dangerous drug for $ 85 a day. Some doctors claim that alcoholics run a higher risk
because they may carry diseases that are undetectable by standard blood screening
and that make them vulnerable to being severely named by certain drugs. One
former test subject indicated in an interview that the drug he had been given in a
test several years before had arrested his heart and “ they had to put things on my
chest to start my heart up again.” The same thing happened to another subject in
the same test. Another man indicated that the drug he was given had made him
unconscious for 2 days while others told of excruciating headaches.
In earlier years, drug companies used prisoners to test drugs in Phase I tests.
During the 1970s, drug companies stopped using prisoners when critics complained
that their poverty and the promise of early parole in effect were coercing the
prisoners into “Volunteering”. When Lilly first turned to using homeless people
during the 1980s, a doctor at the company is quoted as saying, “ We were constantly
talking about whether we were exploiting the homeless. But there were a lot of them
who were willing to stay in the hospital for four weeks.” Moreover, he adds.
“Providing them with a nice warm bed and good medical care and sending them out
drug – and alcohol – free was a positive thing to do.”
A homeless alcoholic indicated in an interview that when the test he was
participating in was completed, he would rent a cheap motel room where I’ll get a
case of Miller and an escort girl have sex. The girl will cost me $ 200 an hour.” He
estimated that it would take him about two weeks to spend the $ 4650 Lily would
pay him for his services. The manager at another cheap motel said that when test
subjects completed their stints at Lily, they generally arrived at his motel with about
$ 2500 in cash : “ The guinea pigs go to the lounge next door, get drunk and buy the

18. house a round. The idea is, they can party for a couple of weeks and go back to Lily
and do the next one.”
Questions :
1. Discuss this case from the perspective of utilitarianism, rights, justice and
caring. What insight does virtue theory shed on the ethics of the events
described in this case ?
2. “ In a free enterprise society all adults should be allowed to make their
own decisions about how they choose to earn their living.” Discuss the
statement in light of the Lily case.
3. In your judgment, is the policy of using homeless alcoholics for test
subjects morally appropriate ? Explain the reasons for your judgment.
What does your judgment imply about the moral legitimacy of a free market in
labor ?
4. How should the managers of Lily handle this issue ?