Sean Ching1725950

UCOR 2910-02Winter 2015

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Intel Corporation is the world’s largest computer chip manufacturer, that holds

about 71% of the computer chip market, and challenges Advanced Micro Devices

(AMD), its largest competitor that holds about 25% of the market, for business from

computer manufacturers. Both Intel and AMD are the only real competitors in that

market simply because computer chip manufacturing is a very monopolized type of

business with various “barriers to entry.” These barriers to entry include expensive start

up costs and inexpensive, competitive prices for customers that make it too difficult for

other companies to enter the market or compete. Despite holding a lot more of the market

share and monopoly power, Intel has continuously been concerned about AMD

surpassing them in the future.

In the 1990s, Intel was concerned that AMD might produce a faster, powerful,

and easily compatible computer chip that would take over the market and threaten Intel.

At the time, both companies were using the same “x86 technology” which could “use the

same data and programs that ran on older x86 microprocessors” (231). In other words,

Intel was playing on the same competitive field as AMD and, in order to get a niche

advantage, decided to separate from the common technology and spend millions of

dollars developing a new computer chip that did not run on x86 technology. This proved

to be one of their biggest mistakes. Intel’s new computer chip, the “Itanium” (231) was

not compatible with the popular x86 technology unless it imitated the x86 processor

through a slow emulation program. By trying to create a new computer chip, Intel had

instead alienated itself from the majority of its customers who preferred x86 technology.

Meanwhile, AMD developed a faster and more powerful computer chip, called the

“Athlon” (231) using the current technology. It was far more successful than the Itanium

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and increased AMD’s market share from 9% to 25% in 1999. As a result, Intel suffered

and its market share fell from 90% to 74%.

Intel was devastated and desperate, so it began implementing new competitive

strategies between the company and various computer manufacturers, such as Dell, HP,

and IBM. One example of its new competitive strategies was its use of “rebates” with

Dell, Inc., which held 13% of the worldwide PC market in 2001 and had a net income of

$2.24 billion. Dell’s success in 2001 was largely attributed to its collaboration with

Intel’s “rebates,” or Intel’s huge payments to Dell in exchange for a boycott of AMD

computer chips. Intel continued to increase the magnitude of payments to Dell through

2005 until it reached $805 million per quarter, which was equal to 104% of Dell’s net

income. In other words, these “rebates” became so outrageously high that, by 2005, all of

Dell’s profits came directly from Intel. Regardless of customer demand or sales, which

favored AMD, Intel paid Dell these “rebates” in order to completely cut off AMD and

make Dell dependent on Intel. Intel’s CEO, Paul Otellini, called Dell’s CEO, Michael

Dell, “the best friend money can buy” (233).

Well eventually, friends that you buy become resentful. In a phone call with Intel,

Michael Dell explained how “Dell is no longer seen as a thought leader” (233) and

expressed his frustration on “losing the hearts, minds and wallets of our best customers”

(233). In 2006, they broke away from Intel’s rebate agreements and invested in an AMD-

based gaming computer manufacturer called Alienware. During the following quarters,

Dell began introducing more and more AMD-based computers for sale. In response to

breaking the rebate agreement, Intel began to decrease its large payments to Dell until

2007, when it ceased completely. As a result, between 2007-2010, Dell’s net income fell

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by more than half from $3.57 billion to $1.43 billion. In addition to lost profits, Dell also

lost some of its reputation as a high quality computer manufacturer. “Because Dell had

not reported that most of its profits during those years were cash it was receiving from

Intel, the U.S. Securities and Exchange Commission (SEC) accused Dell and its officers

of deceiving investors who had been told by the company that its high profits were due to

its ultra-efficient management of its supply chain, its direct-sales strategy, its cost

reduction initiatives, and the declining costs of computer parts” (234). Dell deceived

some of its customers, making it very hard to earn their trust again.

Intel was also subject to the legal consequences of its actions.

On May 5, 2009, the European Commission fined Intel a record $1.5 billion and said the company had used its monopoly power to unfairly block AMD from the market. On November 4, 2009, New York Attorney General Andrew Cuomo sued Intel for harming New York’s consumers by using its monopoly power to keep computer makers from buying better AMD microprocessors. In June 2008, South Korea’s Fair Trade Commission ruled that Intel had used its monopoly power in violation of its antitrust laws. In 2005, Japan’s Fair Trade Commission ruled that Intel had violated Japanese antitrust laws by paying companies to buy all or almost all of their processors exclusively from Intel. (230)

In essence, Europe, the United States, South Korea, and Japan had accused Intel of

violating the law. In addition, both AMD and the FTC filed lawsuits against Intel that

were settled in 2009 and 2010 with a $1.25 billion settlement and change of conduct,

respectively. Overall, beyond the legal consequences already set forth, was Intel’s use of

rebates with Dell an ethical decision? The morality of this decision can be assessed

through the five theories of ethics: Utilitarianism, Rights, Justice, Care, and Virtue.

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Utilitarianism, the first theory of ethics, “holds that the morally right course of

action in any situation is the one that, when compared to all other possible actions, will

product the greatest balance of benefits over costs for everyone affected” (78).

Essentially, it is a comprehensive and objective calculation among all options and all

measurable benefits and costs. Therefore, the utilitarian approach can be broken down

into three main steps. The first step is to identify all the options or alternatives, as well as

all parties involved. For the purpose of this class, there will be two options: to do or do

not. The second step is to list all benefits and costs for both options. The final step is to

subtract the costs from benefits and choose the option with the highest “net benefit.”

In assessing the morality of Intel’s “rebates” with Dell, we can identify the

following parties involved: Intel, Dell, Intel and Dell’s investors and shareholders, AMD,

and Intel and Dell’s customers. Intel’s options are to either use the “rebates” or to not use

them. Objective measurements between Intel and Dell’s interactions are provided.

“Between 2001 and 2006, Intel had pumped an estimated total of about $6 billion into

Dell’s income figures,” (234) which represents the total benefits Dell received from Intel

in the form of “rebates.” During this time, when Dell and other computer manufacturers

agreed to boycott AMD, Intel also benefited very well. “[Intel’s] revenues went up to

$3.046 billion and [its] profits went up to $3.488 billion” (233). Therefore, the total net

benefit between Dell and Intel, for completing rebates, was approximately $9.5 billion.

This is an incredible cash benefit!

However, calculating the costs incurred by both Intel and Dell as a result of

rebates can be a little more challenging, largely due to Utilitarianism’s “measurement

problem.” In this case, the “measurement problem” refers to “certain kinds of benefits

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and costs that seem impossible to measure” (83). For example, as an end result of its

rebate agreement with Intel, Dell’s reputation suffered immensely. Among Dell, IBM,

and HP, Dell was the most involved with Intel’s rebates, since “HP and IBM did not

agree to completely boycott AMD’s processors” (234). As Intel CEO Otelleni once said

in 2006, “Dell’s CEO was ‘The best friend money can buy’” (233).

Therefore, when information about Intel’s “rebates” began to leak, people began

to look unfavorably upon Dell supposedly because they viewed these “rebates” as bribes.

Intel’s payments to Dell “required only that a company agree not to buy AMD processors

and were unrelated to the amount the company bought” (232.) The definition of a rebate

is “a return of part of the original payment for some service or merchandise; partial

refund” (dictionary.com, 3-5-14) which implies that all rebates must be tied to a specific

purchase of a service or merchandise: a contradiction of Intel and Dell’s practice. As a

result, in 2005, Dell’s CEO admitted that “Dell is no longer seen as a thought leader” and

“we are losing the hearts, minds, and wallets of our best customers” (233). The effect of

developing customer disapproval can only be seen through Dell’s future sales since,

during the rebate agreement, Intel was compensating Dell for all potential losses.

Therefore, the cost of Dell’s lost sales in the future is speculative and difficult to

measure.

It is also difficult to measure Intel’s costs as a result of the rebate agreement with

Dell because the company not only incurred losses in cash but also incurred a tarnished

reputation and a lost competitive strategy. Even though Intel paid “$1.25 billion to settle

a lawsuit AMD filed against it in 2005” (230), Intel was also forbidden or “prohibited

from conditioning benefits to computer makers in exchange for their promise to buy

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chips from Intel exclusively…” (234). Essentially, the FTC had banned Intel’s most

profitable competitive strategy at that time. How their tarnished reputation and lost

competitive advantage would affect future sales and company legacy is again speculative.

Finally, it is difficult to measure the costs incurred by the investors, shareholders,

and customers of Intel and Dell while both companies engaged in this questionable

practice. “The U.S. Securities and Exchange Commission (SEC) accused Dell and its

officers of deceiving investors” (234). “New York Attorney General Andrew Cuomo

sued Intel for harming New York’s consumers by using its monopoly power to keep

computer makers from buy better AMD processors” (230). Also, “Intel had began

making significant quarterly ‘rebates’ to computer manufacturer Dell, Inc. in 2001, and

Dell at that time stopped using AMD’s processors even though many of its customers

said they wanted computers with AMD’s processor” (232). The costs of investing in

Intel’s inferior processor and purchasing Intel-based computers because they were the

only ones available could have been prevented if Dell and Intel had not engaged in their

rebate agreement. However, solid numbers were not provided.

In response to the measurement problems, the utilitarian approach allows the

requirement for solid numbers to be “relaxed” as long as “any projected act be expressly

stated with as much clarity and accuracy as is humanly possible” (85). This means that

costs and benefits are weighed according to their obvious, relative value determined by

whether they are intrinsic goods, instrumental goods, needs, or wants. Intrinsic goods are

“things that are desirable independent of any other benefits they may produce” and are

more valuable instrumental goods, which are “things that are considered valuable because

they lead to other good things” (85). While Intel and Dell’s cash benefits of

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approximately $9.5 billion could be considered significant, they are not as relatively

significant as something more intrinsic: namely, Dell and Intel’s trust with consumers

and future. Trust between companies and consumers is absolutely essential for any

business transactions to occur largely because it is a contractual right and duty (more on

rights and duties in later chapters.) Essentially, no business transactions could occur if

there was no sense of honoring contractual duties. Therefore, consumers have the right to

be delivered what they demand and companies have the right to collect accordingly: both

parties have contractual rights. Therefore, this helps determine how company trust and

reputation can be more important relative to $9.5 billion now, because it is an intrinsic

good while money is instrumental. One could also pose a similar argument for needs and

wants: having trust between companies who sell and consumers who buy is absolutely a

need while deceptive business practices are just a desire to collect in the short term.

Overall, Utilitarianism justifies a course of action if it provides the greatest

benefits to the greatest number of people. So, while Dell and Intel, as two companies,

made huge profits during a short five-year period, their effects on many international

businesses, consumers and investors are not only difficult to measure, but also staggering.

In addition, their tarnished reputation and trust towards consumers is relatively more

significant than the near-sighted practices they used to collect quickly. Overall, the

utilitarian approach would probably end with the conclusion that Intel’s rebates with Dell

was an unethical decision.

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Kantian rights theory, the second theory of ethics, was a response to

Utilitarianism, which Kant saw as barbaric. In creating his theory, Kant did not resort to

lengthy and complex calculations of costs and benefits but instead looked within and

tried to distinguish right from wrong as humanely as possible. In contrast to what he

called the “Hypothetical Imperative,” or the duties and ethical mindsets associated with

individual conditioning, Kant created two formulations of the “Categorical Imperative,”

or duties and an ethical mindset associated with universal fairness and respect for human

dignity.

Kant’s first formulation of the Categorical Imperative states, “I ought never to act

except in such a way that I can also will that my maxim should become a universal law”

(99). A “maxim” is “the reason a person in a certain situation has for doing something he

or she plans to do” (99) and is basically a rule and reason that is not necessarily moral by

default. Its morality is later assessed by its universality and reversibility. In assessing the

morality of Intel’s rebates with Dell, the maxim here would be, “It is always okay to

bribe business partners and not be completely honest with investors, shareholders, and

consumers because we want a competitive advantage.”

The first way to assess the morality of this maxim is the “universality” criteria.

The universality criteria are explained as, “the person’s reasons for acting must be

reasons that everyone could act on at least in principle” (99). “Between 2001 and 2006,

Intel had pumped an estimated total of about $6 billion into Dell’s income figures” (234).

In exchange, “Dell at that time stopped using AMD’s processors even though many of its

customers said they wanted computers with AMD’s processor” (232).” In addition, “the

U.S. Securities and Exchange Commission (SEC) accused Dell and its officers of

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deceiving investors” (234). Clearly, Intel and Dell’s actions were not universally

permissible because companies rely on a strong trust with their consumers and a

consumer’s trust in a company is tarnished if it’s revealed that they have engaged in

bribes in addition to not providing the products that are demanded. Furthermore, if all

companies made bribes whenever they had the opportunity and refused to sell products

that consumers demand, there would be no business for anyone. Therefore, Intel’s rebates

with Dell fails the universality criteria.

Under the first formulation, the second way to assess the morality of Intel’s

rebates with Dell is the “reversibility” criteria: “the person’s reasons for acting must be

reasons that the person would be willing to have all others use, even as a basis of how

they treat him or her” (99). In other words, imagine if the situation was completely

reversed. “Intel” and “Dell” are the terms used to label the most loyal customers,

investors, and shareholders of two computer companies. The computer companies decide

to engage in bribes and refuse to sell products that Intel and Dell demand. Intel and Dell

would probably condemn the actions of these two computer companies once the truth is

revealed. Therefore, Intel and Dell, in real life, fail the reversibility criteria.

Kant’s second formulation of the Categorical Imperative states, “never use people

only as a means to your ends, but always treat them as if they freely and rationally

consent to be treated and help them pursue their freely and rationally chosen ends” (100).

When Intel and Dell engaged in bribes, they knew that free and rational consumers would

see this as a big negative. Therefore, Intel and Dell disrespected consumers’ rationality

by labeling their actions as something more permissible, yet false: “rebates.”

Furthermore, when Intel and Dell refused to offer products that consumers demanded, for

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the sake of personal profit, they were disrespecting consumers’ freedom to choose what

they want to buy rationally. Finally, “because Dell had not reported that most of its

profits during those years were cash it was receiving from Intel, the U.S. Securities and

Exchange Commission (SEC) accused Dell and its officers of deceiving investors who

had been told by the company that its high profits were due to its ultra-efficient

management of its supply chain, its direct-sales strategy, its cost reduction initiatives, and

the declining costs of computer parts” (234). Here, Dell had disrespected their investors’

and shareholders’ freedom to choose rational investment opportunities based on true data.

Moreover, in all cases, one could argue that Intel and Dell were using their customers as a

means to a quick profit rather than providing them an honest service and product that

would foster a long-term trust.

Overall, Kantian rights theory would probably conclude that Intel’s rebates with

Dell was an unethical decision.

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Rawl’s Theory of Justice begins with the Equal Liberties Principle: “each person

has an equal right to the most extensive basic liberties compatible with similar liberties

for all” (115). The Equal Liberties Principle makes four assumptions. First, these basic

liberties are established from an imaginary group of people called the “Original

Position.” In other words, the basic liberties are chosen from the perspective of a

hypothetical thought experiment, and are not from any real person. Second, the imaginary

people within this group are self interested and rational. In other words, it is assumed that

these people desire to do what is best for themselves and will make rational, reasonable

decisions. Third, once established, these principles of justice will govern society. In other

words, they will be universal and will not just apply to a specific group. Fourth, in order

to ensure impartiality, the original position must choose basic liberties under the “veil of

ignorance”. The veil of ignorance is a limitation of knowledge that prevents “winning”

and “losing” groups because the members of the original position do not know which

group they will belong to until the basic liberties, or rules, have already been established.

If an unfair rule, which discriminated against one particular group of people, were

proposed, each member of the original position would be at risk of being discriminated

against. Due to being rational and self-interested people, from the second assumption, no

one from the original position would agree to this unfair rule and it would be discarded.

Therefore, only impartial, universal liberties could be chosen to govern society (Midterm,

p. 4).

Two of the most basic liberties include “freedom from arbitrary arrest” and

“freedom of speech and conscience” (115) with an emphasis on the word, “conscience.”

First, “freedom from arbitrary arrest” comes from another generalized liberty: right to

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security. We all have the right to walk outside and be free from violence and attacks.

Similarly, at the core of a business relationship, we all have the right to a secure and

stable business transaction and, more broadly, we all have the right to transparent

business transactions. “Between 2001 and 2006, Intel had pumped an estimated total of

about $6 billion into Dell’s income figures” (234). In exchange, “Dell at that time

stopped using AMD’s processors even though many of its customers said they wanted

computers with AMD’s processor” (232).” In addition, “the U.S. Securities and

Exchange Commission (SEC) accused Dell and its officers of deceiving investors” (234).

Based on these facts, we can say that consumers, investors, and shareholders were denied

a transparent view of Intel and Dell whom they’ve grown to trust. In addition, Intel and

Dell denied consumers the basic liberty of a stable and secure business transaction. Intel

and Dell pulled AMD products off the shelves due to a near-sighted inside agreement

between the two companies; not due to consumer demands. The fact that Intel and Dell

believed they could change the conditions of their goods and services to consumers at

whim supports the argument that they’re relationship with consumers was no longer

secure or stable. Finally, Intel and Dell denied investors the security necessary for further

investments to take place. While Intel and Dell are still in business and continue to accept

investments, their prior behavior is poor and reflected a prior violation of investors’

security, at the very least.

Rawl’s Theory of Justice continues with his Principle of Fair Equality and

Opportunity: “social and economic inequalities are arranged so that they are attached to

offices and positions open to all under conditions of fair equality and opportunity” (115).

A common misunderstanding of this principle suggests that, from a just society, Rawls

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merely requires from us a prevention of unequal and unfair treatment based on prejudice

rather than ability: anti-discrimination laws, mostly with a “hands off” approach.

Actually, Rawls also requires that we actively provide opportunities for equal and fair

treatment based on abilities and not prejudice (Midterm, p. 5-6).

While the Principle of Fair Equality of Opportunity usually relates to offices and

positions of power, such as employment and political positions, and not different parties

within a market, such as Intel, Dell, AMD, and consumers, a connection can still be

made. In 1999, AMD created a superior computer chip called the “Athlon, “which” ran

extremely fast and smoothly on computers equipped with AMD’s new processor” (231).

This is in contrast to Intel’s product at the time: the “Itanium.” “Reviewers and users

raved about AMD’s fast and low-priced Athlon and heaped scorn on Intel’s clunky

Itanium” (231). In addition, “between 2001 and 2006, Intel had pumped an estimated

total of about $6 billion into Dell’s income figures” (234). In exchange, “Dell at that time

stopped using AMD’s processors even though many of its customers said they wanted

computers with AMD’s processor” (232).” Here, AMD had clearly made the superior

product. However, Dell refused to give AMD’s products a space on their shelves while

allowing those empty positions to be filled by Intel. Therefore, one could argue that Dell

was not only negligent in creating a fair computer sales market based on merits and not

prejudice. Rather, Dell intentionally collaborated with Intel to create a discriminatory

computer sales market that did not reflect true superiority in technology.

Finally, Rawl’s Theory of Justice concludes with the Difference Principle: “social

and economic inequalities are arranged so that they are to the greatest benefit of the least

advantaged persons” (115), meaning that those with the most power have a moral

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responsibility for those with less power. With a heavy emphasis on efficiency, the

Difference Principle (Midterm, p. 6-7) “obliges us to maximize benefits for the least

advantaged, [meaning] that business institutions should be as efficient in their use of

resources as possible. If we assume that a market system such as our is most efficient

when it is most competitive, then the difference principle will in effect imply that markets

should be competitive and that anticompetitive practices…are unjust” (115).

Multiple sources have accused Intel, and consequently Dell, of anticompetitive

practices.

On May 5, 2009, the European Commission fined Intel a record $1.5 billion and said the company had used its monopoly power to unfairly block AMD from the market. On November 4, 2009, New York Attorney General Andrew Cuomo sued Intel for harming New York’s consumers by using its monopoly power to keep computer makers from buying better AMD microprocessors. In June 2008, South Korea’s Fair Trade Commission ruled that Intel had used its monopoly power in violation of its antitrust laws. In 2005, Japan’s Fair Trade Commission ruled that Intel had violated Japanese antitrust laws by paying companies to buy all or almost all of their processors exclusively from Intel. (230)

In essence, Europe, the United States, South Korea, and Japan had accused Intel of

anticompetitive practices. Furthermore, as independent and self-interested companies,

Dell was an intentional collaborator with Intel in the form of their rebate agreement. Even

though Dell eventually grew distrustful of Intel and began to break away from their

rebate agreement, both companies had already engaged in anticompetitive business

practices that violated Rawl’s Difference Principle.

Overall, Rawl’s Theory of Justice would probably conclude that Intel’s rebates

with Dell was an unethical decision.

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The Care Theory is a unique theory of ethics that focuses not on universal,

impartial rules of ethics but, rather, necessary and important relationships of dependency

or vulnerability. “We each exist in a web of relationships,” (121) so in order to make

moral decisions, we must do two things: “preserve and nurture those concrete and

valuable relationships we have with specific persons” (121) and “exercise special care for

those to whom we are concretely related by attending to their particular needs, values,

desires, and concrete well-being as seen from their own personal perspective, and by

responding positively to these needs, values, desires, and concrete well-being,

particularly of those who are vulnerable and dependent on our care” (121).

With that being said, there are two issues with the Care Theory, relevant to Intel’s

rebates with Dell, that serve to correct any misunderstandings. First, not all dependent or

vulnerable relationships should be nurtured or preserved, especially when “characterized

by domination, oppression, harm, hatred, violence, disrespect, viciousness, injustice, or

exploitation” (120). Furthermore, certain relationships of this nature can conflict with the

Justice Theory’s commitment to fair distribution of benefits and burdens. “The demands

of caring and of justice can conflict and such conflicts should be resolved in ways that do

not betray our voluntary commitments to others and relationships with them” (120).

Therefore, when a certain type of dependent or vulnerable relationship conflicts with

Justice, a good way to resolve the conflict is to step back, look at the full picture, and

identify the most fundamental relationships that we owe allegiance to.

First of all, it was obvious that Intel and Dell shared an important relationship

during their five-year rebate agreement. “Between 2001 and 2006, Intel had pumped an

estimated total of about $6 billion into Dell’s income figures” (234). In exchange, “Dell

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at that time stopped using AMD’s processors even though many of its customers said

they wanted computers with AMD’s processor” (232).” Furthermore, Intel continued to

increase the magnitude of payments to Dell through 2005 until it reached $805 million

per quarter, which was equal to 104% of Dell’s net income. From this relationship, Intel

received exclusive shelf space from Dell and Dell received all of its profits from Intel.

Both parties received massive benefits from the relationship so the relationship itself was

no doubt significant. Also, because Dell was receiving all of its profits from Intel, it

developed a dependency on Intel.

However, it was clear that Intel dominated its relationship with Dell from the

start. Tom McCoy, AMD’s executive vice president of legal affairs, explained how Intel

dominated many computer makers such as Dell:

Intel threatened companies by warning them that if they did not stop using AMD’s microprocessors, Intel might stop supplying them with any microprocessors at all. The threat was a powerful one because even if they used AMD’s microprocessors on some of their top-quality computers, every computer manufacturer still depended on Intel for the microprocessors in all their other computers. Because of its small size, AMD could not provide the full range of microprocessors that the larger companies needed (231-232).

In other words, Dell could not enter into a relationship with Intel out of complete free

will but, nonetheless, established the relationship partially out of domination and

oppression. The relationship was formed for the sake of avoiding further harm rather than

accepting a really positive deal. Furthermore, “although many smaller companies started

using AMD’s chips, Dell feared retaliation from Intel if it tried to do the same” (233).

Here, Intel’s relationship with Dell is characterized as fearful rather than equal. Overall,

Intel’s relationship with Dell proved to be unethical in part because it was a dependent

relationship characterized by fear, domination, and oppression.

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Finally, Dell has a voluntary commitment to its stakeholders and customers

because it is a computer company that borrows money from investors and earns profits

from customers. Dell would not be a successful company if it had not established and

nurtured fundamental relationships between its investors and customers. In contrast, its

relationship with Intel was not voluntary since, as mentioned, it was established due to

threats and fears of retaliation. However, Dell chose to side with its relationship with

Intel at the cost of its investors and customers. “Because Dell had not reported that most

of its profits during those years were cash it was receiving from Intel, the U.S. Securities

and Exchange Commission (SEC) accused Dell and its officers of deceiving investors

who had been told by the company that its high profits were due to its ultra-efficient

management of its supply chain, its direct-sales strategy, its cost reduction initiatives, and

the declining costs of computer parts” (234). Furthermore, “Dell at that time stopped

using AMD’s processors even though many of its customers said they wanted computers

with AMD’s processors” (232). If Dell stepped back and saw the full picture, it would see

that the most fundamental relationship it owes allegiance to is to its customers and

investors. Without them, Dell’s only source of capital would be from Intel who had

essentially become Dell’s only customer. However, unlike its relationship with customers

and investors, Dell’s relationship with Intel was harmful and not based on product

demands or effective management. Therefore, Intel’s relationship with Dell imposed an

unjust burden on Dell’s customers and investors in exchange for an unjust benefit solely

to Intel and Dell.

Overall, Care Theory would probably conclude that Intel’s rebates with Dell was

an unethical decision.

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The Virtue Theory is the final theory of ethics and is the most unique because its

main focus is not on the agent’s behavior but, rather, the agent’s moral character. A moral

virtue is defined as “an acquired disposition to behave in certain ways that is valued as

part of the character of a morally human being” (128) and is essentially a virtuous habit.

Virtues, or good habits, are developed through practice of a specific external behavior

that normalizes the virtue or vice internally. “Aristotle suggests that virtues, like other

habits, are acquired through repetition” (129). Therefore, in order to develop the correct

virtues, one must practice behavior that is useful for living and contributing within

society. Pincoff’s Theory of Virtue further expands this and states, “virtues are

dispositions we use when choosing between persons or potential future selves” (130). In

other words, practicing a certain behavior contributes to how we establish relationships

and how we develop as rational decision makers.

A basic and universal virtue is the virtue of “justice” or “people getting what they

deserve: either beneficial or penal.” People who have internalized the virtue of justice

believe in a fair distribution of benefits and burdens. At the very least, they believe that

the systems that govern all must be rooted in fairness and, in the case of business,

competitive markets. From a basic understanding, competitive markets are just and fair

because individual businesses are price takers and market power is spread out so that

customers can choose businesses with the most appealing products, which is most useful

for society as a whole. Furthermore, businesses that actually compete in competitive

markets and stand out deserve to expand and become more successful organizations.

Intel and Dell were not virtuous and actually helped to develop both companies’

vice of injustice because they worked together to create an uncompetitive market. First,

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Intel tried to set up a monopolistic market where other computer chip makers, notably

AMD, were unable to fairly compete:

Intel threatened companies by warning them that if they did not stop using AMD’s microprocessors, Intel might stop supplying them with any microprocessors at all. The threat was a powerful one because even if they used AMD’s microprocessors on some of their top-quality computers, every computer manufacturer still depended on Intel for the microprocessors in all their other computers. Because of its small size, AMD could not provide the full range of microprocessors that the larger companies needed (231-232).

Furthermore, in collaboration with Intel, “Dell at that time stopped using AMD’s

processors even though many of its customers said they wanted computers with AMD’s

processor” (232). Essentially, Intel was limiting computer manufacturers’ abilities to

choose products and Dell was limiting customers’ abilities to choose products as well,

which is the exact opposite of competition. Their end goal was to take more profits than

their products actually deserved under fair competition. “Between 2001 and 2006, Intel

had pumped an estimated total of about $6 billion into Dell’s income figures” (234) and

“Intel had unusually high profit margins of 50 percent that allowed it to accumulate $10.3

billion of cash at the end of 2001, and by the end of 2005, it held $14.8 billion of cash”

(233). In other words, Intel and Dell knew that none of this would be possible if they

played within the rules of a competitive market so they made unethical decisions to take

more than they would normally get if all companies had a fair chance.

The first test in the Virtue Theory asks, “is this behavior or decision useful for

living and contributing in society?” A society is not just made up of everyone associated

with Intel and Dell: executives, employees, workers, etc. Rather, society is also made up

of other companies, customers, and investors, to name a few. If Intel and Dell’s decision

to monopolize was “useful for living and contributing in society” then, by definition, it

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should not only be allowable for all people, but also a common practice for all people.

However, by definition, a monopoly creates a market where only a few agents have all

the market power and the rest of society must be complicit and accept less profits or

benefits. Therefore, not everyone in society can manage to monopolize and Intel and

Dell’s decision to monopolize cannot be useful for society.

Also, the vice of injustice developed within Intel and Dell’s rebate agreement.

More specifically, Intel asserted its dominance over Dell and received the better half of

the agreement, despite both profiting from it. Despite being paid $6 billion in rebates,

Dell feared Intel and was coerced into giving up its ability to choose between competing

computer chip manufacturers. “Although many smaller companies started using AMD’s

chips, Dell feared retaliation from Intel if it tried to do the same” (233). Furthermore,

“Intel officials said they were willing to do ‘whatever it takes’ to get Dell not to use any

AMD processors” (233) including intimidation tactics. As a result of its actions, Intel

developed a sense of viciousness to impose merciless demands on companies that were

supposed to be business partners. This was not only hurtful for healthy, competitive

markets but also damaging for Intel’s future as a business. Intel was transforming from a

competent, prospective business partner into a vicious, demanding manipulator of the

market. Under the first test of Virtue Theory, Intel’s rebates with Dell fails.

The second test of Virtue Theory, which is merely a different spin on the first test,

asks if the behavior or decision “exhibits, reinforces, or emphasizes a virtue or vice.” So,

how does Intel’s rebates with Dell help internalize good or bad character? As mentioned,

as two collaborating companies, Intel and Dell internalized the vice of injustice by

demanding an unfair amount of benefits from other companies and customers who were

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forced to accept an unfair amount of burdens. Secondly, as an individual, self interested

and rational company, Intel developed the vice of injustice by coercing Dell into a

business agreement that was unequal and demanded Intel’s greater market power in

exchange for Dell’s lack of it.

Overall, Virtue Theory would probably conclude that Intel’s rebates with Dell

was an unethical decision and, collectively, all five theories of ethics would agree on that

as well.

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As a customer and user of many electronic devices, including laptops, I personally

conclude that Intel’s rebates with Dell was an unethical decision simply because it was a

dishonest decision. When it comes to information that will influence important financial

decisions in a professional setting, such as between companies and customers, I expect

and demand that the companies I purchase my devices from are operating an honest

business. For example, between 2011-2012, I was a big supporter of Microsoft’s Xbox

video game console and was not at all hesitant to recommend it to friends. My enjoyment

of the device was just as important as my impression of the company that made it. That is

why in 2013, when news leaked that Microsoft was making dishonest changes to their

new Xbox One, my support of the Xbox console died with my support for the company

that made it. Microsoft claimed that their mandatory camera did not use invasive

technology and that their new, controversial user agreement policies were to be

permanently implemented. Both of these claims were proven to be shocking lies when

more news revealed that the Xbox camera could actually see through thin pieces of

clothing and the user agreement policies could be revoked if not enough people agreed to

it.

Intel and Dell were dishonest with its customers and investors in a similar fashion.

Intel labeled its payments to Dell as “rebates” even though they seemed more like bribes.

Intel’s payments to Dell “required only that a company agree not to buy AMD processors

and were unrelated to the amount the company bought” (232.) The definition of a rebate

is “a return of part of the original payment for some service or merchandise; partial

refund” (dictionary.com, 3-5-14) which implies that all rebates must be tied to a specific

purchase of a service or merchandise. In this case, Intel was just paying Dell regardless of

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the number of products purchased, indicating a bribe. The main point here is that Intel

was playing with their use of words and was ultimately dishonest. Secondly, by accepting

these bribes, Dell fabricated a story to make it seem like their profits were due to better

management rather than dishonorable bribes. “Because Dell had not reported that most of

its profits during those years were cash it was receiving from Intel, the U.S. Securities

and Exchange Commission (SEC) accused Dell and its officers of deceiving investors

who had been told by the company that its high profits were due to its ultra-efficient

management of its supply chain, its direct-sales strategy, its cost reduction initiatives, and

the declining costs of computer parts” (234). If Dell knew that they couldn’t tell people

the true story then they definitely knew that what they were doing would be viewed as

dishonorable and wrong. Therefore, I think that Intel and Dell’s decision to pay and

accept rebates, respectively, was no doubt unethical.

The Rights Theory was the most useful for analyzing this case because it was the

most direct approach and used the most relevant tests. In contrast, the other four theories

had a few issues that made them less ideal for analyzing the case. First of all, Rights

Theory asked whether or not Intel and Dell’s actions were universal and reversible: could

everyone do what Intel and Dell were doing and what if Intel and Dell were on the other

side of their agreement? In short, it was easy to see that not everyone could operate the

same way as these two companies and Intel and Dell would not be willing to trade places

with their customers or each other.

Justice Theory asked similar questions but was ultimately a flawed method of

analysis. While its Principle of Equal Liberties addressed the key concepts from Rights

Theory, its Principle of Fair Equality of Opportunity missed the mark. The Principle of

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Fair Equality of Opportunity is mostly relevant to positions of power within an

organization: political positions, managerial positions, job positions, etc. However, it is

less relevant to positions between two different organizations, such as between Intel,

Dell, and AMD, or between organizations and customers. Therefore, the connection here

was a little stretched. Care Theory also missed the mark because its main focus is not

necessarily on all types of dependent or vulnerable relationships but, rather, dependent or

vulnerable relationships of intimacy. For example, while the fundamental relationship

between companies and customers is necessary for any business to occur, Care Theory

would be more inclined to analyze the fundamental relationships between family

members and loved ones.

Finally, Virtue Theory was not entirely appropriate for this case because its

unclear if corporations can act like individuals and individuals are the only ones to have

moral character. In chapter 1.4 of Business Ethics: Concepts and Cases, regarding

“Moral Responsibility and Blame” (56), “the traditional view is that each person who

knowingly and freely cooperates to produce a corporate act is morally responsible for that

act” (62). The traditional view of blame implies that “corporations don’t hurt people:

people hurt people.” On the other hand, critics opposed to the traditional view of blame

claim “when the members of an organized group such as a corporation act together, their

corporate act should be attributed to the group and, consequently, the corporate group and

not the individuals who make up the group must be held responsible for the act” (62). In

this case involving Intel’s rebates with Dell, there was not a lot of information regarding

individual decisions made within each corporation, aside from the two CEOs of each

company. Therefore, Virtue Theory analysis is unclear if corporations have no character.

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