I've been off and on reading this thread all day, but finally can sit down and post my thoughts.
Personally, I think the OP's son did a noble thing, looking out for someone who was unable to look out for themselves.
My story is that I was bullied non-stop from 2nd grade to 8th grade. Those that maybe aren't used to being bullied, think about that for a minute. From the age of 7, to the age of 13, I was bullied. The main reason being I was shorter than every one, by quite the margin. I was too afraid to fight back, and my classmates did nothing but laugh and jeer along with the bullies. No one stood up for me. I was taught to tell an adult when the bullying happened, but that usually just resulted in the bully getting a warning, and he'd come back in full force later on, and when the teachers weren't watching.
My mother always told me to stand up for myself, and she'd go to the school and raise hell about the bullying, but I, personally, just didn't fight back, physically or otherwise.
Most of that changed when I was in high school. I was still short (I'm talking a 4'3" 14 year old), but for the most part, the kids in high school were great to me. I was known and accepted despite being tiny. Hell, most of the guys and girls in my class, Freshmen all the way to Seniors, were very protective and kind to me because I was so short. This was quite a change from the 6 years I was treated like shit. My formative years, those years where a child tends to develop their social skills with their peers, was marred by bullying. I had no confidence, no self esteem, and even in high school, it still took an additional 10+ years before I finally found my strength and confidence.
Now, despite having a lot of good friends in high school, there was one guy, Josh, who was a nuisance and bully during my Freshmen year, and half of my Sophomore year. He thought he was hot shit, and that it'd be cool to try and pick on the little guy. For the most part, I ignored his bullying, thinking that if I just didn't pay him any mind, he'd leave me alone. That didn't happen. For all of Freshmen year. Every day was a new torment.
So, Sophomore year comes, and he starts his bullying up again. I do the ignoring thing again, but it just won't stop. Finally, about 6 months into the year, we're in our English class together, he's at the desk in front of me, and he thinks it'd be "hilarious!" to take a permanent marker and dot me on the head with it.
I guess that was it, for me, because I calmly got up out of my desk, and put him in a choke hold, and told him to apologize. The teacher, who was in the middle of teaching, looked back, saw that I had this guy in a head lock, and he was squirming, and turned back to teaching. I finally let him go after a few seconds (I probably, in total, had him in the head lock for less than a minute, maybe), and he's coughing and saying, "That's it, after school, we're going to fight. I'm going to kick your ass after school!"
So I say, "Ok, fine, we'll fight!" I was pumped full of adrenaline, and was no longer afraid to get an ass whupping if it came to that, I was just sick of this guy.
Needless to say, we never fought after school, and he never bullied me again. He never even held a grudge, and at the least, he'd grunt an acknowledgement of my presence (since we had a lot of the same friend pool in the high school we went to; art majors stuck together, as did theater, dance, and music majors; I went to a high school that let the students major in those fields. I was an art major, as was he). The rest of my high school years went by bully free, as did my life so far.
I'm not a fan of violence. I try to avoid it at all costs, but sometimes, it's necessary, and often, with bullies, they only respond to an equal show of aggression or lack of fear. With some of them, "talking it out," isn't going to lead anywhere.
With my high school bully, the teacher never reprimanded me for what I did in that class, but I did tell my mom what happened, and yeah, she doesn't like violence, but what she doesn't like more is someone physically harming her child. My mom has never condoned outright brawling with people, but she's always been a strong proponent for standing up for yourself, especially if the school system, or adults, aren't listening.
tl;dr: I was bullied for 7 and a half years, and finally, in high school, I stood up to an obnoxious bully by choke-holding him, and he never bothered me again. Sometimes, you have to dirty your hands to end bullying. It's not ideal, but what in this world is?
I can't tell the OP how to raise his son, but from what I got from this thread, he's a good kid, with a good sense of right and wrong, but he's 12. Kids don't have the luxury of a lifetime of experience and hindsight to evaluate at a moments notice. The OP should discipline his kid in the manner he feels appropriate.