Try to let him understand when it is okay when to fight back. But you should get him in a self defense area so he learns the right side of defense. He should not have gotten in trouble and you should let him know that if it is in defense he is good for doing so. Make sure he knows right from wrong. But also tell him that it is important to try to not to fight. That physically fighting is his last resort.
Since he has already been bullied, he will definately be bullied again. Bullies focus on a personality type to attack, and he has a common one that bullies focus on. So no matter what you do (put him in another school, talk to the teachers, talk with the other childs parents, etc), he will be bullied again. Try to get him in Judo or Thai Boxing.
Do not put him in martial arts that will not be used in common fighting, like Taekwondo. When students are put in Taekwondo they focus more on the belts and who is better than them instead of defense against others.