Monopoly and law

“Capitalism is not the system of the past; it is the system of the future —if mankind is to have a future.” – Ayn Rand

A monopoly, according to the Concise Oxford English Dictionary, is “the exclusive possession or control of the supply of or trade in a commodity or service”. And most governments around the world claim to dislike such “exclusive control”. So, parliaments enact laws to prevent companies from following “monopolistic practices” and to break them up – competition commissions and anti-trust actions are part of the process. But just as they are doing this, governments and parliaments also enable monopolies through their actions – by granting patents, by granting exclusive development or usage rights of certain projects or resources and through the creation of monopolies in the public sector. A monopoly is not dangerous in itself, but if the people and practices behind a monopoly are actively involved in subverting the foundations of freedom and free choice, then a monopoly becomes deadly.

Forms of monopoly
Monopolies can exist in various forms and due to various reasons (I do not know the precise terms that are used for each one of them – either in legalese or in economics, or if such categorization is even available. I am only describing them the way I understand them).

A “technological” monopoly is one where the company can keep competition out of its area of business through sheer innovation or by placing technological hurdles which might take many years to be surpassed by prospective competitors, and by that time, the company would have moved on to the next stage. Such a monopoly can take two forms – trade secrets and patents. While both can claim protection under the broad term, “intellectual property”, if a competitor is able to gain knowledge of the trade secret through legal means (reverse engineering, for example), the monopoly is broken. Patents, however, are a different ballgame. A patent is a “negative” right – it gives the company owning the patent the right to prevent other companies from exploiting the patented product or process for period specified by law. And the right can be enforced in the courts of law, and often is – aggressively. (The legal fiction that traditional property rights and “intellectual property rights” are equivalent and hence need to be protected in the same manner has grown and has more or less been accepted by law, with grave consequences. IPR are rights, but the way governments go about enforcing them at present is a threat to individual liberty – particularly the shifting of the “burden of proof” on to the consumer. IPR, however, is a huge topic and will be the subject matter of a future post.)

A “legal” monopoly is a monopoly granted under law. A technological monopoly enforced through patents is in effect a legal monopoly. Copyrights are another form of legal monopoly – a writer, musician or producer owns the exclusive rights to his creations. The Mumbai International Airport Limited, a joint venture between GVK and the AAI is another example of a legal monopoly – they have the exclusive right to upgrade and manage the Mumbai international airport without fear of another airport being setup somewhere in their backyard. In the absence of complete private ownership of land and other resources, governments are able to either set up their own corporations to build and manage infrastructure projects on “public land” or grant a third party similar rights under a Build-Operate-Transfer agreement. Oftentimes, eminent domain is misused to acquire or reserve land. In my view, every use of eminent domain is a misuse because it is the use of the might of the state to appropriate the property of a citizen without his consent, the question of compensation – just or unjust, being irrelevant. Airwaves and airspace are areas where governments grant monopolies or limit the number of players – telecommunication companies, broadcasters – television and radio, wireless internet service providers, aviation companies – you name it.

A “criminal” monopoly is a monopoly on goods or services that is created because of inaction on the part of law enforcement. The cable television industry in various parts of India, particularly Mumbai, where cable operators maintain a hold on their territory through the use of force, ever resorting to murdering their opponents or “trespassers”, is a good example. Another form of criminal monopoly is the one which is created when government passes laws that criminalize the trade in particular goods and services – cigarettes, alcohol, drugs, prostitution, pornography etc. Governments in effect grant an exclusive license to the mafia or anyone ready to act outside the law to indulge in trade in goods that are in great demand but cannot be supplied by legal outfits. For example, Prohibition in the US gave rise to speakeasies.

The other forms of monopoly are relatively simpler – one where the only known sources of a particular mineral or resource is controlled by a single company, one where the amount of capital required to enter a particular sector automatically leaves a single candidate, and finally one where the monopoly is maintained by the sheer costs involved in shifting to a prospective competitor’s product (legacy software systems, for example).

This is not an exhaustive list, but covers what I consider to be the important ones.

Each of the monopolies described above can be categorized into market-determined and government-enforced. For example, all legal and criminal monopolies are government enforced whereas a trade secret based technological monopoly, and those at the end of the list are market-determined ones. Laissez faire capitalism, the purest form of capitalism, abhors excessive government intervention. The extreme forms (not a comment on their validity) of laissez faire insist on zero government intervention.

Governments should not act in a manner that imperils individual liberty and curtails an individual’s right to make a choice. Note, however, that the right to make a choice does not mean the right to demand the perpetual existence of a choice. A monopoly that is formed either as a result of the market or through legal acts on the part of the company involved may reduce the choice an individual has, but the monopoly was not formed by placing restrictions on the individual. On the contrary, public sector monopolies and similar non-market-determined monopolies not only affect the right to free choice, but also exclude the right of individuals and companies to enter that particular sector. Basically, any governments intervention in business that obstructs fair trade or helps in the creation and sustenance of parasitic monopolies is a strict no-no.

Monsanto – The perfect blend of monopoly and use of law
Originally I never intended to write about Monsanto, but the company’s practices make it a perfect example of how parliament and government manipulated by lobbyists into passing draconian and restrictive legislation act against individual liberty (read Vanity Fair’s article Monsanto’s Harvest of Fear). Ideally governments should not have the power to decide if a company is “too big” or if it has a monopoly on a particular sector. So, Monsanto’s near monopoly on various genetically engineered seeds, helped by acquisitions in the past, should not be a problem.

The problem is the use of patent laws to target farmers and anyone else it can find and make them pay up, regardless of whether they have “infringed” on its patents by not following its “licensing agreement” which demands that farmers should not reuse seeds from last season-

Farmers who buy Monsanto’s patented Roundup Ready seeds are required to sign an agreement promising not to save the seed produced after each harvest for re-planting, or to sell the seed to other farmers. This means that farmers must buy new seed every year.


“Monsanto spends more than $2 million a day in research to identify, test, develop and bring to market innovative new seeds and technologies that benefit farmers,” Monsanto spokesman Darren Wallis wrote in an e-mailed letter to Vanity Fair. “One tool in protecting this investment is patenting our discoveries and, if necessary, legally defending those patents against those who might choose to infringe upon them.” Wallis said that, while the vast majority of farmers and seed dealers follow the licensing agreements, “a tiny fraction” do not, and that Monsanto is obligated to those who do abide by its rules to enforce its patent rights on those who “reap the benefits of the technology without paying for its use.” He said only a small number of cases ever go to trial.

Those who are not naive will have an idea of why only a few cases go to trial – most people will settle regardless of whether they are guilty or not because the cost of defending a lawsuit, even a false one, can bankrupt any person living on a reasonable income – “Monsanto is big. You can’t win. We will get you. You will pay.” This principle has been used by many companies and even the government. I call the use of law against people fully knowing the fact that they cannot defend themselves legal terrorism.

Again, the most critical part is the gradual manner in which the most fundamental idea in jurisprudence – the burden of proof – is being shifted slowly but steadily onto the accused.

For centuries—millennia—farmers have saved seeds from season to season

This radical departure from age-old practice has created turmoil in farm country. Some farmers don’t fully understand that they aren’t supposed to save Monsanto’s seeds for next year’s planting. Others do, but ignore the stipulation rather than throw away a perfectly usable product. Still others say that they don’t use Monsanto’s genetically modified seeds, but seeds have been blown into their fields by wind or deposited by birds. It’s certainly easy for G.M. seeds to get mixed in with traditional varieties when seeds are cleaned by commercial dealers for re-planting. The seeds look identical; only a laboratory analysis can show the difference. Even if a farmer doesn’t buy G.M. seeds and doesn’t want them on his land, it’s a safe bet he’ll get a visit from Monsanto’s seed police if crops grown from G.M. seeds are discovered in his fields.

Let those who don’t understand law handle their own problems and lets consider the wind argument. Wind blows away light things – seeds, pollen, dust. It is a fundamental fact of nature. So, should farmers construct glass walls around their farms to prevent an accusation of piracy or patent infringement? Or should they simply pay up to avoid harassment? The government granted patents on GE seeds. Fine – increased productivity etc etc. But how do you expect to enforce such a license agreement or patent, for enforceability is key? If, for example, Nestle sold Nescafe on the condition that only the person buying it is allowed to drink the coffee and for every additional person, a new packet will have to be bought, such a contract is a valid one on the face of it. But the only way it can be enforced is by sending guards with every purchaser to see that he is conforming to the license agreement. Or Nestle could hire detectives to count the number of people in each house and the number of empty Nescafe packets in every dustbin and then start suing people if a discrepancy is noticed. Or governments could mandate that all citizens should install cameras in their houses so that contract violations can be noted. Ironically, in the “wind and seeds” case, Monsanto, and farmers growing GE crops could be accused of contaminating the fields of farmers growing non GE crops.

Read on, things just get worse. Monsanto develops an artificial growth hormone for cows – rBGH. And a dairy farmer who does not like anything GE sells his milk labeled “From Cows Not Treated with rBGH” and similar labels proclaiming pure milk. He’s not giving his cows artificial hormone treatment. So the labeling is truthful. And he should be able to print whatever he wants – the US is after all a free country. Monsanto does not like it however-

But giving consumers that information has stirred the ire of Monsanto. The company contends that advertising by Kleinpeter and other dairies touting their “no rBGH” milk reflects adversely on Monsanto’s product. In a letter to the Federal Trade Commission in February 2007, Monsanto said that, notwithstanding the overwhelming evidence that there is no difference in the milk from cows treated with its product, “milk processors persist in claiming on their labels and in advertisements that the use of rBST is somehow harmful, either to cows or to the people who consume milk from rBST-supplemented cows.”

Monsanto called on the commission to investigate what it called the “deceptive advertising and labeling practices” of milk processors such as Kleinpeter, accusing them of misleading consumers “by falsely claiming that there are health and safety risks associated with milk from rBST-supplemented cows.” As noted, Kleinpeter does not make any such claims—he simply states that his milk comes from cows not injected with rBGH.

I am not interested in whether or not the hormone is safe or not – inject the cows with cyanide if you want to. The question is, can you demand that people not state the truth because it “reflects adversely” on your product? Laissez faire and the principle of liberty says says you cannot. But who cares.

Read the Vanity fair article for more information on the Monsanto case.

Government for sale
Monsanto is hardly the exception. Every major corporation lobbies governments for more than favorable terms and to change laws in their favor. If the companies them self face restriction, its bad economics. If their customers or competitors are restricted, its for the common good. Monopolies are justified any which way. The three pillars of governance – the legislature, the executive and the judiciary should work to uphold the liberty of a country’s people. They should not prostitute themselves to the highest bidder, be it a corporate lobbyist or any other group of arm twisters – from government servants to religious and ethnic minorities to religious fundamentalists. Unfortunately, that is what is happening worldwide. Laws are being written to benefit special interests and without considering the ideas of liberty and freedom. Governments have always had a monopoly on crime. And they have now begun selling their services to those who can afford it.

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