Taking Our Country Back

...Weaving patent webs was an expensive business, way beyond what small players could afford. But in the very large markets that companies like DuPont and AT&T played in, it was a comparatively small cost, especially in relation to the benefits that such a web might deliver. One of those benefits was that it enabled large corporations to divide international markets among themselves. Patents were not necessary to the formation of a cartel, but they were a very useful way of disguising and most importantly enforcing one.

The need to disguise a cartel in the UK was less pressing since competition was understood to be an arrangement best left to the mutual understandings of gentlemen. Membership of one, like the membership of an exclusive club, was a sign of the highest success. In the US the hazard of cartel membership was greater. The real danger came from both state and federal legislatures which had, in the face of public hostility to a cartelized US economy, enacted antitrust legislation. Business confronted by ‘trust busters’ bent on smashing their cartels had to find another way to continue them. They were in the market for a solution to their problems, a solution that intellectual property lawyers were to provide in the form of the knowledge game.

In order to understand the genesis of the knowledge game we need to backtrack a little and understand the predicament of cartels in the US of the 19th century. Cartels are borne of a desire by business to dominate markets, as opposed to the unpleasant fate of being dominated by them. Individual producers come to an arrangement under which they fix the price of a commodity or limit the production of that commodity. Cartels were omnipresent in 19th century US business life. They were to be found in the lumber, woodware, flooring, furniture, casket, leather, petroleum, rubber, footwear, explosives, glass, paper, iron, steel, copper, brass, lead, metals and hardware industries.²⁹ Very often cartel arrangements would take the form of quite detailed articles of association. So, for example, the Kentucky Distillers in 1888 drafted an agreement determining that the quantity of whisky to be made in 1889 was to be a maximum of 11,000,000 gallons, with a formula for deciding how many gallons each distiller was entitled to make.³⁰ The makers of gunpowder formalized arrangements among themselves in an agreement called ‘Articles of Association of the Manufacturers of Gunpowder’. The purpose of the cartel was to fix the price of gunpowder:

We, the undersigned, Manufacturers of Gunpowder, for the purpose of ensuring an

equitable adjustment of prices and terms for sales of powder throughout the United

States, hereby agree to the subjoined Articles of Association, to which we severally

pledge for ourselves, and all under our control, rigid and honourable adherence

[emphasis added].³¹

It was not possible to discipline the greedier members of a cartel by taking them to court, since courts would not enforce such agreements. The common law admittedly had no hard and fast rules about when it was illegal to create a monopoly, but when the contract in question limited supply or fixed the price of a commodity it was almost certain to be unenforceable.³² Freedom of contract did not extend to the freedom to silence competition. What was known as the restraint of trade doctrine stood in the way of cartel members being able to go to the courts to solve their enforcement problem.

Cartel members turned to the use of the trust to help them deal with the problem of defection. The medieval device of the trust obliged the trustee (nominally the legal owner) to manage the trust on behalf of those in whose beneficial interest the trust was constituted. From the point of view of cartel members its chief virtue was that it allowed independent business entities to be centrally managed. Essentially companies would transfer shares to a board of trustees who would then manage the trust on behalf of the companies. Crucially, price control and production could then be centrally managed. The first great trust to be formed for these purposes was the Standard Oil Trust Agreement of 1879. Under the terms of the trust 30 companies turned over their stock and interests to three trustees who would manage the trust for the ‘exclusive use and benefit’ of the individuals named in the trust. John D Rockefeller, one of the beneficiaries of the trust, got the lion’s share of the benefits.33

Some of the large trusts were declared illegal by the courts, most notably the Standard Oil Trust. It became clear to business that trusts were not the promised land for cartels. With public anger swirling around trusts, legislation permitting one company to hold the stock of a rival began to make its appearance in US states in the 1890s, ‘put quietly through under the cover of antitrust agitation, while the public, led by the newspapers, were looking somewhere else.’³⁶ Again the idea was to use a legal device, the holding company, as means of coordinating the members of a cartel. Holding companies, however, which were established for the purpose of achieving a monopoly, were declared illegal.³⁷

Although many were dominated by a small group of individuals, they were no longer family businesses. They had begun a process of reorganization that would see some of them become great globally operating corporations. Creating new administrative structures to support their increased size and plans for expansion was one immediate problem that they faced.³⁸ They were also left with the problem of how best to organize and enforce a cartel.

The knowledge game was not created overnight. Rather it evolved, its nature and complexity refined by many legal hands over the generations. The law was something of a contradictory resource for the designers of the knowledge game. There were patent law cases emphasizing the absolute nature of the patentee’s monopoly, including the right to impose pricing restrictions and the fact that the exercise of patent rights did not contradict the Sherman Act. This line of authority had to be carefully nurtured.⁴⁰ Those cases elevating the public purpose of the patent grant had to be bypassed, left as tiny islands in a river that flowed only to strengthen the rights of the patent holder. Other aspects of the knowledge game also had to be improved. The essence of the knowledge game was to propertize as much knowledge as possible. Restrictions on patentability had to be removed. As corporate laboratories of knowledge ventured more and more into the biological sciences it became clear that the restriction on the patenting of discoveries would have to be overcome. How else could the players in the knowledge game come to have patent control over the genes to be found in nature? Patents were not the only building blocks of the knowledge game. Copyright and trade marks also became fundamental components of the game.

None of the early builders of the knowledge game saw it revealed in all its great detail. There was no prescient designer laying down a blueprint for future artisans to follow. Instead there was corporate strategy creating needs, above all the need to order markets; there was the contradictory, rule-bound complexity of the law; and there were entrepreneurial legal types like Prindle who saw in intellectual property rights developmental possibilities that would allow ordinary old-fashioned commodity cartels to reestablish themselves as knowledge cartels, but cartels nevertheless.

Taking Our Country Back
It's obvious to all but the most brain dead of Americans that the United States has become a fascist country. It is being run by and for the multinational corporations. They are destroying all that was good about America using the techniques of the worst of capitalism. The people who should be the leaders of this country are nothing but puppets - mindlessly, stupidly aiding and abetting in the annihilation. Almost without exception, their every action makes the problems worse. The members of Congress don't even bother to read the legislation they vote on and obviously, they don't consider it enough of a problem to bother with. Invincible ignorance is the path to wealth and fame for politicians in Washington DC.
It's nearing Do or Die time in the U.S. A strategy must be formulated to wrest control of our country back from the multinational corporations and their useful idiots. We must have leaders - corporate and government who value honesty, honor and integrity over personal wealth. We need leaders who have the strength of character to fight the corruption in our system. We cannot tolerate a system in which corporate, white collar crime is given a wink and a nod while militarized police taser children and old people for the sake of terrorizing the public. Much of my research has involved taking current events or conditions and tracing back in history to find where they started for the purpose of understanding the thinking that led us to our current day nightmare. That's what I was doing when I found what might be the solution that we so desperately need. Not surprisingly, it would be following in the footsteps of ancestors when they faced the same problem in the 1920's and 1930's. Here's what I found. I just hope it's not too late. While searching for information on supply chain management - which is being implemented on a national level, I found a very interesting masters thesis written by Richard M. Hoppe (MIT). The title is: 'Outlining a Future of Supply Chain Management - Coordinated Supply Networks. It's a very impressive paper that deserves close scrutiny. Admittedly, I was scanning through it until I got to page 27. Then I started reading in earnest. The following is an excerpt of that section with emphasis on the key points of interest:
xxxxxxx	2.4 Information Integration Supply chain integration refers to both internal and external integration – i.e. joining internal company business segments and integrating with outside companies. Internal supply chain integration is the process of joining otherwise separate activities such as purchasing, warehousing, transportation, distribution, and customer service within a single enterprise. It is arguable to what extent companies have achieved integration and coordination of internal functions. These attempts are ongoing efforts. However, due to decreasing marginal returns several companies have increasingly focused outside the firm’s boundaries to identify higher value opportunities from collaborating with adjacent supply chain partners as observed by Bauknight [26]. Bauknight argues that while internal integration provides a competitive advantage in some cases, that advantage will quickly erode over the next few years due to the rising potential from coordination of supply chain activities outside the enterprise. Consequently, many companies have focused on external integration with partners, with emphasis on coordinating information sharing. No longer can companies compete as isolated entities that are disconnected from their supply chain partners as mentioned by Christiaanse, Kumar and Lam [27]. In order for firms to succeed in markets that are driven by the trends mentioned in Section 1.2, it is necessary for companies to create strong information linkages with their chain partners.16 External integration, based on information sharing, is the primary building block and coordination dimension among companies to improve performance. The next section discusses the rationale for the first dimension of integration through benefits associated from coordinating information flows across supply chain partners. 2.4.1 Information Sharing Benefits The benefits of information integration are illustrated in a consumer goods industry wide study conducted by Hau Lee at Stanford University and Andersen Consulting [28]. Based on a survey of 100 manufacturers and 100 retailers, it was found that companies engaged in higher levels of information sharing with supply chain partners reported higher than average profits. The degree of information sharing and profits and its impact on manufacturers and retailers are shown in Figure 2-3 and Figure 2-4, respectively. A clear correlation in both the level of information sharing at retailers and manufacturers and profits is observed. [Note: There are diagrams to make the case] 2.4.2 Case Studies in Information Integration In addition to the benefits from information sharing in the consumer packaged goods industry, innovative information integration in the supply chains of Cisco Systems and Dell Computer has substantial advantages over conventional approaches.17 Both companies have seen their stock prices soar several thousand percent over the past decade to a large extent due to efficiency gains, cost reductions and mastering their supply chain by using extensive information integration systems. An overview of the cost savings and revenue maximizing from efficiently integrating information systems and consequently flow of information are illustrated in the two examples, respectively. Case in Point – Cost Reduction at Cisco Systems Cisco Systems’ CFO, Carl Redfield, estimated in 1999 that Cisco’s interconnected supply chain had led to $700 million in savings since 1994 [29]. These are significant bottom line savings for Cisco, approximately 12% of net income.18 Cisco is able to achieve such gains from connecting its customers and suppliers to an electronic-hub (e-Hub) which allows end-to-end information visibility across the entire supply chain – sharing forecasts, order information and availability of components. In addition, Cisco integrates its suppliers in the planning and forecasting process in order to minimize discrepancies in the capacity planning and production processes. By integrating suppliers early on in the product ordering process, the average order-to-delivery time for customer-configured systems has been reduced to 10 days in 2001 from 23 days in 1998. By coordinating workflows among customers and suppliers in an electronic form that is fast and accurate, Cisco is able to achieve significant cost reductions. Case in Point – Revenue Gains at Dell Computer Supply chain integration through workflow coordination benefits also enhances revenues, increases market share, strengthens competitive position, and enhances the value of a company as described by Lee [30].19 The case of Dell Computer provides an example of how supply chain performance enhances competitiveness. In the PC industry, competition is not based on technology per se, since all manufacturers use the same technology – Intel and Microsoft. The competition centers on cost and service levels, which Dell has successfully addressed [31]. The company’s success in eating away market share from Compaq, IBM, and HP in the personal computer market is partly based on the ability of allowing customers to design, price and build systems based on their individual needs, also referred to as the ‘Dell Direct Model’ [32].20 At present, Dell has several information sharing initiatives with its suppliers in addition to joint planning and forecasting. Components are delivered in a just-in-time basis from adjacent suppliers to Dell’s manufacturing plants (and those of its contract manufacturers), computers are assembled in matter of hours and a merge-in-transit operations adds monitors and other peripherals to shipments on the way to the consumer. An average order is received by the customer 4-5 days after placement [33]. Skipping to page 58 ...The next section discusses distribution of control found in supply chains that operate through open markets and its effect on coordination. Section 3.3.1 discusses the current distribution of control in open market based supply chains and the benefits and shortcomings from centralized control in achieving optimal coordination of the supply chain. Section 3.3.2 presents di-polar control distribution in agriculture chains and its effect on coordination. 3.3.1 Single Pole Control The Gartner Group [94] defines a channel master as the following: “A channel master is an enterprise within a supply chain that has compelling control over the sales of a product.” As a result, a channel master has influence over enterprises that depend on it for large part of their business within that supply chain, in addition to owning the brand awareness among consumers.58 Being the most influential member in a supply chain, a channel master often dictates the technology platforms and business processes used between itself and its partners. Cooke [95] argues that new supply chain communities – or networks – need an impetus to collaborate, which can only come from the channel master in the chain. These channel masters have the influence to force suppliers to participate in on-line supply chain communities and to establish these networks. Refer to Table 3-1 for a selected list of channel masters. In addition, AMR Research [96] projects that channel masters that dominate through distribution or manufacturing excellence like Ingram Micro and Cisco Systems are likely to emerge in the future. Both companies have dominated in the past through creating innovative business models by electronically integrating with suppliers and customers. Taylor and Terhune [97] cite that based on their experience with Fortune 500 companies, collaboration succeeds when driven and enforced by a small number of channel master enterprises. These channel masters wish to maintain or expand their competitive position while at the same time reducing “community” costs. The presence of a clearly defined channel master effectively centralizes control in the supply chain towards the channel master end, crating advantages and disadvantages associated with this. Advantages of Centralized Control This section presents examples of how centralization of control facilitates optimally coordinating certain supply chain operations. Hewitt [98] argues that coordination can effectively be replaced by control. This entails having flow in the supply chain be delegated by fewer points in the system. As an example, when a channel master requires a supplier to operate a JIT II system, it centralizes control from a formerly four-step, four-people to a two-step, one-person process. The result is a more cost effective and coordinated process as seen at the Bose Corporation.60 Malone [99] illustrates that as communication costs fall, companies decentralizing decision-making must seek a balance between empowerment and control. However, Malone also argues that it becomes desirable to bring remote information together. With more information and a broader perspective, centralized decision makers can make better decisions than isolated ones, and for many kinds of decisions, companies can derive substantial benefits form centralization. A different attempt to coordinate information, material and financial flows centrally around one entity in the supply chain is proposed by Ulrich [100]. Ulrich argues that the adoption of a holistic governance structure – a legal entity owned by supply chain partners would allow members to access information of the whole supply chain. Initiatives enabled through this centralized model could include joint planning, raw material management, waste treatment, and conservation measures. * * * * *	xxxxxxxx
Trusts Obviously, I'm not a lawyer but I think I have a better than average understanding of the law and as I read the above, it fits the description of a Trust more commonly called a cartel these days. As luck would have it, I found another paper, the title of which captured my attention, "Information Feudalism" by Peter Drahos with John Braithwaite. It grabbed me because as I've said before, we are entering a new Dark Ages in the Information Age - an oxymoron that I find sardonically amusing. This paper is a study in the control of knowledge and intellectual property rights. It includes a description of 19th century Trusts that led to the Sherman Anti-Trust Act. It should be noted that while this section of the paper is talking about patents and the control of information, just substitute 'supply chain partners' and integration of information and centralized management of production of the supply chain partners as the new blueprint for cartels. The following are excerpts from the paper - beginning page 66.
	...Weaving patent webs was an expensive business, way beyond what small players could afford. But in the very large markets that companies like DuPont and AT&T played in, it was a comparatively small cost, especially in relation to the benefits that such a web might deliver. One of those benefits was that it enabled large corporations to divide international markets among themselves. Patents were not necessary to the formation of a cartel, but they were a very useful way of disguising and most importantly enforcing one. The need to disguise a cartel in the UK was less pressing since competition was understood to be an arrangement best left to the mutual understandings of gentlemen. Membership of one, like the membership of an exclusive club, was a sign of the highest success. In the US the hazard of cartel membership was greater. The real danger came from both state and federal legislatures which had, in the face of public hostility to a cartelized US economy, enacted antitrust legislation. Business confronted by ‘trust busters’ bent on smashing their cartels had to find another way to continue them. They were in the market for a solution to their problems, a solution that intellectual property lawyers were to provide in the form of the knowledge game. In order to understand the genesis of the knowledge game we need to backtrack a little and understand the predicament of cartels in the US of the 19th century. Cartels are borne of a desire by business to dominate markets, as opposed to the unpleasant fate of being dominated by them. Individual producers come to an arrangement under which they fix the price of a commodity or limit the production of that commodity. Cartels were omnipresent in 19th century US business life. They were to be found in the lumber, woodware, flooring, furniture, casket, leather, petroleum, rubber, footwear, explosives, glass, paper, iron, steel, copper, brass, lead, metals and hardware industries.²⁹ Very often cartel arrangements would take the form of quite detailed articles of association. So, for example, the Kentucky Distillers in 1888 drafted an agreement determining that the quantity of whisky to be made in 1889 was to be a maximum of 11,000,000 gallons, with a formula for deciding how many gallons each distiller was entitled to make.³⁰ The makers of gunpowder formalized arrangements among themselves in an agreement called ‘Articles of Association of the Manufacturers of Gunpowder’. The purpose of the cartel was to fix the price of gunpowder: We, the undersigned, Manufacturers of Gunpowder, for the purpose of ensuring an equitable adjustment of prices and terms for sales of powder throughout the United States, hereby agree to the subjoined Articles of Association, to which we severally pledge for ourselves, and all under our control, rigid and honourable adherence [emphasis added].³¹ But the gunpowder cartel, the distillers’ cartel and many others like them faced a problem that brought them undone. Individual cartel members did not always ‘rigidly and honourably’ adhere to the articles of association. There was always the temptation for, say, a Kentucky distiller to make a few extra gallons of whisky and slip it to some ‘good ole boys’ a little cheaper. The more distillers who cheated, the more whisky hit the market, thereby exceeding the cartel’s limit on production. All cartels faced the problem that individual cartel members might defect from the deals that had been agreed to by all the members. The defectors would manufacture more than their quota or sell more cheaply than was agreed. Loyalty was often a commodity in short supply among cartelists. It was not possible to discipline the greedier members of a cartel by taking them to court, since courts would not enforce such agreements. The common law admittedly had no hard and fast rules about when it was illegal to create a monopoly, but when the contract in question limited supply or fixed the price of a commodity it was almost certain to be unenforceable.³² Freedom of contract did not extend to the freedom to silence competition. What was known as the restraint of trade doctrine stood in the way of cartel members being able to go to the courts to solve their enforcement problem. Cartel members turned to the use of the trust to help them deal with the problem of defection. The medieval device of the trust obliged the trustee (nominally the legal owner) to manage the trust on behalf of those in whose beneficial interest the trust was constituted. From the point of view of cartel members its chief virtue was that it allowed independent business entities to be centrally managed. Essentially companies would transfer shares to a board of trustees who would then manage the trust on behalf of the companies. Crucially, price control and production could then be centrally managed. The first great trust to be formed for these purposes was the Standard Oil Trust Agreement of 1879. Under the terms of the trust 30 companies turned over their stock and interests to three trustees who would manage the trust for the ‘exclusive use and benefit’ of the individuals named in the trust. John D Rockefeller, one of the beneficiaries of the trust, got the lion’s share of the benefits.33 Other gigantic trusts like the American Cotton Oil Trust, the Distillers’ and Cattle Feeders’ Trust and the Sugar Refineries Trust soon strode across the business landscape. The power of these trusts to determine economic and social life brought with it public outrage, not least because the cheaper prices that consumers were assured would follow the creation of these large efficient entities never came to pass.³⁴ Legislatures had to treat their connections with monopolists with great care. They also had to be seen to be doing something. Antitrust statutes prohibiting the use of trusts for the purposes of obtaining a monopoly were passed in a number of states including Maine (1889), Michigan (1889) and Kentucky (1890).³⁵ Senator Sherman introduced into Congress a bill that was passed in 1890 – the Sherman Antitrust Act. Some of the large trusts were declared illegal by the courts, most notably the Standard Oil Trust. It became clear to business that trusts were not the promised land for cartels. With public anger swirling around trusts, legislation permitting one company to hold the stock of a rival began to make its appearance in US states in the 1890s, ‘put quietly through under the cover of antitrust agitation, while the public, led by the newspapers, were looking somewhere else.’³⁶ Again the idea was to use a legal device, the holding company, as means of coordinating the members of a cartel. Holding companies, however, which were established for the purpose of achieving a monopoly, were declared illegal.³⁷ Many US businesses having gone through a period of merger and consolidation (a response to trust busting) in the last decade of the 19th century stood, at the beginning of the 20th, profoundly transformed. Although many were dominated by a small group of individuals, they were no longer family businesses. They had begun a process of reorganization that would see some of them become great globally operating corporations. Creating new administrative structures to support their increased size and plans for expansion was one immediate problem that they faced.³⁸ They were also left with the problem of how best to organize and enforce a cartel. The cartelized US economy of the previous century had demonstrated to business that this was the best way to solve problems of overproduction and competition. The common law doctrine of restraint of trade stood in the way of the enforcement of articles of association setting up a simple price fixing cartel. Similarly, trusts and holding companies had proved to be unreliable legal devices through which to effect a cartel. There was also the added complication that Congress had passed the Sherman Act. The Act went further than the common law. Cartels faced the prospect of criminal prosecution under the Act. At first, successful prosecutions under the Act were slow in coming; concentrations of market power in excess of 70 per cent and 80 per cent were not considered violations of the provisions of the Act by the courts.³⁹ Slowly this changed. The Sherman Act proved to be a thorn in the side of big business over the coming decades. The presence of a competition authority made the formation of international cartels a riskier proposition. The Antitrust Division had lawyers on its staff. Legal scheming to set up cartels could no longer be so transparent in the way that the use of articles of association or the trust had been. These contrivances were too easy for other lawyers to spot. Much denser legal thickets were needed to hide cartels from the eyes of competition lawyers. These thickets of rules also had to allow companies to fix price, control production and divide territories among themselves. As Prindle and others familiar with patent law had been arguing, patents offered large companies just these possibilities. Patents were a legally recognized form of monopoly that gave inventors a strong form of control over the production and price of the invention. Importantly, restrictions over price and production could form part of the patent licence agreement. Such restrictions were in many cases regarded by the courts as a legitimate form of exploitation of a proprietary right. Attacking patent-based cartels was far harder for a competition authority, for now it had to face the argument that it was interfering in the use of private property. The legal representatives of owners of large intellectual property holdings in the 20th century worked very hard to remove the stigma of monopoly from intellectual property. They knew that once the veil of private property was drawn over what was essentially a state-granted monopoly privilege, it would be much harder for public authorities to question the nature of the business arrangements that individual competitors reached with each other using those privileges. The knowledge game was not created overnight. Rather it evolved, its nature and complexity refined by many legal hands over the generations. The law was something of a contradictory resource for the designers of the knowledge game. There were patent law cases emphasizing the absolute nature of the patentee’s monopoly, including the right to impose pricing restrictions and the fact that the exercise of patent rights did not contradict the Sherman Act. This line of authority had to be carefully nurtured.⁴⁰ Those cases elevating the public purpose of the patent grant had to be bypassed, left as tiny islands in a river that flowed only to strengthen the rights of the patent holder. Other aspects of the knowledge game also had to be improved. The essence of the knowledge game was to propertize as much knowledge as possible. Restrictions on patentability had to be removed. As corporate laboratories of knowledge ventured more and more into the biological sciences it became clear that the restriction on the patenting of discoveries would have to be overcome. How else could the players in the knowledge game come to have patent control over the genes to be found in nature? Patents were not the only building blocks of the knowledge game. Copyright and trade marks also became fundamental components of the game. None of the early builders of the knowledge game saw it revealed in all its great detail. There was no prescient designer laying down a blueprint for future artisans to follow. Instead there was corporate strategy creating needs, above all the need to order markets; there was the contradictory, rule-bound complexity of the law; and there were entrepreneurial legal types like Prindle who saw in intellectual property rights developmental possibilities that would allow ordinary old-fashioned commodity cartels to reestablish themselves as knowledge cartels, but cartels nevertheless.
So Bravehearts of the Internet, what we need is the best Anti-Trust lawyer money can't buy.
Vicky Davis August 4, 2008