Unocal May Face Charges on Patents
In a move that could save motorists millions of dollars, the Federal Trade Commission is preparing to charge Unocal Corp. with using questionable gasoline patents to collect royalties from competitors and unfairly curb competition, according to people familiar with the case.
The five-member commission is expected to vote as early as next week on a staff recommendation to file an antitrust action against El Segundo-based Unocal, the sources said.
If the commission proceeds with a civil lawsuit, it is likely to include allegations that Unocal engaged in abuse of trust and anti-competitive behavior to secure patents on government-mandated gasoline formulas.
State and federal officials contend Unocal acted improperly by quietly applying for formulation patents while it was working with the California Air Resources Board and other oil companies on new clean-fuel standards.
The state adopted new gas formulations in a 1991-92 proceeding, and Unocal said in 1995 that it had been awarded a key patent on those formulas. Several oil firms sued to block Unocal from enforcing the patent.
Other oil companies and state officials have said patent royalties charged by Unocal would add 1 cent to 5 cents per gallon to the cost of gasoline in California and in other regions that require low-emission fuels. Unocal has said it expects the patents to yield $75 million to $150 million a year in royalty fees.
In a July 12, 2001, letter, the state Air Resources Board’s then-executive officer, Michael Kenny, urged the FTC to pursue action against Unocal.
“It is clear that Unocal’s conduct” in the fuel proceedings, Kenny wrote, “presents important issues affecting not just the price of complying gasoline, but also the trust that can be placed in future public-private collaborative efforts to set regulatory standards.”
Unocal spokesman Barry Lane maintains that the company did nothing wrong, and noted that some refiners have found ways to “blend around” Unocal’s patented formulations.
He acknowledged that the FTC investigated “Unocal’s conduct in prosecuting its patent application and participating in the CARB process.” But he said the firm is confident that it will prevail if the FTC files a lawsuit, noting that rival oil companies Exxon Mobil Corp., ChevronTexaco Corp., RoyalDutch/Shell Group and BP’s Atlantic Richfield Co. have repeatedly challenged the patents in court and lost.
The U.S. Supreme Court in early 2001 let stand Unocal’s victories in the lower courts. In one of those cases, Unocal received $91 million from the four major oil companies to cover infringement of its patents over five months in 1996.
Since that high court ruling, the four have refused to pay Unocal any additional royalties.
The courts set the Unocal royalty payments at 5.75 cents per gallon, though the company is collecting royalties of 1.2 cents to 3.4 cents a gallon from eight refining companies that have not sued, including Williams Cos., Tesoro Petroleum Corp. and Citgo Petroleum Corp.
Unocal’s expected royalty proceeds amount to a tiny fraction of the firm’s $5.25 billion in sales in 2002.
Still, analysts said Unocal had been enthusiastic about the gasoline patents, and only recently began to lower its expectations for royalty revenue.
In addition to the challenge from the FTC, the company faces trouble at the U.S. Patent Office, which is reviewing several of Unocal’s patents for possible revision.
“I think they celebrated too early,” said Fadel Gheit, an analyst with Fahnestock & Co. “It doesn’t look good going forward for Unocal.”
CARB officials have been providing information to FTC staffers upon request, according to spokesman Richard Varenchik.
Officials at the state board, Varenchik added, have been “extremely displeased with Unocal’s actions.”
The pending FTC action was first reported by the Wall Street Journal. Unocal shares climbed 38 cents to $26.52 in New York Stock Exchange trading Tuesday, amid a rise in oil stocks.
