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Unocal Accused of Monopolizing Clean Gasoline

State officials welcome the FTC's move to block the oil company from pursuing royalties from disputed patents.

March 05, 2003|Elizabeth Douglass | Times Staff Writer

Federal antitrust officials Tuesday accused Unocal Corp. of misleading California regulators and illegally securing patents that gave the El Segundo-based oil company a stranglehold on the state's formula for cleaner-burning gasoline.

After a unanimous vote, the Federal Trade Commission filed an administrative complaint against Unocal for fraud and anti-competitive behavior in connection with the gasoline patents. The complaint, which will be heard by an FTC administrative law judge, asks for a cease-and-desist order preventing Unocal from pursuing legal action or royalty payments involving the disputed patents.

Unocal rejected the FTC's claims, saying in a statement that "hard evidence and case law will again vindicate" the company. Related cases brought by competing oil companies failed to strike down Unocal's patents in U.S. District Court, the U.S. Court of Appeals and the U.S. Supreme Court.

News of the FTC action was warmly received by the California attorney general's office and at the state Air Resources Board -- which have helped the FTC with its investigation and complained loudly about the patents' cost to consumers.

"Our office has been greatly concerned about the Unocal patents," said Tom Dresslar, spokesman for Atty. Gen. Bill Lockyer. "If Unocal is defeated in this case, at least California consumers will be protected from any increases at the pump that might be caused by Unocal's competitors having to pay royalties."

The FTC estimated that a victory in the case could save California consumers up to $500 million a year in higher gasoline prices. Unocal, however, has estimated that its patents would yield about $150 million a year in royalty fees -- a tiny percentage of its $5.2 billion in annual revenue.

Unocal's gasoline patents have been under attack since the company announced their existence in early 1995. From 1990 to 1994, Unocal and other oil companies and refiners had been working with the California Air Resources Board to come up with an acceptable state standard for reformulated gas.

In its complaint, the FTC said Unocal "obtained unlawful market power through affirmative misrepresentations, materially false and misleading statements, and other bad-faith, deceptive conduct that caused CARB to enact regulations that overlapped almost entirely with Unocal's pending patent rights."

The FTC's case was sparked by a complaint from ExxonMobil Corp., which sought relief from the commission after the court challenge failed. As part of the court case, ExxonMobil and other major oil firms together had to pay Unocal $91 million in royalties covering a five-month period in 1996. Although some companies have agreed to pay royalties, the largest California operators have refused to pay additional fees pending the FTC probe and a parallel patent challenge at the U.S. Patent Office.

The patent office case is pending. The FTC case does not challenge the validity of the patents, but accuses Unocal of using anti-competitive methods to secure them. Unocal has 20 days to submit a written response, and a hearing is set for June 4.

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