A longstanding battle between California fuel suppliers over reformulated gasoline formulas took a new twist last month when the Bush administration intervened with a move that may have significant legal ramifications.
The Federal Trade Commission approved the filing of an administrative complaint against Unocal Corp. for allegedly committing fraud concerning the California Air Resources Board's efforts to develop its own RFG standards.
Unocal responded to the FTC action by saying that "hard evidence" and "case law" will again vindicate the company.
"We are again taking this matter into a judicial setting where facts and the law are used, rather than what some wish the law should be in the future," said Charles O. Strathman, Unocal's chief legal officer. "Unocal's conduct will be vindicated as it has been in the US District Court, the US Court of Appeals, and the US Supreme Court."
According to the FTC's complaint, Unocal in the 1990s illegally dominated the California market for low emission Phase 2 "summertime" gasoline. FTC officials alleged the company did so by being duplicitous with state regulators and other fuel suppliers.
FTC said the company misrepresented to CARB that certain information was nonproprietary and in the public domain, while at the same time pursuing a patent that would enable it to charge its competitors substantial royalties.
In addition, FTC said that if Unocal is permitted to enforce its patent rights, companies producing Phase 2 "summertime" CARB gasoline must pay royalties to Unocal to use the patented technology. That could be bad news for motorists.
FTC said in its complaint that, according to Unocal's own expert, about 90% of this royalty charge is likely to be passed on to California consumers through higher retail gas prices. "Unocal's enforcement of its RFG patents could thus potentially result in hundreds of millions of dollars per year in additional consumer costs as a result of Unocal's exercise of its monopoly power," FTC officials said.
The FTC complaint further contends that during the CARB rulemaking, Unocal misled industry groups that were participating in the process with regard to its proprietary interests, and that its conduct resulted in anticompetitive effects in the downstream market for RFG in California, to the detriment of the state's consumers.
"While companies are and must be free to petition the government, the right to petition does not include the right to commit fraud during the CARB regulatory process to obtain monopoly power," said Joe Simons, director of FTC's Bureau of Competition. "As a result of Unocal's behavior, companies producing Phase 2 "summertime" CARB gasoline are liable to pay Unocal very substantial royalties. This action is designed to prevent harm to California consumers that could total hundreds of millions of dollars per year."
Through licensing and litigation, Unocal continues to "vigorously" enforce its RFG patent, FTC noted.
Action sought
FTC said it will seek an order requiring Unocal to cease all efforts to claim infringement or otherwise enforce its RFG patents against companies manufacturing, selling, distributing, or otherwise using motor gasoline to be sold in California.
In addition, the commission will seek an order barring Unocal from undertaking any new efforts to claim infringement or otherwise enforce these patents in the future against companies involved with gasoline sold in California.
The FTC also seeks the appointment of a commission-approved compliance officer to serve as the company's sole representative for communicating Unocal's relevant patent rights to any standard-setting organization of which it is a member and any state or federal agency that conducts a rulemaking proceeding in which the company participates.
Unocal says it is lawful
Unocal said that it had not seen the FTC complaint, but that the issue of its conduct before CARB was raised but then abandoned in 1997 by the major California refiners in the US District Court.
"CARB officials testified in depositions that they had not been deceived by Unocal's behavior. In fact, the refiners were sanctioned by the court and ordered to pay Unocal its legal expenses it incurred to counter the claim made and then dropped at trial," Strathman said.
"The refiners subsequently attempted to raise the claim before the Federal Circuit Court of Appeals, the US Solicitor General, and the US Supreme Court. It was rejected in all venues. One of the refiners then pressed the same court-rejected claim with the FTC," Strathman said. "In light of this history, we are confident that the claim will be rejected again."
Strathman said CARB never asked or even considered asking if anyone from whom the regulators sought information had any patents or pending patent applications during its rulemaking. In fact, CARB officials admitted in depositions that the companies were not under any obligation to disclose any patent applications.
"CARB simply asked us in 1991 to lift the confidential status of our gasoline research data so that CARB could add it to a large database. To suggest now, 12 years later, that it was fraudulent or wrongful for a company to comply with the government's request is deeply unfair," Strathman said.
"The evidence shows that Unocal's communications with CARB were truthful in advocating regulations we thought were best. CARB ultimately rejected our advice and adopted an approach we opposed. We did not have any intent to deceive, let alone defraud, CARB," said Strathman.
No adverse impact
Unocal's patents have not had an adverse effect on the gasoline market, Unocal said. "Studies by the FTC, Environmental Protection Agency, US Department of Energy, Congressional Research Service, California Attorney General, and various news services have concluded that Unocal patents have had little or no impact on gasoline prices," the company said. "In addition, Unocal has offered a uniform licensing arrangement, and eight companies have signed agreements with Unocal. However, none of the defendant refiners has ever met with Unocal to negotiate a license."
Strathman also pointed out that Chevron (now ChevronTexaco Corp.) and ARCO (now part of BP PLC) also provided information to CARB and had patent applications for cleaner burning gasolines pending during the rulemaking process.
"Neither of those companies disclosed its patent position to CARB. Although neither company was successful in obtaining a patent, this is evidence that no one participating in the process considered it proper or necessary to disclose such information," Strathman said.
Unocal said it will now pursue the issue before an administrative law judge; the company expects a decision in about 1 year.