Unocal Corp. won an initial victory with a US Federal Trade Commission administrative law judge Nov. 25 over agency allegations the company was trying to corner the California clean fuel market through fraudulent statements to state regulators.
But the issue remained far from resolved as far as FTC staff and Unocal's competitors were concerned. They promised to appeal the matter, an outgrowth of a related 8-year patent battle between the California oil company and several competitors, including ExxonMobil Corp. and Valero Energy Corp.
Unocal maintains its California reformulated gasoline formula is proprietary and other fuel suppliers should pay the company royalties to sell similarly made fuel. Suppliers say the formula stems from government regulation and a collaborative industry effort to meet those rules and is not patentable.
Over the years, Unocal has largely succeeded in defending its position in court although it now faces administrative challenges both at FTC and at the US Patent and Trademark Office (OGJ Online, Mar. 5, 2003).
The company has so far issued 8 licenses for its California RFG patent; these include arrangements with Tesoro Petroleum Corp. and Citgo Petroleum Corp. Unocal has not disclosed the names of the other companies. Meanwhile, the company says the FTC administrative law judge's ruling is consistent with the law.
In 1997 a federal jury ordered several companies to pay Unocal a 5.75¢/gal royalty. After various appeals generally in Unocal's favor, the US Supreme Court refused to hear the case. Industry experts have predicted the company could stand to receive more than $500 million in alleged patent infringements if it prevails in various administrative challenges.
The FTC staff, meanwhile, wants the commission to order Unocal to stop enforcing its RFG patents against California fuel suppliers.
FTC action
Administrative Law Judge D. Michael Chappell dismissed the March FTC staff complaint charging Unocal with committing fraud in connection with regulatory proceedings before the California Air Resources Board (CARB) regarding state RFG rules. Agency staff also cited its concern that Unocal's action could mean much higher fuel prices for consumers.
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.
In his decision, Chappell did not pass judgment on whether Unocal misled peers and regulators. He said that was a question for other agencies, not FTC, to decide. But on staff's antitrust allegations, he found Unocal's conduct was protected because it represented "petitioning" of a governmental authority; such actions are entitled to antitrust immunity under the Noerr-Pennington doctrine.
Meanwhile Valero, which Unocal said infringed on its patent, vowed the RFG formula fight was not over. FTC staff also is expected to appeal the ruling to the commission, which voted to file the complaint initially.
"This ruling does not absolve Unocal of any wrongdoing. Immunity under the Noerr-Pennington doctrine doesn't mean Unocal did not lie to the government. It just means they can't be held accountable for it. This is regrettable, as we do not believe that the Noerr-Pennington doctrine was designed to protect these types of blatant misrepresentations," a Valero spokesperson said.
"We also disagree with the Administrative Law Judge's ruling that resolution of the allegations regarding Unocal's conduct toward the Auto/Oil Group and the Western States Petroleum Association would require an 'in-depth analysis of substantial issues of patent law' that he believes are beyond the commission's jurisdiction. After all, you don't have to be a patent lawyer to know that it's wrong to tell your partners that your research is in the public domain, when in fact, it is not," the spokesperson said.
