Possible Link Between Powerful Patent and Midwest Gasoline Price Spike

2000 B.C. Intell. Prop. & Tech. F. 092702
Possible Link Between Powerful Patent and Midwest Gasoline Price Spike

by Kevin Cronin, Staff Writer

A federal appeals court has upheld a broad patent covering reduced emissions gasoline worth up to $200 million in annual royalties. The patent is held by a small energy company, Unocal, and may be linked to the summer price spike in Midwest gasoline prices. An increasingly liberal patent system, bad business decisions and flaws in the air quality regulatory scheme all contributed to provide Unocal with such a powerful patent.

Unocal’s patent has unusually broad coverage because the inventive idea covers combinations of chemical properties which result in lower emissions rather than a more traditional patent which might cover just formulas or additives. The patent uses common petroleum stocks and known chemical properties such as vapor pressure. Therefore, each of the many stock combinations for reaching these particular chemical properties and level of reduced emissions is covered. Broad patent protection means competitors have little chance of designing around the patent and must pay royalties or stop producing infringing gasoline.

The regulatory requirements for low emissions gasoline further strengthen the patent. All energy companies must meet low emissions regulatory guidelines in California and the Midwest. The energy companies, including Unocal, had large input into how the regulations were written, but the regulatory requirements favor Unocal because their patent mimics the regulations. Many of the same chemical properties covered by the patent appear as requirements in the regulations. Since energy companies must produce gasoline within the regulations to meet low emissions standards, even less room remains for Unocal’s competitors to maneuver around the patent.

Business decisions by Unocal’s competitors also strengthened the patent. The energy companies drafted a charter for the consortium which worked toward establishing the emissions standards. The charter prohibited the consortium from patenting inventions, but did not limit the companies which made up the consortium from pursing patents because of worries about anti-trust. Further, some of the companies involved decided not to seek patent protection because they did not believe such a broad application covering the connection between chemical properties and emissions would be patentable or valid. Such patents were relatively unheard of in 1990 when Unocal’s patent was filed. The other companies did not believe such a patent would meet the standards for novelty required by patent law. An official at Atlantic Richfield admitted that he had made a mistake in not trying to patent its own formula for lower emissions gas. Had Unocal’s competitors attempted to patent their own formulas, they would probably have limited the extent and the value of the Unocal patents. Instead, Unocal was able to step into the void and gain a broad and very valuable series of patents.

The power and the value of the patent became apparent when the Federal district and appeal courts found the patent covers the low emissions gas required in California to meet regulatory requirements and awarded Unocal damages for patent infringement. An FTC analysis found that some companies stopped producing the low emissions gas required in the Midwest to keep from infringing upon Unocal’s patents or slowed production as they attempted to design around the patent and some foreign producers may have even kept infringing gasoline out of the US market. The shortages in low emissions gasoline may have led to the sharp price increase in Midwest gasoline where low emissions regulations have recently gone into effect. Unocal dismisses the connection between price hikes and their patents and argues that patents only serve to encourage research which will help the environment.

Unocal’s competitors argue that Unocal unfairly “owns” the regulations and shaped their patent to match the regulatory guidelines, but the appellate court found Unocal acted in “good faith.” Unocal’s competitors plan to appeal their case to the Supreme Court. Unocal’s competitors argue such patents discourage collaboration on environmental standards and damage consumers by causing extreme price hikes.

Unocal’s competitors should realize many factors, some which they controlled, led to this powerful patent. They pleaded with the government to allow their input on the regulatory regulations. Had the process been less responsive to the energy companies desires the patent may not have so closely resembled the regulatory requirements. Also, Unocal’s competitors could have limited the coverage of Unocal’s patents by applying for their own patents in the area, but they did not understand what ideas meet patentability standards and the connection between setting regulation standards and intellectual property.