2003 B.C. Intell. Prop. & Tech. F. 042801
FTC to Unocal: Do not Pass Go, Do not
Collect Royalties on RFG Patents
The Federal Trade Commission (FTC) on March 4 voted unanimously to issue an administrative complaint charging that the Union Oil Company of California (Unocal) violated Section 5 of the FTC act by committing fraud and illegally obtaining monopoly power during negotiations with the California Air Resources Board (CARB). The complaint alleges that Unocal manipulated the standard setting process of the CARB by persuading it to adopt certain clean burning reformulated gasoline (RFG) standards while at the same time discreetly pursuing and eventually obtaining five patents on formulations that substantially overlapped with those standards. The FTC is seeking injunctive relief preventing Unocal from enforcing its RFG patents.
In the late 1980s, CARB was charged with the responsibility of coming up with cleaner burning fuel standards to combat California’s growing air pollution problem. In order to ensure that it promulgated standards that were technologically feasible CARB consulted with leading gasoline producers, including Unocal. During these consultations, Unocal actively promoted standards that comported with the results of its research. While it did not hide these results, the complaint alleges that Unocal materially misrepresented its interest in the research, leading CARB and the other fuel producers to believe that it would not exercise proprietary rights over its research. However, while publicly disavowing any interest in enforcing proprietary rights to its research, Unocal was simultaneously pursuing RFG patents based on this research that would allow it to charge substantial royalties to other companies using those formulations. The United States Patent and Trademark Office (USPTO) notified Unocal in 1992 that most of its claims would be allowed and Unocal obtained its first patent in 1994. Unocal announced its patent in 1995 and demanded royalties from several competing refiners for the use of its patents after they had already invested heavily in equipment that would allow them to produce RFG.
Unocal is confident that the FTC complaint will be dismissed, and it has history is on its side. In 1995 several competing refiners sued Unocal in the Central District of California District Court, seeking to invalidate its patent on the grounds of insufficient written description and anticipation. Unocal countersued for patent infringement. A jury upheld Unocal’s patents and ordered the competing refiners to pay damages of 5.75 cents per gallon. The verdict was upheld on appeal with the appellant refiners claiming obviousness in addition to insufficient written description and anticipation; the Supreme Court denied certiorari.
The FTC has taken similar actions against other companies in the recent past. In 1998, the FTC filed a complaint against VISX Corp. in connection with its laser eye surgery equipment and technology patents. The complaint alleged that VISX and another company violated antitrust law by pooling patents rather than competing with each other and also that VISX committed fraud on the USPTO by failing to disclose relevant prior art in connection with its patents. In 1999, an FTC judge dismissed the patent pooling complaint, and the FTC subsequently dropped the fraud charge in 2001. In 2002, the FTC filed a fraud complaint against Rambus very similar to the complaint filed against Unocal. The FTC charged that Rambus manipulated pending patent applications to comply with standards it pushed through during a standard-setting process in the dynamic RAM industry and that it failed to disclose its pending patent applications to the standard-setting body. The case is still pending but Rambus vigorously denies any wrongdoing. Together these cases illustrate an increasing willingness on the part of the FTC to take on anticompetitive behavior in the intellectual property field.
What does all this mean for the average California gasoline consumer? If the FTC complaint fails and Unocal is allowed to exercise its monopoly power, other fuel companies would be required to pay substantial licensing fees to use its proprietary RFG formulations. By some estimates, this would raise gasoline prices for Californians by five cents per gallon and potentially cost them several hundred million dollars per year. Not exactly free parking, to be sure.
FTC’s Press Release
http://www.ftc.gov/opa/2003/03/unocal.htm
Unocal’s Press Release
http://www.unocal.com/rfgpatent/rfgnr23.htm
Kilpatrick Stockton LLP Analysis
http://kilpatrickstockton.com/site/print/detail?Article_Id=1204
Sacramento Bee
http://www.sacbee.com/content/business/story/6218800p-7173428c.html
USA Today
http://www.usatoday.com/money/industries/energy/2003-03-04-unocal_x.htm
Prior Judicial History
Union Oil Co. of California v. Atlantic Richfield Co., 34 F.Supp.2d 1208
Union Oil Co. of California v. Atlantic Richfield Co., 208 F.3d 989