[Ip-health] The FTC's 2005 zero royalty compulsory license on Unocal's Reformulated Gasoline Patents

Sun Nov 19 22:36:11 2006

This case was first filed in 2003, and settled in June 2005.
Similiar to the Dell computer case, the FTC obtained a zero royalty
authorization for use of Unocals' RGP patents, to remedy a failure of
Unocal to disclose the patents in a standards making process. The
zero royalty is permitted under TRIPS Article 31.k ("The need to
correct anti-competitive practices may be taken into account in
determining the amount of remuneration in such cases").  Jamie

* According to the FTC=92s 2003 administrative complaint, in the 1990s
Unocal illegally acquired monopoly power in the technology market for
producing CARB reformulated gasoline by misrepresenting, among other
things, that Unocal=92s research was non-proprietary and in the public
domain, while at the same time pursuing a patent that would enable it
to charge substantial royalties once the research was incorporated by
CARB in its RFG regulations.

* Unocal=92s alleged misrepresentations harmed competition and led
directly to the acquisition of monopoly power for the technology to
produce and supply CARB gasoline. Unocal=92s =93patent ambush=94 also
allegedly permitted the company to undermine competition and harm
consumers in the downstream product market for CARB reformulated
gasoline. The complaint alleged that, in the absence of Unocal=92s
deceptive conduct, CARB would not have adopted RFG regulations that
substantially overlapped with Unocal=92s patent claims. The complaint
further alleged that Unocal=92s deceptive conduct prevented other
industry members from taking action to avoid or limit the impact of
Unocal=92s enforcement of its patents.

* Under the terms of the consent orders Chevron and Unocal will cease
enforcing Unocal=92s relevant patents, will not undertake any new
enforcement efforts related to the patents, and will cease all
attempts to collect damages, royalties, or other payments related to
the use of any of the patents. These obligations will become
effective on the date Chevron=92s acquisition is consummated. Within 30
days of the effective date of the merger, the companies will file the
necessary documents with the U.S. Patent and Trademark Office to
disclaim or dedicate to the public the remaining term of the relevant
U.S. patents.  In addition, the companies will dismiss all pending
legal action related to alleged infringement of the patents,
including the two actions currently pending before the U.S. District
Court for the District of California.

http://www.ftc.gov/opa/2005/06/chevronunocal.htm

For Release: June 10, 2005

Dual Consent Orders Resolve Competitive Concerns About Chevron=92s $18
Billion Purchase of Unocal, FTC=92s 2003 Complaint Against Unocal

In Major Victory for Consumers, Unocal to Halt Enforcement of
Reformulated Gasoline Patents; Will Release Relevant Patents to the
Public

Two consent orders announced by the Federal Trade Commission today
both resolve the competitive concerns about Chevron Corporation=92s
(Chevron) proposed $18 billion acquisition of Unocal Corporation
(Unocal), and settle the Commission=92s 2003 monopolization complaint
against Unocal alleging anticompetitive abuses of the regulatory
process related to the California Air Resources Board=92s (CARB)
reformulated gasoline regulations.

Under the terms of the settlement, Unocal will stop enforcing the
relevant reformulated gasoline patents, which the Commission alleged
could have imposed additional costs of over $500 million per year on
California consumers, who already pay among the highest gasoline
prices in the United States. In addition, Unocal will release all
relevant gasoline patents to the public by the merger=92s effective
date, potentially saving consumers nationwide billions of dollars in
future years.

According to the Commission statement, which is available on the
FTC=92s Web site as a link to this press release, the acquisition of
these Unocal patents by Chevron also would have facilitated
coordinated interaction among downstream refiners and marketers of
CARB gasoline, which could lead to even higher prices.

=93The settlement of these two matters is thus a double victory for
California consumers,=94 said the Commission in its statement. =93The
settlement provides the full relief sought in the monopolization case
and resolves the only competitive issue with the proposed merger.
With the settlement, consumers will benefit immediately from the
elimination of royalty payments on the Union Oil patents, and
potential merger efficiencies could result in additional savings at
the pump.=94 Under a merger plan announced on April 4, 2005, Chevron
will acquire 100 percent of the voting securities of Unocal. Unocal
will then merge into a wholly owned subsidiary of Chevron that would
continue as a single entity. The total value of the transaction is
estimated at $18 billion, including approximately $1.6 billion in
assumed debt. The transaction is subject to various closing
conditions, including the approval of Unocal=92s shareholders.

The Administrative Complaint

According to the FTC=92s 2003 administrative complaint, in the 1990s
Unocal illegally acquired monopoly power in the technology market for
producing CARB reformulated gasoline by misrepresenting, among other
things, that Unocal=92s research was non-proprietary and in the public
domain, while at the same time pursuing a patent that would enable it
to charge substantial royalties once the research was incorporated by
CARB in its RFG regulations.

The complaint further alleged that Unocal engaged in deceptive and
exclusionary conduct through its participation in two private
industry groups =96 the Auto/Oil Air Quality Improvement Program (Auto/
Oil) and the Western States Petroleum Association (WSPA). As a
result, if Unocal is permitted to enforce its patent rights,
companies producing CARB reformulated gasoline would be required to
pay royalties to Unocal. According to Unocal=92s own expert,
approximately 90 percent of this royalty charge is likely to be
passed on to California consumers in the form of higher gas prices.
Unocal=92s enforcement of its RFG patents, according to the FTC, could
result in hundreds of millions of dollars per year in additional
consumer costs as a result of Unocal=92s exercise of its monopoly power.

According to the FTC=92s complaint, Unocal=92s alleged misrepresentations
harmed competition and led directly to the acquisition of monopoly
power for the technology to produce and supply CARB gasoline.
Unocal=92s =93patent ambush=94 also allegedly permitted the company to
undermine competition and harm consumers in the downstream product
market for CARB reformulated gasoline. The complaint alleged that, in
the absence of Unocal=92s deceptive conduct, CARB would not have
adopted RFG regulations that substantially overlapped with Unocal=92s
patent claims. The complaint further alleged that Unocal=92s deceptive
conduct prevented other industry members from taking action to avoid
or limit the impact of Unocal=92s enforcement of its patents.

The Merger Complaint

The FTC=92s complaint concerning Chevron=92s proposed acquisition of
Unocal alleges that the transaction would be anticompetitive and in
violation of Section 7 of the Clayton Act and Section 5 of the FTC
Act. The Commission=92s anticompetitive concerns relate to Chevron=92s
potential acquisition and enforcement of the relevant reformulated
gasoline patents. According to the complaint, the merger would
substantially lessen competition in the refining and marketing of
CARB reformulated gasoline, as Chevron would acquire the relevant
Unocal patents through the acquisition and would be able to use its
position to coordinate with its downstream competitors, to the
detriment of consumers.

The FTC=92s investigation of Chevron=92s proposed acquisition of Unocal
also led to the conclusion that without the relief imposed by the
consent orders, Chevron=92s ownership of Unocal=92s reformulated gasoline
patents likely would result in even greater competitive harm to
downstream consumers than would occur if the patents remained in
Unocal=92s hands. In addition to the royalties that Unocal threatened
to collect upon enforcement of the patents, Chevron=92s ownership of
Unocal would enable it to coordinate interaction among downstream
refiners and marketers of CARB gasoline.

The Consent Orders

Under the terms of the consent orders Chevron and Unocal will cease
enforcing Unocal=92s relevant patents, will not undertake any new
enforcement efforts related to the patents, and will cease all
attempts to collect damages, royalties, or other payments related to
the use of any of the patents. These obligations will become
effective on the date Chevron=92s acquisition is consummated. Within 30
days of the effective date of the merger, the companies will file the
necessary documents with the U.S. Patent and Trademark Office to
disclaim or dedicate to the public the remaining term of the relevant
U.S. patents.

In addition, the companies will dismiss all pending legal action
related to alleged infringement of the patents, including the two
actions currently pending before the U.S. District Court for the
District of California. Finally, the orders contain standard record-
keeping and reporting requirements to ensure the companies=92
compliance with their terms. The companies also must distribute
copies of the orders to relevant parties. The orders will expire 20
years after the date they become final.

Background

The Commission filed its administrative complaint against Unocal
alleging anticompetitive conduct related to the reformulated gasoline
patents in March 2003. In November 2003, Administrative Law Judge
(ALJ) D. Michael Chappell dismissed the complaint. In July 2004, the
full Commission issued a 56-page opinion, overturned the ALJ=92s
decision, and remanded the matter for an adjudicative hearing. Trial
in this matter commenced on October 19, 2004, and concluded on
January 28, 2005. The parties were engaged in post-trial briefing
when the matter was withdrawn from adjudication on June 8, 2005, for
the Commission=92s consideration of the consent order resolving the
charges. The consent orders announced today, which are subject to
public comment, settle the FTC=92s complaint against Unocal for
engaging in anticompetitive practices.

The Commission vote to accept the consent orders and Commission
statement and place copies on the public record was 4-0-1, with
Chairman Deborah Platt Majoras recused. The consent orders will be
subject to public comment for 30 days, until July 9, 2005, after
which the Commission will determine whether to make them final.
Comments should be sent to: FTC, Office of the Secretary, 600
Pennsylvania Ave., N.W., Washington, DC 20580.

NOTE: A consent agreement is for settlement purposes only and does
not constitute an admission of a law violation. When the Commission
issues a consent order on a final basis, it carries the force of law
with respect to future actions. Each violation of such an order may
result in a civil penalty of $11,000.

Copies of the complaints, proposed consent orders, and analyses to
aid public comment are available from the FTC=92s Web site at http://
www.ftc.gov and also from the FTC=92s Consumer Response Center, Room
130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC=92s
Bureau of Competition seeks to prevent business practices that
restrain competition. The Bureau carries out its mission by
investigating alleged law violations and, when appropriate,
recommending that the Commission take formal enforcement action. To
notify the Bureau concerning particular business practices, call or
write the Office of Policy and Coordination, Room 394, Bureau of
Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W.,
Washington, D.C. 20580, Electronic Mail: antitrust@ftc.gov; Telephone
(202) 326-3300. For more information on the laws that the Bureau
enforces, the Commission has published =93Promoting Competition,
Protecting Consumers: A Plain English Guide to Antitrust Laws,=94 which
can be accessed at http://www.ftc.gov/bc/compguide/index.htm.

MEDIA CONTACT:

     Mitchell J. Katz,
     Office of Public Affairs
     202-326-2161

STAFF CONTACTS:

     Chong S. Park,
     Bureau of Competition
     202-326-2372 (Administrative Consent Order)

     Dennis Johnson,
     Bureau of Competition
     202-326-2712 (Merger Consent Order)

(FTC File No. 051-0125 and Docket No. D-9305)

(http://www.ftc.gov/opa/2005/06/chevronunocal.htm)