Unocal riles rivals over gasoline formula.

State-mandated formulation sparks controversy

Unocal Corp. may have a lock on the formula for the cleaner-burning gasoline that must be sold at all gas stations in California starting in 1996. And its rivals are fuming.

The downtown L.A.-based oil giant announced last week it will license to other oil companies its U.S. patent on the basic formula for the low-pollutants gasoline mandated by the state.

The patent could entitle downtown L.A.-based Unocal to levy a royalty on other oil companies which wish to do business in California's gasoline market after 1996, Unocal spokesman Barry Lane said.

But officials at other oil companies questioned whether Unocal's patent is enforceable. And a leading patent attorney said it would be "odd" for a government agency to force an entire industry to use one company's invention.

Unocal's Lane said, "We believe that almost any gasoline that would be practical to make and meet state requirements would fall within the scope of our patent."

It is possible for other oil companies to produce gasoline which meets the 1996 state standards without infringing on the patent, but it may be prohibitively expensive to do so, Lane said.

The California Air Resources Board voted in 1991 to order all gasoline marketers in the state to sell a cleaner-burning gasoline starting in 1996. The new gasoline is estimated to reduce pollutants from tailpipes by about 30 percent.

Millions for retooling

All the major oil companies which sell gasoline in California have been spending millions retooling their refineries to get ready to produce the new product.

Lane said Unocal applied for the patent in December 1990 - 10 months before CARB issued its plan for reformulated gas. He noted that Unocal submitted its "viewpoint" on the composition of the state-mandated gas before the CARB vote.

Jerry Martin, spokesman for CARB, said a lot of oil companies submitted composition suggestions and he doesn't know if the state's prescription was based on any one company's ideas.

Martin said CARB officials last week were trying to determine the significance of Unocal's patent.

"Unocal is attempting to claim they have a patent on the only gasoline that could be sold in California at that time (after 1996)," said Jim Hendon, spokesman for San Francisco-based Chevron Corp. "This certainly doesn't help the process of bringing cleaner fuel to California."

Unocal officials declined to say how much they intended to charge other companies to use their patent for gasoline. Lane said a licensing fee schedule would be released in April.

Tab to be decided

He said Unocal would likely charge "a royalty set up on volume" of gasoline sold.

But officials from at least two other oil companies, downtown L.A.-based Atlantic Richfield Co. and Chevron, were questioning last week whether Unocal could really claim rights to the state-mandated gasoline.

In 1992, Arco applied for a statutory invention registration for its version of state-mandated reformulated gas, said Arco spokesman Scott Loll.

A statutory invention registration "is a public notification telling people you have invented something and you are dedicating it to the public," Loll said.

"That means we can not sue people for patent infringement and ask for a licensing fee and it means people can't sue us," Loll said. "Basically, we're looking at this and saying this is something we want to share with everyone."

Is it patentable?

Hendon said Chevron's lawyers "don't think the patent is enforceable." He added, "We don't feel it's patentable because (gasoline formulas) are generic."

He said Chevron has known for some time that Unocal had a patent. But Chevron officials were "surprised" at the announcement that Unocal plans to license it.

Hendon said Chevron intends to continue to work to produce the cleaner-burning gasoline by 1996. If Unocal sues for patent infringement, Chevron lawyers believe it won't stand up in court, Hendon said.

Morgan Chu, a patent attorney with the Century City law firm of Irell & Manella, said that if Unocal has an enforceable patent, CARB could potentially reconsider its clean gas mandate.

On the other hand, CARB may not chose to intervene even if one oil company has a competitive advantage over the others, Chu said.

"It sure does sound like it could be a tremendous advantage to Unocal and a tremendous disadvantage to other oil companies," Chu said. "It would be odd for a public agency to mandate for an industry the use of someone's invention."

Unocal's Lane asked rhetorically, "Is it fair? You have to ask yourself, 'Are the patent laws fair?' It's in the Constitution, the right to patent."

RELATED ARTICLE: Unocal reports $153 million loss

Unocal Corp. last week reported a net loss for last year, due to $453 million in special charges.

The downtown L.A.-based energy giant posted a net loss of $153 million, or 78 cents a share, on revenue of $7.9 billion for 1994. That compares with net earnings of $213 million, or 73 cents a share, on revenue of $8.3 billion for 1993.

On an operating basis, however, Unocal made $300 million, or $1.09 a share, compared with operating earnings of $347 million, or $1.29 a share, in 1993.

The special charges related to accounting changes, environmental clean-up costs, legal fees and restructuring costs.

For the fourth quarter, Unocal posted a net loss of $68 million, or 32 cents a share, on revenues of $1.9 billion. That compares with a net earnings of $44 million, or 14 cents a share, a year earlier.

Roger C. Beach, Unocal's chief executive officer, said the full-year operating earnings reflected higher natural gas production and higher foreign crude oil production, among other things.

"Unfortunately, these positive factors could not make up for the lower crude oil and natural gas prices and disappointing margins in our West Coast refining and marketing operations," Beach said in a prepared statement.

Alvin Silber, oil analyst with New York investment firm Herzog, Heine, Geduld Inc., cited positive facets such as improvement in Unocal's core businesses: refining oil production and natural gas production.

"Any improvement in the fundamentals seems to be offset by these on-going charges," Silber said. "Whether we get another slug of them (special charges) next year or not, time will tell."

Nevertheless, Silber said he was positive on Unocal's long term prospects.