“Utopia” is one of those words that
you don’t hear too often in legal circles.
The law after all deals in the practicalities of
everyday life, a very un-utopian topic. Besides,
utopia is sort of like “due process”,
a term that means different things to different
people. Take the concept of due process in Iraq;
the government probably says they have it, but it’s
bound to be very un-utopian.
Every once in a while though, someone enters into
a perfect legal situation. What’s amazing
about this story is that it involves an oil company,
an old line industry.
The company is Unocal and the topic is clean air.
Come to think of it, clean air is one of those utopian
concepts. Everybody wants it, especially on cold
mornings when the brown haze is thick on the horizon.
Yet, few are willing to give up mechanized transportation,
manufactured goods, electric lighting and indoor
temperature control in order to achieve it.
In the late eighties, the handwriting was on the
wall. A Clean Air bill was set to blow its way off
of Capitol Hill into the boardrooms of business.
As the debate matured, everyone saw that Congress
had no intention of making voters stop polluting.
Like the withholding tax, it was politically easier
to indirectly regulate voters by directly regulating
the companies that sell to us.
A group of oil companies and car manufacturers got
together to study the reduction of vehicle emissions.
One of those companies was Unocal of El Segundo,
California. Unocal quickly became dissatisfied with
the direction the group was taking and some of its
scientists struck out independently of the group.
Gasoline is a complicated product. Refiners take
crude oil, which can vary in chemical composition
depending on where it originates (Saudi Arabian
crude is said to be sweet and easier to process),
and process it by elaborate chemistry to achieve
gasoline.
The trend in producing cleaner emissions had been
toward additives. One such additive is MTBE, something
that adds oxygen to the fuel and allows more complete
combustion in the engine. What the Unocal scientists
found out was that additives didn’t matter
as much as everybody thought in reducing tail pipe
emissions. What did matter were some physical properties
of gasoline, like volatility, as measured by vapor
pressure and distillation points. These properties
can be achieved by tinkering with the refining process,
something refiners are adept at since they have
to accommodate all the different kinds of crude.
Unocal eventually obtained five patents for its
invention. These patents aren’t your ordinary
patents. Oh no. Ordinary patents talk about inventions
in terms of parts; part A is connected to part B
and so on. But Unocal’s gasoline didn’t
have many parts, so the patents talk about some
physical properties of gasoline. As it turns out,
these patents of Unocal’s are pretty broad.
Any kind of gasoline, regardless of its component
parts, will infringe if it has the required physical
properties.
The other companies that were members of the group
whined about Unocal acting all-for-one, instead
of the more chivalrous, and charitable, one-for-all.
Several oil companies became worried to the point
of suing Unocal in an attempt to invalidate its
patents. The suit was successful to a point, as
much of the patents were invalidated. Unfortunately,
enough remained to still give Unocal exclusive rights
to some types of gasoline.
Which brings us to utopia, patent-style. The California
Air Resources Board, fittingly nicknamed CARB, adopted
standards for reformulated gasoline (RFG). RFG became
required in California and elsewhere throughout
the country. As it turns out, Unocal’s patented
technology is a pretty good way to meet CARB’s
standards. In fact, nobody has figured out how to
make RFG without infringing Unocal’s patents.
In other words, a government body has mandated the
use of somebody’s patented technology. Believe
me, it doesn’t get any better than this. Unocal’s
licenses charge mere pennies a gallon and bring
in royalties at somewhere over $75 million annually.
But, all isn’t wine and roses. Unocal takes
its share of shots, particularly when the price
of gasoline spikes up. Like back in 1999 and 2000,
when prices for RFG rose 30 cents or more in the
Midwest. During such times, motorists start asking,
“Now what exactly is RFG?” Clean air
takes a back seat.
And like the current price spikes. Forget the coming
war with Iraq and the risk-adverse nature of the
oil markets. The Federal Trade Commission is rumored
to be considering charges against Unocal for anticompetitive
practices with its patents. Utopia, while extraordinarily
profitable, may be fleeting.
Originally Published in the Fort Worth Businss Press |
