The Federal Trade Commission has proposed consent orders that will approve Chevron’s acquisition of the voting securities of Unocal, which will then merge into a Chevron subsidiary, and continue as a single entity. In Re Chevron Corp., FTC, File No. 051 0125, 6/10/05. The consent orders require Chevron to release all of its patent rights to CARB reformulated gasoline, required in the California market.

In March, 2003, the FTC staff filed an administrative complaint against Unocal alleging anti-competitive conduct relating to its CARB patents. Unocal allegedly misrepresented that its research into CARB gasoline was non-proprietary, and in the public domain. However, it was contemporaneously pursuing patent protection, which would enable it to charge substantial royalties should its proprietary intellectual property be incorporated into the standards adopted for CARB gasoline in the state of California’s reformulated gasoline regulations.

The administrative complaint also alleged that Unocal engaged in deceptive acts and practices by participating in two private standard settings groups, while pursuing patent protection in CARB reformulated gasoline. Staff asserted that Unocal’s conduct had led to the acquisition of monopoly power for the technology to produce and market CARB gasoline in California. According to staff, absent the deceptive and exclusionary conduct, CARB would not have adopted RFG standards that overlapped with Unocal’s patent claims.

The complaint was dismissed in November, 2003. However, it was reinstated by the Commission in July, 2004, and remanded for an adjudicative hearing. It was subsequently withdrawn for adjudication to consider the proposed consent orders.

The complaint alleged that the acquisition of Unocal by Chevron would violate Section 7 of the Clayton Act and Section 5 of the FTC Act. The complaint also alleged that the acquisition was projected to substantially lessen competition in the market for CARB reformulated gasoline, because Chevron would be able to use its position as the acquirer of the CARB patents to coordinate downstream competition in CARB gasoline. The enforcement of royalty rights by Chevron in the Unocal CARB patents would enable the merged entity to coordinate interaction among downstream refiners and marketers.

The proposed consent orders would settle the complaint against Unocal by requiring that Chevron and Unocal refrain from enforcing Unocal’s CARB patents. Chevron and Unocal would also be required to cease all attempts to collect damages, royalties or other payments relating to the use of any of the CARB patents. In addition, the consent orders require that Chevron and Unocal dismiss all pending litigation relating to alleged infringement of the CARB patents, including two actions currently pending before the district courts in California.

The Commission vote to accept the proposed consent orders was 4-0-1, with Chairman Majoras recused.

Authored by:
Don T. Hibner, Jr.