press release

Unocal invites negotiations with refiners, blenders after Supreme Court reaffirms company's gasoline patent

El Segundo, Calif., Feb. 20, 2001 -- Unocal Corporation (NYSE: UCL) today said it is ready and willing to negotiate with refiners, blenders and importers on licensing agreements for its cleaner burning gasoline patents after the U.S. Supreme Court reaffirmed the validity of the company's '393' patent.

"The Supreme Court announcement today ends nearly six years of litigation initiated by five of the nation's largest oil companies who were attempting to overturn Unocal's '393' patent in the Federal courts," said Charles R. Williamson, Unocal chief executive officer. "Lost in this long dispute is the simple fact that utilizing the formulations in our cleaner burning gasoline patents can save refiners and consumers millions of dollars while improving air quality. We think it's time for all of the parties to sit down and negotiate fair and reasonable licensing agreements."

Licensing fee

Between 1997 and 2000, Unocal received four additional patents that were an outgrowth of the original research and supplemented the claims of the original '393' patent. Williamson said that Unocal's goal has been to make the gasoline formulations covered under the five patents as widely available as possible, while protecting Unocal's intellectual property and the interests of its stockholders.

"We believe that our patented formulations provide refiners and blenders with a cost-effective way of meeting California and Federal standards for cleaner burning gasolines," Williamson said. "We estimate that licenses for our patents would add less than one cent per gallon to the cost of reformulated gasolines nationwide."

Experts from the U.S. Environmental Protection Agency (EPA), Department of Energy and the Energy Information Administration testified before Congress last summer that Unocal's patents were not a significant factor in the price of reformulated gasolines when the new EPA-mandated fuels were introduced last year.

Unocal's five patents are most useful during the "summer" gasoline period when the refiners manufacture lower Reid Vapor Pressure gasolines. Even during this period, which accounts for less than half of all reformulated gasolines, refiners have demonstrated that they can manufacture gasolines that comply with the regulations, but do not infringe on Unocal's patents. While potential revenues cannot be determined without completed licensing agreements and information on infringement rates, Unocal could realize $75-$150 million a year from royalties based on current analyses.

Unocal's independent research into cleaner burning gasolines has already provided significant benefits to the oil industry and consumer alike. "In the early 1990s, California regulators were contemplating a rigid gasoline formula to help reduce tailpipe emissions," Williamson said. "Our scientists demonstrated that regulators could use a predictive model to achieve the same clean air results. The final regulations give refiners much greater flexibility in meeting the new standards, which means lower costs to consumers."

About Unocal Corporation

Additional information about Unocal's patents for cleaner burning gasoline formulations is available on the company's web site at www.unocal.com/rfgpatent.

This news release contains certain forward-looking statements about potential revenues from patent royalties. These statements are not guarantees of future performance. The statements are based upon Unocal's current expectations and beliefs about levels of infringement, the timing and amounts of negotiated license fees, the refiners' costs and ability to make non-infringing gasolines, the demand for lower emission gasolines, and other known and unknown risks and uncertainties, including possible further legal action. Actual results could differ materially as a result of various factors, including changes in those described above. In this regard, an anonymous party has recently asked the U.S. Patent and Trademark Office (PTO) to reexamine one of Unocal's four subsequent patents. Although Unocal believes it unlikely, an adverse decision could diminish the value of that patent. Unocal undertakes no obligation to update the information in this news release.

Unocal patent background information

Patent history

In early 1989, Unocal scientists developed new and nonobvious ideas about cleaner burning gasolines. They offered the Unocal research design concept, which included testing combinations of a number of gasoline characteristics, to the Auto/Oil study group, a consortium of 11 major oil refiners plus the Big Three U.S. automakers. The Auto/Oil group rejected Unocal's research concept and severely limited the scope of the Auto/Oil studies. Unocal decided to fund and conduct its own independent research design proposal.

Unocal applied for its initial patent in December 1990, after completing extensive research into the emission characteristics of various gasoline formulations. The goal was to develop gasoline formulations that could reduce tailpipe emissions without requiring exotic additives or expensive modifications to refineries or the automobile fleet.

Unocal's research led to valuable new insights. The industry was going to spend a lot of money to upgrade refineries to make the new California reformulated gasolines. Unocal wanted to make sure that it got the right answer the first time, so it wouldn't have to go back in five years and spend more capital on further modifications. The patented compositions accomplished that.

In June 1991, Unocal shared the results of its research with the California Air Resources Board (CARB), which was contemplating new reformulated gasoline regulations. Unocal's scientists showed CARB that regulations that provided flexibility would allow refiners to alter various characteristics of gasolines, rather than be forced to use a single, rigid formula. This would allow refiners to manufacture cleaner burning gasolines in the most efficient and cost-effective manner for their particular facilities. CARB then developed the "predictive model" approach for its Phase 2 regulations that were issued in November 1991.

The U.S. EPA took a similar approach when it developed its regulations for Phase 2 RFG that became effective in 2000.

During the review of Unocal's patent application, the company narrowed the scope of its patent claims. In a brief requested by the Supreme Court, the U.S. Solicitor General noted that such modification of patent claims is an accepted practice.

The Solicitor General's brief also concluded, "The fact that an invention is particularly useful in satisfying a government clean air or other standard certainly does not lessen the value of the invention to society or the patent protection that it should be afforded."

Unocal received four additional patents for reformulated gasolines between 1997 and 2000 (Patent Nos. 5,593,567 on 1/14/1997; 5,653,866 on 8/5/1997; 5,837,126 on 11/17/1998; and 6,030,521 on 2/29/2000). An anonymous party has asked the U.S. Patent and Trademark Office (PTO) to reexamine Unocal's '126' patent. Unocal said that such reexamination is a routine procedure, and the company is confident that the PTO will affirm the patent.

Litigation history

Unocal announced its '393' patent (Patent No. 5,288,393) in January 1995, offering to negotiate fair and reasonable licensing arrangements for companies desiring to use Unocal's formulations.

In April 1995, before Unocal could announce any licensing plan, the company was sued in U.S. istrict Court (Los Angeles) by a group of the nation's largest oil companies who contended that the patent was invalid and unenforceable. The oil companies also contended that Unocal's conduct in obtaining the patent was improper. Unocal filed a counterclaim for infringement of the '393' patent.

A jury found that Unocal's '393' patent was valid and awarded the company damages for nfringement by the refiners. In addition, the judge ruled that the accusations of inequitable conduct against Unocal were "unsupported" and that the defendant refiners engaged in "vexatious tactics repeatedly throughout the trial." The judge awarded Unocal attorney's fees because of this conduct by the defendants.

The evidence showed that the defendants between March 1, 1996, and July 31, 1996, had manufactured 13 million gallons of reformulated gasoline that infringed on Unocal's '393' patent. The jury awarded Unocal $69 million, plus interest and certain costs, for the five-month period covered by the trial. Unocal received that payment in June 2000.

The Federal Circuit Court (Washington, D.C.) upheld the District Court verdict and damage award in March 2000.

In January 2001, the Solicitor General filed a brief on the '393' case with the Supreme Court, concluding, "further review is not warranted."

Unocal said it will now ask the District Court to implement an earlier order for the defendant companies to provide an accounting of their infringement of Unocal's '393' patent since the five-month period covered by the trial.

Updated: February 2001