press release

Unocal offers uniform license to all non-litigating refiners, blenders and importers

El Segundo, Calif., March 29, 2001 -- Unocal Corporation (NYSE: UCL) today said it will offer a uniform license to all non-litigating refiners, blenders and importers for the use of the company's portfolio of cleaner burning gasoline patents.

The license schedule specifies a range between 1.2 and 3.4 cents per infringing gallon structured in such a way that the licensee's rate per gallon is reduced as more infringement occurs.

"We believe that the situation of every refiner, blender and importer may differ but that one uniform license will allow all licensees to use Unocal's patented gasoline formulations to their specific economic advantage," said Charles R. Williamson, Unocal chief executive officer. "The license is also designed to encourage and reward those licensees who use the patented formulations the most, because use of our cleaner burning gasolines improves air quality."

Williamson went on to say, "We estimate that licenses for our patents would add less than one cent per gallon to the cost of reformulated gasolines nationwide."

The company noted that there have been statements over the years that some refiners and blenders can "blend around" Unocal's patented gasoline formulations for less than a penny per gallon. "If it were possible for refiners or blenders to blend around our patented formulations for less than a penny a gallon on a practical, sustained basis, we wouldn't expect them to license with us," said Williamson. "They would choose not to infringe. Otherwise, it seems to us that reasonable business people would choose to avoid willfully infringing our patents and decide to take the course that is both economic and ethical - license."

Williamson noted that the license is being offered to all non-litigating companies "because those companies did not force us to spend millions of dollars in attorney's fees and devote countless hours of staff time to show the validity of our patent claims."

Unocal received its first patent ('393') for cleaner burning gasoline formulations in 1994. 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 has repeatedly said that Unocal's goal is 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.

This news release contains certain forward-looking statements about patent licenses. These statements are not guarantees of future performance. The statements are based upon Unocal's current expectations and beliefs about levels of infringement, 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.

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). Anonymous parties have asked the U.S. Patent and Trademark Office (PTO) to reexamine Unocal's '393' and '126' patents. The company is confident that the PTO will affirm the patents.

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. District 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 infringement 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." In February 2001, the U.S. Supreme Court reaffirmed the validity of the '393' patent by denying the defendants' petition for a rehearing.

Unocal said it has asked 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: March 2001