Monday, January 17, 2005

China planning to buy Unocal?

Imagine the irony of China becoming the holder of Unocal's patents on clean gasoline.

Recall that the patents survived at the CAFC by a 2-1 vote, with one patent law issue being that the composition claimed, in terms of a combination of parameters, was not disclosed in terms of the same combination of parameters. There was separately an issue that Unocal modified its patent claims (in real time) to conform to decisions of California's environmental agency, taking advantage of knowledge it gained from the agency. Challenges to the patents have been successfully defended by Unocal, to date, although there remains a challenge by the FTC.

An article in the LA Times has the following text:

But one source close to Unocal said the Chinese — their economy booming and thirst for oil growing rapidly — weren't looking at Unocal simply in terms of its Asian properties. China wants oil and gas reserves badly enough to look at South America and the reopening of Libya's oil fields to foreign companies, among other prospects.

The Chinese "need to import a lot of oil for their growing industry, and they're sending their national oil companies far afield," the source said.

The United States could be a difficult frontier.

If the Chinese did buy Unocal, "it's very unlikely in my view that they would keep any of Unocal's U.S. operations," Gheit said. The United States "is virgin territory for them, and would subject them to all the U.S. rules and regulations. They want to stay away from Washington."

If acquired, Unocal would provide the buyer with another potentially lucrative asset: Unocal's patents on cleaner-burning gasoline sold in California.

In the early 1990s, Unocal helped develop a standard for the cleaner fuel while also securing patents on various gasoline recipes. Although Unocal sold its refineries and service stations, it held on to the gasoline patents.

Other oil companies, which would have to pay royalties to Unocal, have repeatedly challenged the patents in court, but they remain in force.

The Federal Trade Commission last fall also reinstated civil antitrust charges against the company, alleging that the patents gave Unocal "unlawful market power" to demand the royalties. Unocal denies that claim.

The FTC claims that the patent royalties would saddle California consumers with an additional $500 million a year in pump prices. Unocal's estimate of annual royalties ranges from $75 million to $150 million.



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