SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
FORM 8-K
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported) November 3, 1997
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UNOCAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware
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(State or Other Jurisdiction of Incorporation)
1-8483 95-3825062
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(Commission File Number) (I.R.S. Employer Identification No.)
2141 Rosecrans Avenue, Suite 4000, El Segundo, California 90245
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(Address of Principal Executive Offices) (Zip Code)
(310) 726-7600
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(Registrant's Telephone Number, Including Area Code)
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Item 5. Other Events.
On November 3, 1997 the following news release was issued:
JURY AWARDS UNOCAL DAMAGES FOR RFG PATENT
INFRINGEMENT; LITTLE IMPACT ON CONSUMERS SEEN
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El Segundo, Calif., Nov. 3, 1997 -- A Federal District Court jury today
awarded Unocal Corporation 5-3/4 cents per gallon in damages for infringement of
the company's cleaner burning reformulated gasoline patent by six of the
nation's largest oil companies. A third phase of the trial is scheduled to be
heard by Judge Kim Wardlaw beginning Dec. 2.
Evidence presented during the trial showed that 1.19 billion gallons,
or 29.1 percent of the total California reformulated gasoline manufactured by
the defendants between March 1, 1996, and July 31, 1996, infringed on Unocal's
patent. Of that, 60 percent was premium grade gasoline (92 octane or greater),
which accounts for about one-fifth of the total gallons manufactured.
"The jury's decision recognizes the major advancements in cleaner
burning gasoline technology that were developed and patented by Unocal
scientists," said Roger C. Beach, Unocal chairman and chief executive officer.
"Our scientists took an innovative approach and isolated the key characteristics
of gasoline that reduce tailpipe emissions and maintain engine performance. This
research resulted in gasoline formulations that help improve air quality
throughout California."
Beach went on to say that the company is prepared to discuss reasonable
licensing arrangements with the defendants and other refiners for the use of its
patented formulations as it was in 1995.
The patent assists refiners in complying with the Phase 2 reformulated
gasoline regulations established by the California Air Resources Board (CARB).
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"We don't believe that this jury award and subsequent licensing fees
should have a significant impact on consumer prices," Beach said. "Ultimately,
the individual refiners and the marketplace will determine the financial impact
of the patent royalty on California motorists."
The Unocal patent would generally only apply to a portion of the
"summer gasolines" manufactured during 7-1/2 months of the year.
The company said that it has consistently indicated its willingness to
make the patent available to all refiners, but the six major companies chose
instead to contest the patent in court. The rate of subsequent infringement by
the defendants has not yet been determined. The company also does not know the
degree of infringement by other refiners since they began manufacturing CARB
Phase 2 gasolines.
Unocal conducted its independent research into cleaner burning
gasolines to meet anticipated federal Clean Air Act goals without having to
resort to ineffective fuels, controversial additives, or costly alternative
vehicles. The company's research found that by controlling the Reid Vapor
Pressure, olefin content, distillation boiling points and other properties of
gasoline, one could achieve significant reduction in tailpipe emissions.
Unocal's emissions research, the invention of the gasoline formulations and
filing of the patent application all preceded the CARB Phase 2 regulations. In
fact, Unocal shared its research findings with CARB prior to the finalization of
the Phase 2 regulations. The company applied for the patent in December 1990,
CARB issued the final Phase 2 regulations in November 1991. The U.S. Patent and
Trademark office awarded Unocal the patent in February 1994.
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Note to Editors: Following is additional information on the infringement of
Unocal's patent by the defendants, a statistical comparison of Unocal and the
six defendant companies, a backgrounder on Unocal's patent, and the
confidentiality agreement of the 1989 Auto/Oil research program.
UNOCAL REFORMULATED GASOLINE PATENT
INFRINGEMENT/ROYALTY INFORMATION
(Based on evidence presented at trial)
The damages assessed by the jury applies to only 29.1% of total CARB RFG
volumes (14.9% of regular/mid grade and 82.6% of premium grade)
manufactured by the six defendants from March 1, 1996-July 31, 1996.
About 60% of the infringing gallons were premium grade (92 octane or
greater), which accounted for only 21.2% of the total volume manufactured
and is used by high-performance vehicles.
On an annual basis, patent would only apply to RFG gasolines produced for
roughly 7-1/2 months, or about 60%, of the year ("summer gasoline").
Rate of infringement by the defendants after July 31, 1996, and
infringement by other refiners has yet to be determined.
Ongoing license fee has yet to be negotiated with infringing companies
PRODUCTION DATA PRESENTED AT TRIAL:
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Period of infringement addressed at trial: March 1, 1996 to July 31, 1996
Total CARB RFG volumes manufactured
during period of 4.12 billion gallons
infringement by defendants: -- 3.25 billion gallons regular/mid-
grade
-- 875 million gallons premium grade
Gasoline volumes manufactured 1.19 billion gallons infringed
by defendants that on Unocal's patent -- 485 million gallons
during the infringement -- 714 million gallons premium grade
regular/mid-grade period
Ratio of infringing gallons to 29.1% of total CARB
total volumes manufactured -- 14.9% of regular/mid-grade
RFG volumes by defendants -- 82.6% of premium grade
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UNOCAL'S REFORMULATED GASOLINE PATENT
PROFILES OF THE INVOLVED COMPANIES
1996 Revenues 1996 Assets
Company (million $) (million $)
Unocal Corporation ....................... $ 5,328 $ 9,153
Defendants:
Atlantic Richfield .................... $ 19,169 $ 25,715
Chevron ............................... 43,893 34,854
Exxon ................................. 134,249 95,527
Mobil ................................. 81,503 46,408
Shell ................................. 29,151 28,709
Texaco ................................ 45,500 26,963
Total Defendants .................... $353,465 $258,176
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UNOCAL'S REFORMULATED GASOLINE PATENT
BACKGROUND
Overview
Unocal Corporation's patent for reformulated gasoline was the fruit of the
company's independent research program, which developed a new way to produce
cleaner burning fuels that meet federal and California air quality standards
without using controversial additives. The patented reformulated gasolines
benefit consumers, the industry, and the environment:
The industry benefits from an economical means to produce cleaner burning
gasolines with minimal modifications to existing plants, transportation
systems and service stations.
Consumers benefit through the use of cleaner burning gasolines that don't
rely on controversial gasoline additives or force them to use costly
alternative vehicles.
The environment benefits from cleaner air and the incentives other
companies will have to develop their own reformulated fuels, or to accept
Unocal's offer to license the patent.
Unocal will offer its patent for license in order to spread these benefits as
widely as possible to industry and the public.
Companies that invest in environmental technologies research take a major risk
that their expensive efforts will end in failure. Patents and licenses are the
way in which these companies are rewarded for their technological breakthroughs.
Prospects for more research and a better environment are enhanced when other
companies see that successful efforts to reduce pollution are appropriately
rewarded in the marketplace.
REGULATORY CONTEXT
California has the strictest clean fuel standards in the country. The Phase 2
requirements for lower-emission gasolines were issued by CARB under authority of
the federal 1990 Clean Air Act amendments. Those amendments require states to
meet and maintain federally mandated standards for air quality.
As part of its rulemaking process, CARB gathered information from industry
members (including Unocal), environmentalists, consumers and scientific leaders.
Based on the best available data, the agency formulated its specifications for
Phase 2 gasolines. It is important to note that while Unocal's patented
gasolines meet these CARB specifications, the company's research program
preceded CARB's adoption and publication of the Phase 2 requirements. In fact,
Unocal applied for its patent 10 months before CARB issued its regulations.
HOW THE PATENT FITS IN
Having met the legal requirements to obtain a patent -- namely, establishing its
invention to be "new and non-obvious" -- Unocal received Patent No. 5,288,393
from the United States Patent and Trademark office on February 22, 1994.
Unocal's patent includes many of the possible fuel compositions that refiners
find practical to manufacture, while still complying with CARB's Phase 2
requirements. CARB has issued a "predictive model" that allows for refiners to
adjust various characteristics of the fuel to achieve low emissions. Although
other oil companies may develop their own fuels, Unocal will offer its patent
for license in order to spread the benefits of lower emissions from its patented
fuels (without the use of controversial additives) as widely as possible to the
industry and the public.
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Offers to license a government-mandated product have several precedents, even
within the petroleum industry. Both Texaco and Chevron sought license fees from
other oil companies for their discoveries pertaining to CARB-certified diesel
fuels. Arco also filed a patent application for its version of RFG in July 1992,
but later withdrew the application.
Within the auto industry, seat belts, air bags and catalytic converters are
examples of inventions that were patented, licensed and then mandated by the
government. Unocal's patented reformulated gasolines provide the industry with a
way to economically produce cleaner burning fuels without the use of
controversial additives.
TIMELINE 1989 Auto/Oil study group formed in October
1990 Unocal filed RFG patent application based on independent research on
December 13
1991 Unocal results presented to CARB in June CARB issued Phase 2 regulations in
November
1992 Arco filed for RFG patent in July 1993 Texaco offered to license CARB
diesel formula
Chevron filed application for CARB diesel patent and offered to sell
license to Unocal CARB diesel introduced
1994 Unocal awarded RFG patent on February 22
1995 EPA RFG introduced
Unocal announced RFG patent on January 31 Chevron awarded CARB diesel
patent Plaintiffs filed suit against Unocal on April 13
1996 CARB Phase 2 production began March 1
1997 Trial began on July 15
Jury returned verdict upholding validity of patent on Oct. 14
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INDEPENDENT RESEARCH PROVISIONS
AUTO/OIL AIR QUALITY IMPROVEMENT
RESEARCH PROGRAM AGREEMENT
OCTOBER 1989
In October 1989, 14 U.S. oil companies and the Big Three U.S. automakers entered
into an agreement to develop data on how vehicle emissions can be reduced
through improved gasoline formulations, alternative fuels and advances in
automobile technology. This joint study agreement explicitly provided that the
individual companies could pursue their own simultaneous, independent research.
No company would be obligated to disclose the existence of this independent
effort or share the results with the other participants.
Following is paragraph 6-B (pp 14-15) of the agreement, which was signed by all
of the study participants, relating to independent research.
6. Confidentiality and Intellectual Property Rights.
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B. Independent Research. Each Member (and each Associate Member) shall retain
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the right to engage in independent research, alone or with others, including
other participants in the Program, on any matter, including reformulated
gasoline, methanol, other alternative fuels or automotive technology including
emission control systems. A member who has undertaken or desires to undertake an
independent research project shall not be obligated by reason of this Agreement
to (I) disclose to the Program or the other Members the fact that such
independent research has been or is being undertaken, the nature of the project
or the results thereof, or (ii) permit the Program or the other Members to
participate in such project. If a member engages in independent research, (i)
the project shall not be deemed to be undertaken by the Program; (ii) neither
the Program nor the other Members shall have any rights or obligations relating
thereto by reason of this Agreement; (iii) the Member undertaking such project
shall not be credited by the Program with any expenditures or research time
relating to such Project; (iv) the other Members shall not have any rights to
participate in such project by reason of this Agreement; and (v) the Research
Planning Task Force shall not have any right to review or approve any contracts
relating to such project. Nothing in this Agreement shall be deemed to
constitute a waiver of existing or future proprietary rights that a Member may
otherwise possess.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNOCAL CORPORATION
(Registrant)
Date: November 4, 1997 By: /s/ JOSEPH A. HOUSEHOLDER
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Joseph A. Householder
Vice President, Tax and Comptroller
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