SAN FRANCISCO - A cleaner-burning gasoline meant to reduceCalifornia's air pollution has led to a legal fight that threatensto raise prices at pumps nationwide by between 1 cent and 6 centsper gallon. Unocal Corp. and six major oil companies have haggledover Unocal's patent on reformulated gasoline since 1995, whenCalifornia required the fuel to reduce vehicle emissions.
The issue becomes a factor outside California beginning today,when the federal Clean Air Act requires other states to sellreformulated gas to reduce auto emissions.
El Segundo, California-based Unocal believes a patent obtained inFebruary 1994 applies to the reformulated gas and gives it the rightto collect licensing fees - as much as 53/4 cents per gallon - fromrivals that sell the gas blend.
The question is whether those companies will foot the bill orpass the expense along to motorists.
The gas blend in other states differs slightly from California'sreformulated gasoline, but analysts expect Unocal to assert itsroyalty rights nationwide. Unocal has five different patents onreformulated gas.
"This is a significant issue, not just for California, but foreveryone in the United States," said David O'Reilly, chairman ofChevron Corp., one of six oil giants contesting the validity ofUnocal's patent.
The other companies that contested the patent were Exxon, Mobil(since bought by Exxon), Arco, Texaco and Shell.
A federal jury in Los Angeles concluded in 1997 that Unocal'spatent was valid and other oil companies should pay 53/4 cents pergallon to use the blending formula. The oil companies have until mid-August to decide whether to take their case to the U.S. SupremeCourt.
Based on the 1997 verdict, Unocal could reap as much as $1.1billion in annual royalties.
Analysts say Unocal is more likely to negotiate a licensing feeof about 1 cent per gallon applicable to about 20 percent of the 350million gasoline gallons sold nationwide each day, resulting inroughly $127 million in annual royalties.
Regardless of the actual figure, the patent claim is expected todrive up gasoline costs, said Fadel Gheit, an oil industry analystfor Fahnestock & Co. in New York.
"The meter has been running on this issue for a while and (theindustry) has been deferring the charges," Gheit said. "Now, it'stime to feed the meter, but who is going to put in more coins?"
ExxonMobil Corp. chairman Lee Raymond said the dispute will forceretail prices higher as gas supplies tighten this summer becauserefiners who must use other blending methods to make the cleaner-burning fuel won't be able to produce as much gasoline.
Gas prices already are poised to rise above the current nationalaverage of $1.53 per gallon, as inventories are below normal levelsand the peak driving season is just beginning.
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