Union Oil Company of California; Analysis of Proposed Consent Order to Aid Public Comment, 35434-35437 [05-12043]
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Federal Register / Vol. 70, No. 117 / Monday, June 20, 2005 / Notices
(30) days for receipt of comments by
interested persons. Comments received
during this period will become part of
the public record. After thirty (30) days,
the Commission will again review the
agreement and the comments received,
and will decide whether it should
withdraw from the agreement or make
final the agreement’s proposed order.
This matter involves the advertising
and promotion of Tropicana’s ‘‘Healthy
Heart’’ orange juice. According to the
FTC complaint, Tropicana represented
that (1) drinking three glasses of
‘‘Healthy Heart’’ a day for one month
will raise good cholesterol by twentyone percent and improve the ratio of
good to bad cholesterol by sixteen
percent; (2) drinking twenty ounces of
‘‘Healthy Heart’’ a day for one month
will increase blood folate levels by
forty-five percent and decrease
homocysteine levels by eleven percent;
and (3) drinking two glasses of orange
juice a day for eight weeks will lower
blood pressure an average of ten points.
The complaint alleges that these claims
are unsubstantiated. Tropicana also
represented that the above three claims
were clinically proven. The complaint
alleges that this claim is false. Although
Tropicana refers to three studies in its
advertising, the studies are limited and
do not support the claims made. The
proposed consent order contains
provisions designed to prevent
Tropicana from engaging in similar acts
and practices in the future.
Part I of the order requires Tropicana
to possess competent and reliable
scientific evidence before making the
three challenged efficacy claims.
Part II requires Tropicana to possess
competent and reliable scientific
evidence before making certain
representations that any food will affect:
any biological marker or health-related
endpoint by any specific amount; blood
cholesterol levels, blood folate levels,
blood homocysteine levels, or blood
pressure; or the risk of developing heart
disease, stroke, or cancer. Furthermore,
Part II provides that a mere statement
that a product contains a particular
nutrient will not, by itself, be
considered to be a health benefit claim
covered by Part II.
Part III of the proposed order
prohibits Tropicana from
misrepresenting the existence, contents,
validity, results, conclusions, or
interpretations of any test or study.
Part IV permits any representation for
any product that is permitted in labeling
for such product pursuant to regulations
promulgated by FDA pursuant to the
Nutrition Labeling and Education Act of
1990.
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Parts V through VIII of the order
require Tropicana to keep copies of
relevant advertisements and materials
substantiating claims made in the
advertisements; to provide copies of the
order to certain of its current and future
personnel for three years; to notify the
Commission of changes in corporate
structure; and to file compliance reports
with the Commission. Part IX provides
that the order will terminate after
twenty (20) years under certain
circumstances.
The purpose of this analysis is to
facilitate public comment on the
proposed order, and it is not intended
to constitute an official interpretation of
the agreement and proposed order or to
modify in any way their terms.
By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 05–12042 Filed 6–17–05; 8:45 am]
BILLING CODE 6750–01–P
FEDERAL TRADE COMMISSION
[Docket No. 9305]
Union Oil Company of California;
Analysis of Proposed Consent Order
to Aid Public Comment
Federal Trade Commission.
Proposed Consent Agreement.
AGENCY:
ACTION:
SUMMARY: The consent agreement in this
matter settles alleged violations of
federal law prohibiting unfair or
deceptive acts or practices or unfair
methods of competition. The attached
Analysis to Aid Public Comment
describes both the allegations in the
complaint and the terms of the consent
order—embodied in the consent
agreement—that would settle these
allegations.
Comments must be received on
or before July 9, 2005.
ADDRESSES: Interested parties are
invited to submit written comments.
Comments should refer to ‘‘Union Oil
Company of California, Docket No.
9305,’’ to facilitate the organization of
comments. A comment filed in paper
form should include this reference both
in the text and on the envelope, and
should be mailed or delivered to the
following address: Federal Trade
Commission/Office of the Secretary,
Room 159–H, 600 Pennsylvania
Avenue, NW., Washington, D.C. 20580.
Comments containing confidential
material must be filed in paper form,
must be clearly labeled ‘‘Confidential,’’
and must comply with Commission
DATES:
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Rule 4.9(c). 16 CFR 4.9(c) (2005).1 The
FTC is requesting that any comment
filed in paper form be sent by courier or
overnight service, if possible, because
U.S. postal mail in the Washington area
and at the Commission is subject to
delay due to heightened security
precautions. Comments that do not
contain any nonpublic information may
instead be filed in electronic form as
part of or as an attachment to email
messages directed to the following email
box: consentagreement@ftc.gov.
The FTC Act and other laws the
Commission administers permit the
collection of public comments to
consider and use in this proceeding as
appropriate. All timely and responsive
public comments, whether filed in
paper or electronic form, will be
considered by the Commission, and will
be available to the public on the FTC
Web site, to the extent practicable, at
www.ftc.gov. As a matter of discretion,
the FTC makes every effort to remove
home contact information for
individuals from the public comments it
receives before placing those comments
on the FTC website. More information,
including routine uses permitted by the
Privacy Act, may be found in the FTC’s
privacy policy, at https://www.ftc.gov/
ftc/privacy.htm.
FOR FURTHER INFORMATION CONTACT:
Chong S. Park, Bureau of Competition,
600 Pennsylvania Avenue, NW,
Washington, D.C. 20580, (202) 326–
2372.
SUPPLEMENTARY INFORMATION: Pursuant
to section 6(f) of the Federal Trade
Commission Act, 38 Stat. 721, 15 U.S.C.
46(f), and § 3.25(f) of the Commission
Rules of Practice, 16 CFR 3.25(f), notice
is hereby given that the above-captioned
consent agreement containing a consent
order to cease and desist, having been
filed with and accepted, subject to final
approval, by the Commission, has been
placed on the public record for a period
of thirty (30) days. The following
Analysis to Aid Public Comment
describes the terms of the consent
agreement, and the allegations in the
complaint. An electronic copy of the
full text of the consent agreement
package can be obtained from the FTC
Home Page (for June 10, 2005), on the
World Wide Web, at https://www.ftc.gov/
os/2005/06/index.htm. A paper copy
can be obtained from the FTC Public
1 The comment must be accompanied by an
explicit request for confidential treatment,
including the factual and legal basis for the request,
and must identify the specific portions of the
comment to be withheld from the public record.
The request will be granted or denied by the
Commission’s General Counsel, consistent with
applicable law and the public interest. See
Commission Rule 4.9(c), 16 CFR 4.9(c).
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Federal Register / Vol. 70, No. 117 / Monday, June 20, 2005 / Notices
Reference Room, Room 130–H, 600
Pennsylvania Avenue, NW.,
Washington, DC 20580, either in person
or by calling (202) 326–2222.
Public comments are invited, and may
be filed with the Commission in either
paper or electronic form. All comments
should be filed as prescribed in the
ADDRESSES section above, and must be
received on or before the date specified
in the DATES section.
Analysis of Agreement Containing
Consent Order to Aid Public Comment
The Federal Trade Commission has
accepted for public comment an
Agreement Containing Consent Order
(‘‘Agreement’’) with Union Oil
Company of California (‘‘Union Oil’’) to
resolve matters charged in an
Administrative Complaint issued by the
Commission on March 4, 2003
(‘‘Complaint’’). Pursuant to the
Agreement, Union Oil provisionally has
agreed to be bound by a proposed
consent order (‘‘Proposed Consent
Order’’).
The Agreement has been placed on
the public record for thirty (30) days for
receipt of comments from interested
members of the public. The Agreement
is for settlement purposes only and does
not constitute an admission by Union
Oil that the law has been violated as
alleged in the Complaint or that the
facts alleged in the Complaint, other
than jurisdictional facts, are true. The
Proposed Consent Order remedies
alleged anticompetitive effects arising
from Union Oil’s conduct, as alleged in
the Complaint.
I. The Commission’s Complaint
The Complaint alleges that
Respondent Union Oil engaged in a
series of acts to subvert state regulatory
standard-setting procedures relating to
low emissions gasoline. To address
California’s serious air pollution
problems, the California Air Resources
Board (‘‘CARB’’) initiated proceedings
in the late 1980s to set regulations and
standards governing the composition of
low emissions, reformulated gasoline
(‘‘RFG’’). The Complaint alleges that
Union Oil actively participated in CARB
RFG rulemaking proceedings and
engaged in a pattern of bad-faith,
deceptive conduct, exclusionary in
nature, that enabled it to undermine
competition and harm consumers. The
Complaint states that Union Oil also
engaged in deceptive and exclusionary
conduct through its participation in two
private industry groups—the Auto/Oil
Air Quality Improvement Program
(‘‘Auto/Oil’’) and the Western States
Petroleum Association (‘‘WSPA’’).
According to the Complaint, Union Oil
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thereby illegally monopolized,
attempted to monopolize, and otherwise
engaged in unfair methods of
competition in violation of Section 5 of
the FTC Act in both the technology
market for the production and supply of
CARB-compliant ‘‘summer-time’’
gasoline, and the downstream ‘‘summertime’’ gasoline product market.
Union Oil is a public corporation,
organized in, and doing business under,
the laws of California. Union Oil is a
wholly-owned operating subsidiary of
Unocal Corporation, a holding company
incorporated in Delaware. Prior to 1997,
Union Oil owned and operated
refineries in California as a verticallyintegrated producer, refiner, and
marketer of petroleum products. In
1997, Union Oil sold its west coast
refining, marketing, and transportation
assets. Currently, Union Oil’s primary
business activities involve oil and gas
exploration and production.
The Complaint alleges that during the
CARB ‘‘Phase 2’’ RFG rulemaking
proceedings in 1990–1994, Union Oil
made a series of materially false and
misleading statements. According to the
allegations in the Complaint, Union Oil
willfully and intentionally:
a. Represented to CARB and other
participants that Union Oil’s emissions
research results showing, inter alia, the
relationships between certain gasoline
properties and automobile emissions,
were ‘‘nonproprietary,’’ in ‘‘the public
domain,’’ or otherwise were available to
CARB, industry members, and the
general public—without disclosing that
Union Oil intended to assert its
proprietary interests (as manifested in
pending patent claims) in the results of
this research;
b. Represented to CARB that a
‘‘predictive model’’—i.e., a
mathematical model that predicts
whether the emissions that would result
from varying certain gasoline properties
in a fuel are equivalent to the emissions
resulting from a specified and fixed fuel
formulation—would be ‘‘cost-effective’’
and ‘‘flexible,’’ without disclosing that
Union Oil’s assertion of its proprietary
interests would undermine the costeffectiveness and flexibility of such a
model; and
c. Made statements and comments to
CARB and other industry participants
relating to the cost-effectiveness and
flexibility of the regulations that further
reinforced the materially false and
misleading impression that Union Oil
had relinquished or would not enforce
any proprietary interests in its
emissions research results.
According to the Complaint, Union
Oil continued to conceal its intention to
obtain a competitive advantage through
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35435
the enforcement of its proprietary
interests relating to RFG even after
Union Oil received notice that the
pending patent claims were allowed and
issued. The Complaint alleges that
Union Oil thereby led CARB and two
private industry groups—Auto/Oil and
WSPA (and their respective industry
members)—to believe that Union Oil
did not have, or would not enforce, any
proprietary interests or intellectual
property rights associated with its
emissions research results.
The Complaint alleges that Union
Oil’s conduct caused CARB to adopt
Phase 2 ‘‘summer-time’’ RFG regulations
that substantially overlapped with
Union Oil’s concealed pending patent
claims. But for Union Oil’s deception,
according to the Complaint, CARB
would not have adopted RFG
regulations substantially incorporating
Union Oil’s proprietary interests; the
terms on which Union Oil was later able
to enforce its proprietary interests
would have been substantially different;
or both.
The Complaint alleges that but for
Union Oil’s deceptive conduct, industry
participants in Auto/Oil and WSPA
would have taken actions including, but
not limited to, (a) advocating that CARB
adopt regulations that minimized or
avoided infringement of Union Oil’s
patent claims; (b) advocating that CARB
negotiate license terms substantially
different from those that Union Oil was
later able to obtain; and/or (c)
incorporating knowledge of Union Oil’s
pending patent rights in their capital
investment and refinery reconfiguration
decisions to avoid and/or minimize
potential infringement.
According to the Complaint, Union
Oil did not announce the existence of its
proprietary interests and patent rights
relating to RFG until January 1995—
shortly before the relevant CARB Phase
2 RFG regulations were to go into effect.
The Complaint alleges that, by that time,
the refining industry had spent billions
of dollars in capital expenditures to
modify their refineries to comply with
the CARB Phase 2 RFG regulations, in
reliance on Union Oil’s representations
that its research results were in ‘‘the
public domain.’’ The Complaint states
that once CARB and the refiners had
become locked into the Phase 2
regulations, Union Oil commenced
vigorous enforcement of its patent rights
through litigation and licensing, and
obtained four additional patents based
on the same RFG research results.
Union Oil’s misrepresentations,
according to the Complaint, have
harmed competition and led directly to
the acquisition of monopoly power for
the technology to produce and supply
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California ‘‘summer-time’’ reformulated
gasoline (mandated for up to eight
months of the year, from approximately
March through October). The Complaint
alleges that Union Oil’s conduct also
permitted it to undermine competition
and harm consumers in the downstream
product market for ‘‘summer-time’’
reformulated gasoline in California. The
Complaint alleges that without recourse,
Union Oil’s conduct would continue
materially to cause or threaten to cause
further substantial injury to competition
and to consumers.
According to the Complaint, Union
Oil’s enforcement of its RFG patents has
resulted, inter alia, in a jury
determination of a 5.75 cents per gallon
royalty on gasoline produced by major
California refiners comprising
approximately 90 percent of the current
refining capacity of CARB-compliant
RFG in the California market. The
Complaint alleges that Union Oil also
has publicly announced that it will
license its RFG patent portfolio, with
fees ranging from 1.2 to 3.4 cents per
gallon, to ‘‘non-litigating’’ refiners.
The Complaint alleges that Unocal’s
conduct could result in an estimated
annual cost of more than $500 million
to the refining industry. According to
the Complaint, Union Oil’s own
economic expert has testified under
oath that 90 percent of any royalty
would be passed through to consumers
in the form of higher gasoline prices.
II. Terms of the Proposed Consent
Order
The Commission has provisionally
entered into an Agreement with Union
Oil in settlement of the Complaint. As
discussed below, the provisions of the
Agreement are conditioned upon the
completion of certain steps in Chevron
Corporation’s merger with Unocal
Corporation, as contemplated by the
Agreement and Plan of Merger dated as
of April 4, 2005, among Unocal
Corporation, ChevronTexaco
Corporation, and Blue Merger Sub Inc.
In order to remedy the alleged
anticompetitive effects, Union Oil has
agreed to take several actions. First, it
will cease and desist from any and all
efforts, and will not undertake any new
efforts to: (a) Assert or enforce any of
Union Oil’s Relevant U.S. Patents
against any person; (b) recover any
damages or costs for alleged
infringements of any of the Relevant
U.S. Patents; or (c) collect any fees,
royalties or other payments, in cash or
in kind, for the practice of any of the
Relevant U.S. Patents, including but not
limited to fees, royalties, or other
payments, in cash or in kind, to be
collected pursuant to any License
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Agreement. These obligations become
effective as of the ‘‘Merger Effective
Date,’’ which is defined as the earlier of
(1) the date that the certificate of merger
for the Merger is filed with the Secretary
of State of Delaware or such later time
as specified in such certificate of
merger, or (2) the date that Chevron
Corporation acquires control of Unocal
Corporation, as ‘‘control’’ is defined by
16 CFR 801.1(b).
Second, the Proposed Consent Order
requires that, within thirty (30) days
following the Merger Effective Date,
Union Oil shall file, or cause to be filed,
with the United States Patent and
Trademark Office, the necessary
documents pursuant to 35 U.S.C. 253,
37 CFR 1.321, and the Manual of Patent
Examining Procedure to disclaim or
dedicate to the public the remaining
term of the Relevant U.S. Patents. The
Proposed Consent Order further requires
that Union Oil shall correct as
necessary, and shall not withdraw or
seek to nullify, any disclaimers or
dedications filed pursuant to the
Proposed Consent Order.
Third, the Proposed Consent Order
requires that, within thirty (30) days
following the Merger Effective Date,
Union Oil shall move to dismiss, with
prejudice, all pending legal actions
relating to the alleged infringement of
any Relevant U.S. Patents, including but
not limited to the following actions
pending in the United States District
Court for the Central District of
California: Union Oil Company of
California v. Atlantic Richfield
Company, et al., Case No. CV–95–2379–
CAS and Union Oil Company of
California v. Valero Energy Corporation,
Case No. CV–02–00593 SVW.
Paragraph V of the Proposed Consent
Order requires Union Oil to distribute a
copy of the Proposed Consent Order and
the Complaint in this matter to certain
interested parties, including (1) any
person that Union Oil has contacted
regarding possible infringement of any
of the Relevant U.S. Patents, (2) any
person against which Union Oil is, or
was, involved in any legal action
regarding possible infringement of any
of the Relevant U.S. Patents, (3) any
licensee or other Person from which
Union Oil has collected any fees,
royalties or other payments, in cash or
in kind, for the practice of the Relevant
U.S. Patents, and (4) any person that
Union Oil has contacted with regard to
the possible collection of any fees,
royalties or other payments, in cash or
in kind, for the practice of the Relevant
U.S. Patents.
Paragraph V also requires Union Oil
to distribute a copy of the Proposed
Consent Order and the Complaint to
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Union Oil’s present and future officers
and directors having responsibility for
any of its obligations under the
Proposed Consent Order, and to
employees and agents having
managerial responsibility for any of its
obligations under the Proposed Consent
Order.
Paragraphs VI, VII and VIII of the
Proposed Consent Order contain
standard reporting, access, and
notification provisions designed to
allow the Commission to monitor
compliance with the order. Paragraph IX
provides that the Proposed Consent
Order shall terminate twenty (20) years
after the date it becomes final.
III. Opportunity for Public Comment
The Proposed Consent Order has been
placed on the public record for thirty
(30) days for receipt of comments by
interested persons. Comments received
during this thirty-day comment period
will become part of the public record.
After thirty (30) days, the Commission
will again review the Proposed Consent
Order and the comments received and
will decide whether it should withdraw
from the Proposed Consent Order or
make final the Agreement’s Proposed
Consent Order.
By accepting the Proposed Consent
Order subject to final approval, the
Commission anticipates that the
competitive problems alleged in the
Complaint will be resolved. The
purpose of this analysis is to invite
public comment on the Proposed
Consent Order, and to aid the
Commission in its determination of
whether it should make final the
Proposed Consent Order contained in
the Agreement. This analysis is not
intended to constitute an official
interpretation of the Proposed Consent
Order, nor is it intended to modify the
terms of the Proposed Consent Order in
any way.
Statement of the Federal Trade
Commission
The Federal Trade Commission has
voted unanimously (4–0–1, with
Chairman Majoras recused) to accept
two linked consent agreements that
resolve both the Commission’s
monopolization case against Unocal
Corporation’s subsidiary Union Oil
Company of California and any antitrust
concerns arising from Chevron
Corporation’s pending acquisition of
Unocal. The key element in the
settlements, which will become
effective when the acquisition is
completed, is Chevron’s agreement not
to enforce certain Union Oil patents that
potentially could have increased
gasoline prices in California by over
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Federal Register / Vol. 70, No. 117 / Monday, June 20, 2005 / Notices
$500 million a year (or almost six cents
per gallon). This agreement provides the
full relief that the Commission sought in
its administrative litigation with Union
Oil and also addresses the only possible
objection to the Chevron/Unocal
acquisition.
On April 4, 2005, Chevron agreed to
acquire Unocal in a transaction valued
at approximately $18 billion. Chevron
and Unocal both have extensive oil and
gas operations. However, nearly all of
Unocal’s operations are in the so-called
‘‘upstream’’ segment of the business—
namely, the exploration and production
of crude oil and natural gas. Unocal has
no refineries or gasoline stations in the
United States or anywhere else in the
world, and has few other ‘‘downstream’’
operations. As a result, virtually all of
the competitive overlaps between the
two firms are in unconcentrated
upstream markets, and the merger thus
creates no competitive risk. For
example, Chevron and Unocal
combined have only 2.7 percent of
world crude oil production, 0.77
percent of world crude oil reserves, 11.3
percent of U.S. crude oil production,
and 11.4 percent of U.S. crude oil
reserves.2 We want to
emphasize that the merger will have no
impact whatsoever on concentration at
the retail or refinery levels. It is clear
from all we have seen that Chevron’s
primary motivation is to gain access to
Unocal’s upstream oil reserves.
The only potential competitive
concern with Chevron’s proposed
acquisition of Unocal involved patents
held by Union Oil—the same group of
patents involved in the Commission’s
monopolization case against Union Oil.
In order to explain why this is so, it is
necessary first to discuss the issues in
this monopolization case.
The Commission’s administrative
complaint against Union Oil charged
that the firm had illegally acquired
monopoly power in the technology
market for producing certain lowemission gasoline mandated by the
California Air Resources Board (CARB)
for sale and use in California for up to
eight months of the year. According to
the complaint, Union Oil
misrepresented to CARB that certain
gasoline research was non-proprietary
and in the public domain, while at the
2 Sources for the underlying data include the
Energy Information Administration, U.S.
Department of Energy, U.S. Crude Oil, Natural Gas,
and Liquids Table 2003 Annual Report, Table B5,
available at https://www.eia.doe.gov, the FTC
Bureau of Economics Staff Study, ‘‘The Petroleum
Industry: Mergers, Structural Change, and Antitrust
Enforcement,’’ August 2004, Table 5–3, available at
https://www.ftc.gov/os/2004/08/040813/
mergersinpetrolberpt.pdf, and the Oil and Gas
Journal.
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same time it pursued a patent that
would enable it to charge substantial
royalties if the research results were
used by CARB in the development of
regulations. The complaint further
asserted that Union Oil similarly misled
its fellow members of private industry
groups, which were also participating in
the CARB rulemaking process. As a
result, if Union Oil were permitted to
enforce its patent rights, companies
producing this low-emission CARB
gasoline would be required to pay
royalties to Union Oil, the bulk of which
would be passed on to California
consumers in the form of higher
gasoline prices. The Commission
estimated that Union Oil’s enforcement
of these patents could potentially result
in over $500 million of additional
consumer costs each year. The
complaint sought an order requiring
Union Oil to cease and desist from all
efforts to assert these patents against
those manufacturing, selling,
distributing, or otherwise using motor
gasoline to be sold in California. In the
settlement announced today, Unocal
and Chevron have agreed to all of this
requested relief.
The consent orders also resolve any
possible antitrust objections to the
merger. Although Unocal does not
engage in any refining or retailing itself,
it had claimed the right to collect patent
royalties from companies that did so
(including Chevron). If Chevron had
unconditionally inherited these patents
by acquisition, it would have been in a
position to obtain sensitive information
and to claim royalties from its own
horizontal downstream competitors. We
have reason to believe that this scenario
would likely have an adverse effect on
competition and, in any event, would
inevitably have required an extensive
inquiry and possible litigation.
For example, Union Oil regularly
collects detailed reports from licensees
about their production of CARB gasoline
and other refinery operations. If
Chevron had continued these license
agreements after inheriting Union Oil’s
patents, it would have received
information not otherwise available to
members of the industry. Chevron could
have used this information to facilitate
coordinated interaction and detect any
deviations. Chevron might also have
been able use the patents to discourage
maverick behavior. Our present
knowledge suggests that the likely
competitive harm from this potential
coordination and discipline would
outweigh any likely efficiency gains
from the vertical integration of a merged
Chevron-Unocal. Now, a further inquiry
into that belief is not necessary.
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35437
The settlement of these two matters is
thus a double victory for California
consumers. The Commission’s
monopolization case against Unocal was
complex and, with possible appeals,
could have taken years to resolve. The
stakes were high, and substantial
royalties could have been paid in the
meantime—with an immediate impact
on consumers. If the Commission lost
the case, the dollar costs to consumers
ultimately would have been immense.
At the same time, a challenge against
the acquisition of Unocal by Chevron
would itself be a complex case, with
high stakes and an uncertain outcome.
The settlement provides the full relief
sought in the monopolization case and
resolves the only competitive issue with
the proposed merger. With the
settlement, consumers will benefit
immediately from the elimination of
royalty payments on the Union Oil
patents, and potential merger
efficiencies could result in additional
savings at the pump.
By direction of the Commission, Chairman
Majoras recused.
Donald S. Clark,
Secretary.
[FR Doc. 05–12043 Filed 6–17–05; 8:45 am]
BILLING CODE 6750–01–P
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Office of the Secretary
Area Poverty Research Centers; Office
of the Assistant Secretary for Planning
and Evaluation (ASPE)—Area Poverty
Research Centers
Announcement Type: Grant—Initial.
CFDA Number: 93.239.
Due Date for Letter of Intent: July 11,
2005.
Due Date for Applications: August 4,
2005.
Executive Summary: Funds are
provided for Area Poverty Research
Center cooperative agreements for
qualified institutions to provide a
focused agenda expanding our
understanding of the causes,
consequences and effects of poverty in
local geographic areas or specific
substantive areas, especially in states or
regional areas of high concentrations of
poverty. These cooperative agreements
are intended to create a research
opportunity for scholars and institutions
otherwise unlikely to participate
extensively in HHS programs to support
the Nation’s poverty research effort.
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]]>Agencies
[Federal Register Volume 70, Number 117 (Monday, June 20, 2005)]
[Notices]
[Pages 35434-35437]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-12043]
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FEDERAL TRADE COMMISSION
[Docket No. 9305]
Union Oil Company of California; Analysis of Proposed Consent
Order to Aid Public Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed Consent Agreement.
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SUMMARY: The consent agreement in this matter settles alleged
violations of federal law prohibiting unfair or deceptive acts or
practices or unfair methods of competition. The attached Analysis to
Aid Public Comment describes both the allegations in the complaint and
the terms of the consent order--embodied in the consent agreement--that
would settle these allegations.
DATES: Comments must be received on or before July 9, 2005.
ADDRESSES: Interested parties are invited to submit written comments.
Comments should refer to ``Union Oil Company of California, Docket No.
9305,'' to facilitate the organization of comments. A comment filed in
paper form should include this reference both in the text and on the
envelope, and should be mailed or delivered to the following address:
Federal Trade Commission/Office of the Secretary, Room 159-H, 600
Pennsylvania Avenue, NW., Washington, D.C. 20580. Comments containing
confidential material must be filed in paper form, must be clearly
labeled ``Confidential,'' and must comply with Commission Rule 4.9(c).
16 CFR 4.9(c) (2005).\1\ The FTC is requesting that any comment filed
in paper form be sent by courier or overnight service, if possible,
because U.S. postal mail in the Washington area and at the Commission
is subject to delay due to heightened security precautions. Comments
that do not contain any nonpublic information may instead be filed in
electronic form as part of or as an attachment to email messages
directed to the following email box: consentagreement@ftc.gov.
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\1\ The comment must be accompanied by an explicit request for
confidential treatment, including the factual and legal basis for
the request, and must identify the specific portions of the comment
to be withheld from the public record. The request will be granted
or denied by the Commission's General Counsel, consistent with
applicable law and the public interest. See Commission Rule 4.9(c),
16 CFR 4.9(c).
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The FTC Act and other laws the Commission administers permit the
collection of public comments to consider and use in this proceeding as
appropriate. All timely and responsive public comments, whether filed
in paper or electronic form, will be considered by the Commission, and
will be available to the public on the FTC Web site, to the extent
practicable, at www.ftc.gov. As a matter of discretion, the FTC makes
every effort to remove home contact information for individuals from
the public comments it receives before placing those comments on the
FTC website. More information, including routine uses permitted by the
Privacy Act, may be found in the FTC's privacy policy, at https://
www.ftc.gov/ftc/privacy.htm.
FOR FURTHER INFORMATION CONTACT: Chong S. Park, Bureau of Competition,
600 Pennsylvania Avenue, NW, Washington, D.C. 20580, (202) 326-2372.
SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and Sec. 3.25(f)
of the Commission Rules of Practice, 16 CFR 3.25(f), notice is hereby
given that the above-captioned consent agreement containing a consent
order to cease and desist, having been filed with and accepted, subject
to final approval, by the Commission, has been placed on the public
record for a period of thirty (30) days. The following Analysis to Aid
Public Comment describes the terms of the consent agreement, and the
allegations in the complaint. An electronic copy of the full text of
the consent agreement package can be obtained from the FTC Home Page
(for June 10, 2005), on the World Wide Web, at https://www.ftc.gov/os/
2005/06/index.htm. A paper copy can be obtained from the FTC Public
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Reference Room, Room 130-H, 600 Pennsylvania Avenue, NW., Washington,
DC 20580, either in person or by calling (202) 326-2222.
Public comments are invited, and may be filed with the Commission
in either paper or electronic form. All comments should be filed as
prescribed in the ADDRESSES section above, and must be received on or
before the date specified in the DATES section.
Analysis of Agreement Containing Consent Order to Aid Public Comment
The Federal Trade Commission has accepted for public comment an
Agreement Containing Consent Order (``Agreement'') with Union Oil
Company of California (``Union Oil'') to resolve matters charged in an
Administrative Complaint issued by the Commission on March 4, 2003
(``Complaint''). Pursuant to the Agreement, Union Oil provisionally has
agreed to be bound by a proposed consent order (``Proposed Consent
Order'').
The Agreement has been placed on the public record for thirty (30)
days for receipt of comments from interested members of the public. The
Agreement is for settlement purposes only and does not constitute an
admission by Union Oil that the law has been violated as alleged in the
Complaint or that the facts alleged in the Complaint, other than
jurisdictional facts, are true. The Proposed Consent Order remedies
alleged anticompetitive effects arising from Union Oil's conduct, as
alleged in the Complaint.
I. The Commission's Complaint
The Complaint alleges that Respondent Union Oil engaged in a series
of acts to subvert state regulatory standard-setting procedures
relating to low emissions gasoline. To address California's serious air
pollution problems, the California Air Resources Board (``CARB'')
initiated proceedings in the late 1980s to set regulations and
standards governing the composition of low emissions, reformulated
gasoline (``RFG''). The Complaint alleges that Union Oil actively
participated in CARB RFG rulemaking proceedings and engaged in a
pattern of bad-faith, deceptive conduct, exclusionary in nature, that
enabled it to undermine competition and harm consumers. The Complaint
states that Union Oil also engaged in deceptive and exclusionary
conduct through its participation in two private industry groups--the
Auto/Oil Air Quality Improvement Program (``Auto/Oil'') and the Western
States Petroleum Association (``WSPA''). According to the Complaint,
Union Oil thereby illegally monopolized, attempted to monopolize, and
otherwise engaged in unfair methods of competition in violation of
Section 5 of the FTC Act in both the technology market for the
production and supply of CARB-compliant ``summer-time'' gasoline, and
the downstream ``summer-time'' gasoline product market.
Union Oil is a public corporation, organized in, and doing business
under, the laws of California. Union Oil is a wholly-owned operating
subsidiary of Unocal Corporation, a holding company incorporated in
Delaware. Prior to 1997, Union Oil owned and operated refineries in
California as a vertically-integrated producer, refiner, and marketer
of petroleum products. In 1997, Union Oil sold its west coast refining,
marketing, and transportation assets. Currently, Union Oil's primary
business activities involve oil and gas exploration and production.
The Complaint alleges that during the CARB ``Phase 2'' RFG
rulemaking proceedings in 1990-1994, Union Oil made a series of
materially false and misleading statements. According to the
allegations in the Complaint, Union Oil willfully and intentionally:
a. Represented to CARB and other participants that Union Oil's
emissions research results showing, inter alia, the relationships
between certain gasoline properties and automobile emissions, were
``nonproprietary,'' in ``the public domain,'' or otherwise were
available to CARB, industry members, and the general public--without
disclosing that Union Oil intended to assert its proprietary interests
(as manifested in pending patent claims) in the results of this
research;
b. Represented to CARB that a ``predictive model''--i.e., a
mathematical model that predicts whether the emissions that would
result from varying certain gasoline properties in a fuel are
equivalent to the emissions resulting from a specified and fixed fuel
formulation--would be ``cost-effective'' and ``flexible,'' without
disclosing that Union Oil's assertion of its proprietary interests
would undermine the cost-effectiveness and flexibility of such a model;
and
c. Made statements and comments to CARB and other industry
participants relating to the cost-effectiveness and flexibility of the
regulations that further reinforced the materially false and misleading
impression that Union Oil had relinquished or would not enforce any
proprietary interests in its emissions research results.
According to the Complaint, Union Oil continued to conceal its
intention to obtain a competitive advantage through the enforcement of
its proprietary interests relating to RFG even after Union Oil received
notice that the pending patent claims were allowed and issued. The
Complaint alleges that Union Oil thereby led CARB and two private
industry groups--Auto/Oil and WSPA (and their respective industry
members)--to believe that Union Oil did not have, or would not enforce,
any proprietary interests or intellectual property rights associated
with its emissions research results.
The Complaint alleges that Union Oil's conduct caused CARB to adopt
Phase 2 ``summer-time'' RFG regulations that substantially overlapped
with Union Oil's concealed pending patent claims. But for Union Oil's
deception, according to the Complaint, CARB would not have adopted RFG
regulations substantially incorporating Union Oil's proprietary
interests; the terms on which Union Oil was later able to enforce its
proprietary interests would have been substantially different; or both.
The Complaint alleges that but for Union Oil's deceptive conduct,
industry participants in Auto/Oil and WSPA would have taken actions
including, but not limited to, (a) advocating that CARB adopt
regulations that minimized or avoided infringement of Union Oil's
patent claims; (b) advocating that CARB negotiate license terms
substantially different from those that Union Oil was later able to
obtain; and/or (c) incorporating knowledge of Union Oil's pending
patent rights in their capital investment and refinery reconfiguration
decisions to avoid and/or minimize potential infringement.
According to the Complaint, Union Oil did not announce the
existence of its proprietary interests and patent rights relating to
RFG until January 1995--shortly before the relevant CARB Phase 2 RFG
regulations were to go into effect. The Complaint alleges that, by that
time, the refining industry had spent billions of dollars in capital
expenditures to modify their refineries to comply with the CARB Phase 2
RFG regulations, in reliance on Union Oil's representations that its
research results were in ``the public domain.'' The Complaint states
that once CARB and the refiners had become locked into the Phase 2
regulations, Union Oil commenced vigorous enforcement of its patent
rights through litigation and licensing, and obtained four additional
patents based on the same RFG research results.
Union Oil's misrepresentations, according to the Complaint, have
harmed competition and led directly to the acquisition of monopoly
power for the technology to produce and supply
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California ``summer-time'' reformulated gasoline (mandated for up to
eight months of the year, from approximately March through October).
The Complaint alleges that Union Oil's conduct also permitted it to
undermine competition and harm consumers in the downstream product
market for ``summer-time'' reformulated gasoline in California. The
Complaint alleges that without recourse, Union Oil's conduct would
continue materially to cause or threaten to cause further substantial
injury to competition and to consumers.
According to the Complaint, Union Oil's enforcement of its RFG
patents has resulted, inter alia, in a jury determination of a 5.75
cents per gallon royalty on gasoline produced by major California
refiners comprising approximately 90 percent of the current refining
capacity of CARB-compliant RFG in the California market. The Complaint
alleges that Union Oil also has publicly announced that it will license
its RFG patent portfolio, with fees ranging from 1.2 to 3.4 cents per
gallon, to ``non-litigating'' refiners.
The Complaint alleges that Unocal's conduct could result in an
estimated annual cost of more than $500 million to the refining
industry. According to the Complaint, Union Oil's own economic expert
has testified under oath that 90 percent of any royalty would be passed
through to consumers in the form of higher gasoline prices.
II. Terms of the Proposed Consent Order
The Commission has provisionally entered into an Agreement with
Union Oil in settlement of the Complaint. As discussed below, the
provisions of the Agreement are conditioned upon the completion of
certain steps in Chevron Corporation's merger with Unocal Corporation,
as contemplated by the Agreement and Plan of Merger dated as of April
4, 2005, among Unocal Corporation, ChevronTexaco Corporation, and Blue
Merger Sub Inc.
In order to remedy the alleged anticompetitive effects, Union Oil
has agreed to take several actions. First, it will cease and desist
from any and all efforts, and will not undertake any new efforts to:
(a) Assert or enforce any of Union Oil's Relevant U.S. Patents against
any person; (b) recover any damages or costs for alleged infringements
of any of the Relevant U.S. Patents; or (c) collect any fees, royalties
or other payments, in cash or in kind, for the practice of any of the
Relevant U.S. Patents, including but not limited to fees, royalties, or
other payments, in cash or in kind, to be collected pursuant to any
License Agreement. These obligations become effective as of the
``Merger Effective Date,'' which is defined as the earlier of (1) the
date that the certificate of merger for the Merger is filed with the
Secretary of State of Delaware or such later time as specified in such
certificate of merger, or (2) the date that Chevron Corporation
acquires control of Unocal Corporation, as ``control'' is defined by 16
CFR 801.1(b).
Second, the Proposed Consent Order requires that, within thirty
(30) days following the Merger Effective Date, Union Oil shall file, or
cause to be filed, with the United States Patent and Trademark Office,
the necessary documents pursuant to 35 U.S.C. 253, 37 CFR 1.321, and
the Manual of Patent Examining Procedure to disclaim or dedicate to the
public the remaining term of the Relevant U.S. Patents. The Proposed
Consent Order further requires that Union Oil shall correct as
necessary, and shall not withdraw or seek to nullify, any disclaimers
or dedications filed pursuant to the Proposed Consent Order.
Third, the Proposed Consent Order requires that, within thirty (30)
days following the Merger Effective Date, Union Oil shall move to
dismiss, with prejudice, all pending legal actions relating to the
alleged infringement of any Relevant U.S. Patents, including but not
limited to the following actions pending in the United States District
Court for the Central District of California: Union Oil Company of
California v. Atlantic Richfield Company, et al., Case No. CV-95-2379-
CAS and Union Oil Company of California v. Valero Energy Corporation,
Case No. CV-02-00593 SVW.
Paragraph V of the Proposed Consent Order requires Union Oil to
distribute a copy of the Proposed Consent Order and the Complaint in
this matter to certain interested parties, including (1) any person
that Union Oil has contacted regarding possible infringement of any of
the Relevant U.S. Patents, (2) any person against which Union Oil is,
or was, involved in any legal action regarding possible infringement of
any of the Relevant U.S. Patents, (3) any licensee or other Person from
which Union Oil has collected any fees, royalties or other payments, in
cash or in kind, for the practice of the Relevant U.S. Patents, and (4)
any person that Union Oil has contacted with regard to the possible
collection of any fees, royalties or other payments, in cash or in
kind, for the practice of the Relevant U.S. Patents.
Paragraph V also requires Union Oil to distribute a copy of the
Proposed Consent Order and the Complaint to Union Oil's present and
future officers and directors having responsibility for any of its
obligations under the Proposed Consent Order, and to employees and
agents having managerial responsibility for any of its obligations
under the Proposed Consent Order.
Paragraphs VI, VII and VIII of the Proposed Consent Order contain
standard reporting, access, and notification provisions designed to
allow the Commission to monitor compliance with the order. Paragraph IX
provides that the Proposed Consent Order shall terminate twenty (20)
years after the date it becomes final.
III. Opportunity for Public Comment
The Proposed Consent Order has been placed on the public record for
thirty (30) days for receipt of comments by interested persons.
Comments received during this thirty-day comment period will become
part of the public record. After thirty (30) days, the Commission will
again review the Proposed Consent Order and the comments received and
will decide whether it should withdraw from the Proposed Consent Order
or make final the Agreement's Proposed Consent Order.
By accepting the Proposed Consent Order subject to final approval,
the Commission anticipates that the competitive problems alleged in the
Complaint will be resolved. The purpose of this analysis is to invite
public comment on the Proposed Consent Order, and to aid the Commission
in its determination of whether it should make final the Proposed
Consent Order contained in the Agreement. This analysis is not intended
to constitute an official interpretation of the Proposed Consent Order,
nor is it intended to modify the terms of the Proposed Consent Order in
any way.
Statement of the Federal Trade Commission
The Federal Trade Commission has voted unanimously (4-0-1, with
Chairman Majoras recused) to accept two linked consent agreements that
resolve both the Commission's monopolization case against Unocal
Corporation's subsidiary Union Oil Company of California and any
antitrust concerns arising from Chevron Corporation's pending
acquisition of Unocal. The key element in the settlements, which will
become effective when the acquisition is completed, is Chevron's
agreement not to enforce certain Union Oil patents that potentially
could have increased gasoline prices in California by over
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$500 million a year (or almost six cents per gallon). This agreement
provides the full relief that the Commission sought in its
administrative litigation with Union Oil and also addresses the only
possible objection to the Chevron/Unocal acquisition.
On April 4, 2005, Chevron agreed to acquire Unocal in a transaction
valued at approximately $18 billion. Chevron and Unocal both have
extensive oil and gas operations. However, nearly all of Unocal's
operations are in the so-called ``upstream'' segment of the business--
namely, the exploration and production of crude oil and natural gas.
Unocal has no refineries or gasoline stations in the United States or
anywhere else in the world, and has few other ``downstream''
operations. As a result, virtually all of the competitive overlaps
between the two firms are in unconcentrated upstream markets, and the
merger thus creates no competitive risk. For example, Chevron and
Unocal combined have only 2.7 percent of world crude oil production,
0.77 percent of world crude oil reserves, 11.3 percent of U.S. crude
oil production, and 11.4 percent of U.S. crude oil reserves.\2\ We want
to emphasize that the merger will have no impact whatsoever on
concentration at the retail or refinery levels. It is clear from all we
have seen that Chevron's primary motivation is to gain access to
Unocal's upstream oil reserves.
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\2\ Sources for the underlying data include the Energy
Information Administration, U.S. Department of Energy, U.S. Crude
Oil, Natural Gas, and Liquids Table 2003 Annual Report, Table B5,
available at https://www.eia.doe.gov, the FTC Bureau of Economics
Staff Study, ``The Petroleum Industry: Mergers, Structural Change,
and Antitrust Enforcement,'' August 2004, Table 5-3, available at
https://www.ftc.gov/os/2004/08/040813/mergersinpetrolberpt.pdf, and
the Oil and Gas Journal.
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The only potential competitive concern with Chevron's proposed
acquisition of Unocal involved patents held by Union Oil--the same
group of patents involved in the Commission's monopolization case
against Union Oil. In order to explain why this is so, it is necessary
first to discuss the issues in this monopolization case.
The Commission's administrative complaint against Union Oil charged
that the firm had illegally acquired monopoly power in the technology
market for producing certain low-emission gasoline mandated by the
California Air Resources Board (CARB) for sale and use in California
for up to eight months of the year. According to the complaint, Union
Oil misrepresented to CARB that certain gasoline research was non-
proprietary and in the public domain, while at the same time it pursued
a patent that would enable it to charge substantial royalties if the
research results were used by CARB in the development of regulations.
The complaint further asserted that Union Oil similarly misled its
fellow members of private industry groups, which were also
participating in the CARB rulemaking process. As a result, if Union Oil
were permitted to enforce its patent rights, companies producing this
low-emission CARB gasoline would be required to pay royalties to Union
Oil, the bulk of which would be passed on to California consumers in
the form of higher gasoline prices. The Commission estimated that Union
Oil's enforcement of these patents could potentially result in over
$500 million of additional consumer costs each year. The complaint
sought an order requiring Union Oil to cease and desist from all
efforts to assert these patents against those manufacturing, selling,
distributing, or otherwise using motor gasoline to be sold in
California. In the settlement announced today, Unocal and Chevron have
agreed to all of this requested relief.
The consent orders also resolve any possible antitrust objections
to the merger. Although Unocal does not engage in any refining or
retailing itself, it had claimed the right to collect patent royalties
from companies that did so (including Chevron). If Chevron had
unconditionally inherited these patents by acquisition, it would have
been in a position to obtain sensitive information and to claim
royalties from its own horizontal downstream competitors. We have
reason to believe that this scenario would likely have an adverse
effect on competition and, in any event, would inevitably have required
an extensive inquiry and possible litigation.
For example, Union Oil regularly collects detailed reports from
licensees about their production of CARB gasoline and other refinery
operations. If Chevron had continued these license agreements after
inheriting Union Oil's patents, it would have received information not
otherwise available to members of the industry. Chevron could have used
this information to facilitate coordinated interaction and detect any
deviations. Chevron might also have been able use the patents to
discourage maverick behavior. Our present knowledge suggests that the
likely competitive harm from this potential coordination and discipline
would outweigh any likely efficiency gains from the vertical
integration of a merged Chevron-Unocal. Now, a further inquiry into
that belief is not necessary.
The settlement of these two matters is thus a double victory for
California consumers. The Commission's monopolization case against
Unocal was complex and, with possible appeals, could have taken years
to resolve. The stakes were high, and substantial royalties could have
been paid in the meantime--with an immediate impact on consumers. If
the Commission lost the case, the dollar costs to consumers ultimately
would have been immense. At the same time, a challenge against the
acquisition of Unocal by Chevron would itself be a complex case, with
high stakes and an uncertain outcome. The settlement provides the full
relief sought in the monopolization case and resolves the only
competitive issue with the proposed merger. With the settlement,
consumers will benefit immediately from the elimination of royalty
payments on the Union Oil patents, and potential merger efficiencies
could result in additional savings at the pump.
By direction of the Commission, Chairman Majoras recused.
Donald S. Clark,
Secretary.
[FR Doc. 05-12043 Filed 6-17-05; 8:45 am]
BILLING CODE 6750-01-P
