Unocal's Patent Claim Likely to Drive Gas Prices Even Higher

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SAN FRANCISCO (AP) -- A cleaner-burning gasoline meant to reduce California's air pollution has created a legal stink that threatens to raise prices at the pump nationwide by between 1 cent and 6 cents per gallon.

The total cost could reach $1.1 billion, based on calculations in a 1997 federal jury verdict, that assume Unocal will collect royalties of 5.75 cents per gallon on its reformulated gasoline patent.

In a more likely scenario, industry analysts said Unocal will probably negotiate a licensing fee of about 1 cent per gallon and the patent will apply to about 20 percent of the 350 million gasoline gallons sold nationwide each day. Based on those more conservative numbers, Unocal's patent claim would result in $127 million in annual royalties.

No matter what the actual figure, Unocal's patent claim will likely drive up gasoline costs, said Fadel Gheit, an oil industry analyst for Fahnestock in New York. The only question is whether oil companies will foot the bill themselves or pass the expense along to motorists.

"The meter has been running on this issue for a while and (the industry) has been deferring the charges. Now, it's time to feed the meter, but who is going to put in more coins?" Gheit said.

The early indication: consumers.

Exxon Mobil Chairman Lee Raymond said Wednesday the patent dispute will force retail gas prices higher as gasoline supplies tighten this summer because refiners who must use other blending methods to make the cleaner-burning fuel won't be able to produce as much gasoline. Gasoline prices already are poised to rise above the current national average of $1.53 per gallon, as inventories are below normal levels and the peak driving season is just beginning.

Unocal and six major oil companies have been haggling over the issue since California introduced its reformulated gasoline in 1995 to reduce vehicle emissions.

El Segundo, Calif.-based Unocal believes a company patent obtained in February 1994 applies to the reformulated gas and gives it the right to collect licensing fees from rivals that sell the blend. …