We would like to ensure that you are still receiving content that you find useful – please confirm that you would like to continue to receive ILO newsletters.
04 November 2004
The US Federal Trade Commission (FTC) recently reinstated charges that the Union Oil Company of California (Unocal) violated federal antitrust laws by defrauding the California Air Resources Board in regulatory proceedings related to the development of reformulated gasoline. The FTC order and opinion, authored by then Chairman Timothy Muris, reversed and vacated an initial decision by an FTC administrative law judge that had dismissed the FTC's complaint based on the Noerr Pennington doctrine and the perceived limits of the FTC's jurisdiction over patent-related matters. (For details of the initial decision, please see "Challenge to Alleged Abuse of Standards-Setting Process is Dismissed").
The Unocal Case involves the California Air Resources Board regulations
creating standards for cleaner-burning reformulated gasoline. The FTC filed
its original complaint against Unocal in March 2003, alleging that Unocal misrepresented
information regarding the production of its low-emissions fuel, which is mandated
for sale and use in California for eight months of the year. Unocal was pursuing
patent rights to its reformulated gasoline-related research when the California
Air Resources Board began the process of creating reformulated gasoline standards.
The FTC alleged that Unocal concealed these efforts and made false and misleading
statements regarding its intent not to enforce its patent rights that caused
the board to implement reformulated gasoline standards that could only be met
by using Unocal's technology. Shortly before the California Air Resources Board
regulations went into effect, Unocal announced all of its reformulated gasoline
patent rights and its intention to collect royalty payments from the refining
industry. The FTC's complaint alleged that this conduct constituted attempted
monopolization and unreasonable restraints of trade by Unocal in the market
for reformulated gasoline in violation of Section 5 of the Federal Trade Commission
The FTC's decision to reopen the case reversed the administrative law judge's previous ruling that granted Unocal's motion to dismiss the complaint in its entirety. The initial decision applied Noerr-Pennington antitrust immunity to efforts, including alleged misrepresentations, to influence the standard-setting functions of a governmental entity (the California Air Resources Board). Moreover, the administrative law judge indicated that the FTC does not have jurisdiction over allegations that depend on the resolution of substantial questions of federal patent law. The FTC disagreed on both points.
Unocal argued, and the administrative law judge agreed, that its conduct was protected under the Noerr-Pennington doctrine, which provides antitrust immunity to political petitioning intended to encourage government action with respect to the passage and enforcement of laws.(1) The administrative law judge held that the California Air Resources Board's rulemaking functions were quasi-legislative and that Noerr-Pennington applied in a legislative context despite Unocal's alleged misrepresentations.
The FTC stated that false petitioning loses Noerr-Pennington protection in certain limited circumstances, such as:
"when the petitioning occurs outside the political arena; the misrepresentation is deliberate, factually verifiable and central to the outcome of the proceeding or case; and it is possible to demonstrate and remedy this effect without undermining the integrity of the deceived governmental entity."(2)
The FTC noted that the weight of relevant authority has recognized that misrepresentations can preclude application of Noerr-Pennington in adjudicative proceedings and other "less political areas" than the legislative lobbying at issue in Noerr.(3) The FTC also cited a litany of policy justifications, referring to everything from the First Amendment to the antitrust laws, supporting a misrepresentation exception to the doctrine in some contexts.
Finally, the FTC outlined a two-prong test for determining whether to apply the misrepresentation exception based on the context of the proceedings and the nature of the relevant communications. Applying the test to this case, the FTC refused to extend Noerr-Pennington protection to Unocal's alleged activity for two reasons. First, the California Air Resources Board proceedings:
The FTC's initial complaint also alleged that Unocal knowingly made related
misrepresentations to two private organizations, the Auto/Oil Air Quality Improvement
Research Program and the Western States Petroleum Association
(WSPA),(6) which created competitive
injury independent of the injury arising from its alleged scheme to induce the
California Air Resources Board to act. The administrative law judge stated that
an analysis of whether the FTC's allegations relating
to the Auto/Oil group and WSPA stated a separate cause of action apart from Unocal's efforts to induce the California Air Resources Board to adopt favourable regulations would require a resolution of such patent issues as:
The administrative law judge concluded that an adjudication of this claim would require him to resolve fundamental and substantial patent issues that were within the original jurisdiction of US federal courts. He ruled that the FTC does not have jurisdiction over allegations that "depend on and require the resolution of substantial questions of federal patent law",(8) and dismissed this portion of the complaint for this additional reason.
The FTC held that the administrative law judge misinterpreted the scope of the FTC's jurisdiction, stating that:
"the administrative law judge and Unocal err through an unduly narrow reading of the FTC Act; an overly broad reading of the statute that confers patent law jurisdiction upon the federal courts; and a fundamental misinterpretation of the nature of the [FTC's] inquiry when patents are among the relevant assets of firms alleged to have unlawfully created or exercised monopoly power."(9)
First, the FTC contended that the FTC Act grants broad jurisdiction to the FTC to prevent unfair methods of competition, and the US Congress intentionally left development of the term 'unfair' to the FTC.(10) Second, the FTC argued that the statute vesting federal district courts with exclusive jurisdiction over patent matters(11) – on which the administrative law judge relied heavily – has "no bearing on [FTC] jurisdiction," in part because the case does not "arise under" the patent laws.(12) Third, the FTC noted that an assessment of likely competitive effects in the case will not require actual resolution of substantial questions of patent law. Instead, it concluded, the FTC "does not resolve patent questions" - it "only reaches conclusions regarding how they likely would be resolved",(13) and leaves the actual rulings on construction and infringement to the federal courts.
The FTC opinion reaffirms the FTC's jurisdiction over patent-related claims and clarifies the FTC's position on the scope of the Noerr-Pennington doctrine. The FTC roundly rejected the administrative law judge's analysis on all points and encouraged the administrative law judge to assemble the factual record as quickly as possible, noting that "[i]t is unfortunate that an erroneous initial decision has substantially delayed development of [the] record".(14) The parties have continued the discovery process, and a final hearing on the merits before the administrative law judge is now underway.
For further information on this topic please contact Philip C Larson or Logan M Breed at Hogan & Hartson LLP by telephone (+1 202 637 5600) or by fax (+1 202 637 5910) or by email (firstname.lastname@example.org or email@example.com).
(2) In the Matter of Union Oil Co of Calif, Docket 9305, Opinion of the FTC at 48, available at www.ftc.gov/os/adjpro/d9305/index.htm.
(7) Unocal initial decision at 62, available at www.ftc.gov/os/adjpro/d9305/index.htm.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
ILO is a premium online legal update service for major companies and law firms worldwide. In-house corporate counsel and other users of legal services, as well as law firm partners, qualify for a free subscription.
Philip C Larson