applEcon

Applied Economic Consultants

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Case Studies

Unocal Damages

Damages Analysis, Antitrust
United States District Court in the Central District of California

Unocal influenced California regulators to adopt regulations that, unbeknownst to regulators, conferred monopoly power upon Unocal.  applEcon quantified the resulting overcharges paid by California consumers, which helped class members to win a settlement of $48 million.

Unocal filed patent applications for certain gasoline formulations, and subsequently proposed that formulations covered by its patent applications be adopted as summertime fuel regulations by the California Air Resources Board (CARB), without disclosing to regulators that the formulations it proposed were covered by patent applications.  The patents were granted, and summertime fuel regulations were adopted that made it difficult for refiners to supply gasoline in California during the summer months without paying Unocal royalties.  Unocal enforced its patent rights, causing some refiners to pay royalties, and other refiners to incur costs to modify their gasoline formulations to avoid Unocal’s patents.  Later, Unocal dedicated the patents in question to the public in order to gain FTC approval for its merger with Chevron. 

Suit was brought by representatives of California gasoline purchasers alleging that Unocal achieved monopoly power in the market for CARB-compliant summertime reformulated gasoline (“summertime RFG”) by abuse of the regulatory process.  applEcon was engaged to calculate the overcharges for summertime RFG paid by class members due to Unocal’s monopolization.  Our analysis showed that, while gasoline prices in California are typically higher than in other regions, the California differential increased when Unocal began enforcing its patents, and decreased when Unocal stopped enforcing its patents.

To quantify the effect of Unocal’s conduct on California consumers, applEcon estimated an econometric model of the differential in California gasoline prices relative to prices in other regions of the country.  Our model controlled for the principal determinants of gasoline prices: the price of crude oil and other inputs to the gasoline production process, demand for gasoline, and state and federal gasoline regulations.  We found that Unocal’s conduct caused overcharges for wholesale summertime RFG in the range of 5 to 6 cents per gallon, and overcharges of roughly the same magnitude were paid by consumers in the retail market.

applEcon also supported the liability testimony of Professor Robert Hall in the Unocal case.