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Valero Fights Back

SAN ANTONIO -- Valero Energy Corp. yesterday vowed to fight a multimillion-dollar lawsuit filed against Unocal Corp., which alleges Valero violated its clean air gasoline patents.

"We intend to vigorously fight this lawsuit and we are confident that we will win," Valero said in a statement. "The Unocal patents make a mockery of the regulatory rule-making process and line the pockets of an entity that produces nothing by gouging the California consumer."

The patents are for a process to refine gasoline that meets federal U.S. Environmental Protection Agency (EPA) requirements, used at a third of the nation's pumps to combat smog. The response came one day after Unocal, an oil and gas exploration company, filed suit seeking damages from Valero, which it alleges has refused to discuss a license agreement and has infringed on two of its five decade-old fuel patents.

Valero is one of the nation's top producers of gasoline and other fuels. It produces about 2 million barrels per day from its 12 U.S. refineries. A court victory for Unocal could cost Valero 17.25 cents for every gallon refined allegedly using Unocal's patented process, or roughly $11 million per year in California alone, Reuters reported.

The fuel patents have created a storm of controversy in the energy world, pitting major oil companies like Exxon Mobil and Shell Oil against smaller companies such as Unocal and spurring a federal investigation into possible anti-trust violations.

Unocal, which sold its last refinery several years ago to focus on oil and gas exploration, has said, however, it is exercising its right to intellectual property, and has already won a previous case in court.

"Valero has publicly stated it has been producing gasoline in complete disregard of our patents," Unocal spokesman Barry Lane told Reuters. "That constitutes willful infringement."

In 1995, six companies with large refining operations sued Unocal, challenging the validity of one of Unocal's patents, and lost. Unocal was awarded more than $69 million, or 5.75 cents a gallon, for infringements which covered about 29 percent of the gasoline made by the companies from 1996 to 1996.

A handful of U.S. refiners, including Citgo Petroleum, Williams Energy, and Tesoro Petroleum, have since made license agreements with Unocal, but many others have chosen to continue to contest the patents.

Exxon Mobil Corp. last year successfully requested a Federal Trade Commission investigation of Unocal's fuel patents, claiming they comprised an unfair monopoly. The investigation is ongoing.

"This investigation could block Unocal from enforcing its patents," Valero said in its statement. "The California Attorney General and the California Energy Commission are both supporting this investigation."
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