The U.S. Federal Energy Regulatory Commission (FERC) opened gas pipelines essentially to allow gas producers to sell gas directly to end users and other purchasers not at the well. This ruling changed the point of sale from the wellhead to potentially anywhere in the country. In response to these changes, the U.S. Department of the Interior (DOI) (defendant) amended its gas regulations “to clarify its existing policies” with respect to gas royalties. The DOI ruled that a producer could not deduct marketing costs from royalty calculations, even though marketing could now be conducted “downstream” of the wellheads. The Independent Petroleum Association of America (IPAA) (plaintiff) brought suit, challenging the DOI’s new regulations. IPAA acknowledged that marketing costs for sales at the wellhead were not deductible, but argued that marketing costs for downstream sales should be deductible. The district court ruled in favor of IPAA. The DOI appealed.