by Dennis Crouch
The Federal Circuit’s short precedential decision in Realtek v. ITC & DivX addresses ITC sanctions proceedings. The alleged bad act here involves patentee DivX who arguably altered its infringement theory against Realtek midstream and then ultimately dismissed its complaint against the Taiwanese semiconductor company after that pathway was also cut off. Realtek thought that the ITC should sanction the patentee, but the ITC refused. The Federal Circuit recently dismissed the appeal — holding that the court had no power to review this abuse of discretion claim.
Although the court’s ultimate conclusion may be correct here, I explain below how the court’s approach to the analysis is wrong.
Background: DivX asserted patent is U.S. Patent No. 10,212,486, directed to a method for processing encrypted video. In 2020, the patentee filed an ITC complaint against a host of smart television manufacturers as well as semiconductor companies that produce systems-on-a-chip used in the accused smart televisions, including Realtek.
According to Realtek, DivX originally pursued an infringement theory based on one technological implementation but later switched to a new theory about a “key deciphering” functionality after the Administrative Law Judge’s (ALJ) Markman order that narrowly construed the claims. Realtek alleged this was a “material change” to DivX’s infringement contentions, which came too late in the proceedings. In the case, the ALJ eventually granted Realtek’s motion in limine to exclude the allegedly new infringement theory. Shortly after this ruling, DivX withdrew its complaint against Realtek. Meanwhile, Realtek had spent considerable time and energy defending those new claims.
Realtek subsequently filed a motion for sanctions, alleging that DivX had presented false and misleading testimony and made misrepresentations to the ALJ. Specifically, that DivX falsely claimed it had begun pursuing its new infringement theory earlier in the case even though evidence showed the theory was not developed until after the Markman order. Theo Angelis, Realtek’s attorney offered the following explanation at oral arguments:
We’re here today because DivX wanted to keep Realtek in this case until the eve of trial. But to do so, they needed to lie about the operative infringement theory. That lie caused Realtek to incur significant fees and costs it otherwise would have avoided.
Realtek sought relief under two provisions of the ITC regulations:
- 19 C.F.R. § 210.4(d)(1)(i), which allows parties to move for sanctions;
- 19 C.F.R. § 210.4(d)(1)(ii), which authorizes the ALJ or Commission to “enter an order sua sponte” describing potentially sanctionable conduct and directing a party to show cause why it did not violate the rules.
The ALJ denied Realtek’s motion on procedural grounds without addressing the merits. The ALJ found that Realtek had failed to comply with the “safe harbor” provision of § 210.4(d)(1)(i), which requires serving a draft sanctions motion on the opposing party at least seven days before filing. The Commission subsequently adopted the ALJ’s order without comment.
The ITC sanctions rules roughly parallel the approach under FRCP Rules 11 and 37. That parallel makes sense because Congress particularly identified those rules when enacting the ITC enabling statute. 19 U.S.C. § 1337(h). I delve more into Section 337(h) below.
Notably, neither the ALJ nor the Commission explicitly addressed Realtek’s request under § 210.4(d)(1)(ii) for the ALJ to issue a show cause order sua sponte. Why should they respond since the sua sponte of that provision is something not triggered by motion? Still though Realtek argued that some bad acts are so bad that the ITC is required to act sua sponte – that it was an abuse of discretion for the ITC to not act in this situation. In particular Realtek argued that at minimum, the ITC should have begun the process with a show cause order demanding that DivX explain its actions.
5 U.S.C. § 706 of the APA provides for appeals when an administrative agency abuses its direction. However, the Federal Circuit dismissed the appeal — holding that the Commission’s decision not to issue a show cause order sua sponte is unreviewable under the APA:
Agency decisions are unreviewable by this court under the APA when they are ‘committed to agency discretion by law.’ 5 U.S.C. § 701(a)(2); see Apple Inc. v. Vidal, 63 F.4th 1, 14 n.6 (Fed. Cir. 2023).
The APA has a tension on this point. Although Section 706 provides appellate review for “abuse of discretion;” section 701 states that the APA requirements do not apply to issues “committed to agency discretion by law.” The resolution seems to be that section 701 is a threshold question barring appellate review for certain issues; A straight statutory construction would imply that abuse of discretion issues can only be appealed when the issue is not “committed the issue to agency discretion by law.”
This begs the question of what situations meet this particular threshold of “committed to agency discretion by law.” Oddly, the decision here looked to the regulations quoted above to find that the ITC decision fit that definition.
In this instance, the Commission’s decision not to enter a show cause order sua sponte is a decision committed to agency discretion and is thus unreviewable. The sua sponte issuance of a show cause order is a decision that “may” be, not must be, entered “[o]n the administrative law judge’s or the Commission’s initiative.” 19 C.F.R. § 210.4(d)(1)(ii). A decision not to act sua sponte, then, which is left to an agency’s “initiative,” is a decision that remains wholly within the agency’s discretion.
The court’s analysis appears wrong. The question of when an issue is “committed to agency discretion by law” cannot be bootstrapped from agency regulations themselves. Rather, section 701 must be interpreted as asking whether Congress delegated the discretion to the Agency. In other words, the “committed to agency discretion by law” exception to judicial review under 5 U.S.C. § 701(a)(2) typically refers to discretion committed by statute. Yet here, the Federal Circuit relied on discretion granted by the agency’s own regulation at 19 C.F.R. § 210.4(d)(1)(ii) and does not grapple with the statutory distinction. In addition, the Federal Circuit’s analysis appears to broadly interpret the 701(a)(2) exception, when the reality is that courts ordinarily interpret that provision quite narrowly.
The right analysis should have begun with underlying statutory authority. In this case, that authority is grounded in 19 U.S.C. § 1337(h):
(h) Sanctions for abuse of discovery and abuse of process: The Commission may by rule prescribe sanctions for abuse of discovery and abuse of process to the extent authorized by Rule 11 and Rule 37 of the Federal Rules of Civil Procedure.
This statute provides the agency with substantial discretion in awarding sanctions, but it is limited “to the extent authorized by Rule 11 and Rule 37.” Those provisions are limited by the abuse of discretion standards that arguably should also limit ITC action by the statute. And, the decision from the Federal Circuit should have addressed this statutory question.
Digging into here: The Supreme Court has consistently emphasized that the Section 701 exception for matters “committed to agency discretion by law” is a “very narrow exception” applicable only in “rare instances.” Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402 (1971). This exception applies when a statute is “drawn in such broad terms that in a given case there is no law to apply.” Id. The Court has further clarified that this exception covers situations where the relevant statute provides “no judicially manageable standards” for judging how and when an agency should exercise its discretion. Heckler v. Chaney, 470 U.S. 821 (1985). Importantly though, the mere presence of discretionary language in a statute does not automatically render agency action unreviewable. See also, Weyerhaeuser Co. v. United States Fish & Wildlife Service, 139 S. Ct. 361 (2018).
In Weyerhaeuser, the Court directly addressed Section 701(a)(2)’s narrow exception, noting the “tension” with Section 706 mentioned above. The Court emphasized that this exception should be read “quite narrowly,” applying only in “rare circumstances where the relevant statute is drawn so that a court would have no meaningful standard against which to judge the agency’s exercise of discretion.” The mere presence of discretionary language (such as “may”) does not automatically render agency action unreviewable. Instead, courts must look to whether the statutory framework provides “meaningful standards” for review. The Weyerhaeuser examined Section 4(b)(2) of the Endangered Species Act, which states that the Secretary “may exclude any area from critical habitat if he determines that the benefits of such exclusion outweigh the benefits of [designation].” Despite this discretionary language, the Supreme Court held that the decision was reviewable because it provided a “meaningful standard against which to judge the Secretary’s exercise of discretion.” The Federal Circuit’s “may” vs “shall” analysis clearly departs from precedent. And further, the court failed to consider whether the Congressional grant of authority provided any meaningful standards for review.
The ITC’s sanctions authority is not without standards. Congress explicitly limited the ITC’s sanctions authority in 19 U.S.C. § 1337(h) to “the extent authorized by Rule 11 and Rule 37 of the Federal Rules of Civil Procedure.” These rules themselves provide substantial guidance for when sanctions are appropriate and have been interpreted by courts to include abuse of discretion review. These rules and background case law supply precisely the kind of “judicially manageable standards” that make review possible, even for discretionary decisions. The way I would examine this is ask whether and when district court decision regarding sanctions can be appealable.
This is where I concede that – despite the decision’s generally problematic reasoning – that the court likely reached the correct conclusion. Although many R 11 and R. 37 sanctions decisions are reviewable, a district court’s failure to act sua sponte appears to be unreviewable. Truthfully, I have not been able to find a single case directly on point. (Do you know of one?)
Realtek cited one case out of the immigration context in a footnote of its brief:
Fuller v. Whitaker, 914 F.3d 514, 521 (7th Cir. 2019) (holding that an agency abuses its discretion when it refuses to consider the evidence submitted in support of a request for the agency “to exercise its sua sponte authority”).
In Fuller, a Jamaican citizen sought to reopen his removal proceedings by filing an untimely motion requesting the Board of Immigration Appeals (BIA) exercise its sua sponte authority. Fuller claimed he would face persecution and torture based on his bisexuality if returned to Jamaica, but the BIA had previously found his testimony not credible. When Fuller submitted new letters of support to bolster his case, the BIA denied his motion, stating “Fuller’s motion does not challenge our conclusions regarding his credibility or his eligibility for deferral of removal, and we do not find that his letters of support would materially alter these findings.” The Seventh Circuit determined this was a legal error warranting remand, as the BIA had clearly mischaracterized Fuller’s motion, which was explicitly challenging the credibility findings. The court clarified that while the merits of a sua sponte reopening decision are unreviewable, courts have jurisdiction to address legal errors in how the agency reaches that decision, including when an agency “ignores, misapplies, or fails to meaningfully consider the evidence an alien has submitted.” This framing of reviewability differs markedly from the Federal Circuit’s approach, as it recognizes that even when an agency has discretion over sua sponte actions, appellate courts can still review whether the agency properly understood and considered the request before exercising that discretion.
The ITC’s brief distinguishes Fuller — arguing that Fuller actually undermines Realtek’s position rather than supporting it. The ITC notes that Fuller involved a completely different factual context and statutory framework (immigration) and thus has “little or no bearing on the Commission, its statute or rules, sanctions proceedings, or this appeal.” More importantly, the ITC emphasizes that Fuller actually held that an immigration board’s decision not to reopen a removal proceeding sua sponte is not subject to any “meaningful standard” and is therefore unreviewable – which supports the ITC’s position that its non-issuance of a show cause order is similarly unreviewable. The ITC brief also note that the Seventh Circuit decision is an outlier with judges within the Seventh Circuit having called for Fuller to be reconsidered en banc.
For its part, the Federal Circuit opinion did not address Fuller.
The narrow reading of Section 701(a)(2)’s exception to judicial review serves as a structural safeguard in our constitutional system – reflecting principles of separation of powers by ensuring that the judiciary maintains its role as a check on administrative power. When agencies operate with unreviewable discretion, they effectively become “a law unto themselves,” undermining the balanced governance structure envisioned by the APA’s framers. The Supreme Court recognized this danger in Abbott Laboratories v. Gardner, 387 U.S. 136 (1967), where it emphasized the APA’s “basic presumption of judicial review” that should only be overcome by “clear and convincing evidence” of contrary legislative intent. Narrow construction of Section 701(a)(2) also promotes legal accountability and prevents arbitrary governance by ensuring that even highly discretionary decisions remain tethered to intelligible principles that guide agency action. However, the narrow holding here on sua sponte sanctions does not appear to undermine the overarching policy goals.
Finally, I think that Cuozzo Speed Techs., LLC v. Lee, 579 U.S. 261 (2016), is also important to the analysis. In Cuozzo, the court indicated that “shenanigans” in agency decisions should be reviewable:
Such “shenanigans” may be properly reviewable in the context of § 319 and under the Administrative Procedure Act, which enables reviewing courts to “set aside agency action” that is “contrary to constitutional right,” “in excess of statutory jurisdiction,” or “arbitrary [and] capricious.”
Here, the appellate panel found that this Cuozzo dicta was not applicable because the court’s list did not directly address abuse of discretion. “None of these categories applies to the Commission’s refusal to enter a show cause order sua sponte.” While it’s true that “abuse of discretion” was not explicitly listed in Cuozzo‘s dicta, the Court’s recognition that agency action that is “arbitrary [and] capricious” remains reviewable under the APA would logically encompass abuse of discretion review. So, I believe the Federal Circuit was wrong to hold that Cuozzo shenanigans do not apply to abuses of discretion — but my view of the actual facts in the case suggest that no such shenanigans occurred.