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USCA Case #13-1229 Document #1468400 Filed: 1210212013 Page 1 of 58
[NOT YET SCHEDULED FOR ORAL ARGUMENTJ
No. 13-1229
IN THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OFCOLUMBIA CIRCUIT
UNITED STATES POSTAL SERVICE,
Petitioner,
v.
POSTAL REGULATORY COMMISSION,
Respondent,
and
GAMEFLY, INC.,
Intervenor.
BRIEF FOR RESPONDENT POSTAL REGULATORY COMMISSION
OfCounsel:
STEPHEN L. SHARFMANGeneral Counsel
R. BRIAN CORCORANDeputy General Counsel
RICHARD A. OLIVERALLISON JW. McDONALD
AttorneysPostal Regulatory CommissionWashington, DC 20268
STUART F. DELERYAssistant Attorney General
MICHAEL S. RAAB(202) 514-4053
JEFFREY CLAIR(202) 514-4028
Attorneys, Civil DivisionRoom 7243, Department of Justice950 Pennsylvania Ave., N.W.
Washington, D.C. 20530
USCA Case #13-1229 Document #1468400 Filed: 1210212013 Page 2 of 58
CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES
A. Parties and Amici.
All parties and amici appearing in this Court and before the Postal
Regulatory Commission are listed in the Brieffor the Petitioner.
B. RulinQs under Review.
References to the ruling at issue appear in the Brieffor the Petitioner.
C. Related Cases.
This is an appeal from an administrative decision issued on remand from the
Court in GameFly, Inc. v. Postal Regulatory Comm 'n , 704 F.3d 145 (D.C. Cir.
2013).
/s/ Jeffrey ClairRoom 7243, Civil DivisionDepartment of Justice950 Pennsylvania Ave., NWWashington, D.C. [email protected](202) 514-4028
1
USCA Case #13-1229 Document #1468400 Filed: 1210212013 Page 3 of 58
TABLE OF CONTENTS
CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES .i
GLOSSARY Vlll
STATEMENT OF JURISDICTION .. .................................... 1
STATEMENT OF THE ISSUE PRESENTEDFOR REVIEW 3
STATEMENT .4
A.
B.
c.
D.
Nature of the Case and Course of ProceedingsBelow .4
Statutory Background 5
1. The Postal Reorganization Act of 1970 5
2. The Postal Accountability andEnhancement Act of2006 7
Statement of Facts: GameFly's DiscriminationComplaint... 8
Prior Administrative and Judicial Decisions 11
1. Commission's Initial AdministrativeDecision 11
E.
2. The Court's Prior Decision in GameFly I 12
Commission's Decision on Remand 13
SUMMARY OF THE ARGUMENT 19
II
USCA Case #13-1229 Document #1468400 Filed: 1210212013 Page 4 of 58
ARGUMENT.......................... 23
I. The COnmllssion's Remedy Is Consistent WithThe Statute As Well As The Court's Mandate inGameFly I 23
II.
m
The Commission Reasonably RejectedOperational Remedies _ _ _ 28
A. The Commission Reasonably DetenninedThat Operational Remedies That Do NotEntail The Prescription Of Specific,Measurable Perfonnance StandardsFor Manual Processing OfDVD Mail WillNot Adequately Prevent ContinuedDiscrimination Among DVD Mailers 29
B. The Commission Reasonably DetenninedThat Operational Remedies MandatingSpecific Levels Of Manual ProcessingWere Unenforceable And Apt ToUnreasonably Delay RelieL 33
The Commission's Rate-Based Remedy IsReasonable .37
A. The Postal Service Waived Its ObjectionsTo The Adequacy of Supporting Price andCost Infonnation, And The Record, In AnyEvent, Supports The Commission'sDetennination .... .. .... 37
III
USCA Case #13-1229 Document #1468400 Filed: 1210212013 Page 5 of 58
B. The Commission Reasonably DeterminedThat Its Mandate To Remedy DiscriminationTakes Precedence Over Other CriteriaGoverning Regulation of Market-DominantProducts .43
The Prescribed Rate Adjustments AreConsistent With The Statute AndNondiscriminatory .. . .45
CONCLUSION .48
FRAP 32(a)(7) CERTIFICATE OF COMPLIANCE ..
CERTIFICATE OF SERVICE .
TABLE OF AUTHORITIES
Cases:
Air Transport Ass'n ofAmerica, Inc. v. u.s. Dept. ofTransportation, 613 F.3d 206 (D.C. Cir. 2010) 32
Associated Gas Distriblllors v. FERC, 824 F.2d 981(D.C. Cir. 1987)..H.H....H...32
AT&T Wireless Serv., Inc. v. FCC, 365 F.3d 1095(D.C. Cir. 2004) H.. H H.. H 25
Bennett v. Spear, 520 U.S. 154 (1997) 3
Bowman Transp. Inc. v. Arkansas-Best Freight System,419 US. 281 (1974) H 34
*Authorities chiefly relied upon are marked with an asterisk.
IV
USCA Case #13-1229 Document #1468400 Filed: 1210212013 Page 6 of 58
* Butz v. Glover Livestock Comm'n Co., Inc.,411 US. 182 (1946) 22-23,28
City a/Cleveland v. Federal Power Comm'n,561 F.2d 344 (D.C. CiL 1977).. 25
Columbia Gas Transmission Corp. v. FERC,750 F.2d 105 (D.C. CiL 1984) 29
Consumer Federation ofAmerica v. Consumer ProductSafety Comm'n, 990 F.2d 1298 (D.C. CiL 1993) 28,29
GameFiy, Inc. v. Postal Regulatory Comm'n,704 F.3d 145 (D.C. CiL 2013) 2, 5, 12, 16, 19,21,
... 22,23,24,26,27,32,37,42,,43,44
• Heckler v. Chaney, 470 U.S. 821 (1985) 28
Illinois Public Ass'n v. FCC, 117 F.3d 555 (D.C. CiL 1997) 32
Marcum v. Salazar, 694 F.3d 123 (D.c. Cir. 2012) 3
Nat. Ass'n a/Greeting Card Publishers v. USPS"462 U.S 810 (1983).................................... .....6
Niagara Mohawk Power Corp. v. FPC, 379 F.2d 153(D.C.CiLI967) 28
Stilwell v. Office a/Thrift Supervision, 569 F.3d 514(DC. CiL 2009)................. 32
Towns a/Concord, Norwood, & Wellesley, Mass. v. FERC,955 F2d 67 (D.C. CiL 1992) 23
v
USCA Case #13·1229 Document #1468400 Filed: 1210212013 Page 7 of 58
* United States v. L.A. Tucker Truck Lines, Inc.,344 US 33 (1952) 21, 39
Statutes:
The Postal Reorganization Act of 1970.Pub.L. No. 91-375, 84 Stat. 719 (1970) 5
Postal Accountability and Enhancement Act 0[2006,Pub. L. No. 109- 435,120 Stat. 3198 (2006):
39 US.C. §201................ . 539 US.c. § 403 1239 US.c. § 403(a) 539 US.c. § 403(c) 4, 6, 10, 11,24,26,3239 US.c. § 404(a)(I) 639 US.C. § 404(a)(2).................................... 639 US.c. § 50L 739 US.c. § 3601 (2000) 639 US.c. § 3622 (2000) 6, 7,41,4239 US.C. § 3622(a)...................17, 4139 US.C. § 3622(a)(9)......................... .. .4139 US.C. § 3622(b)...........................................42, 4339 US.c. § 3622(b)(5) 41,4339 US.c. § 3622(b)(8) 22,43,4639 US.c. § 3622(c).......................... . .40,4139 US.c. § 3622(c)(2) 1939 US.c. § 3622(c)(6) . .4339 US.c. § 3622(c)(7) . 4539 US.c. § 3622(c)(l4) . 4039 US.C. § 3622(d)..................... 1939 US.C. § 3623 (2000) 639 U.S.c. § 3624 (2000) 639 U.S.c. § 3633(3) 1739 US.c. § 3642 38, 4239 USC. § 3642(b)(I) 1739 US.C. § 3642(b)(2)...............17
VI
USCA Case #13·1229 Document #1468400 Filed: 1210212013 Page 8 of 58
39 USC. § 3653..H...........H....4739 USC. § 3653(e) 4739 US.c. § 3662 4, 6,4539 US.c. § 3662(a) HHHHHHHHH' "'H"HHHHHHHH"H HHHHHHHHHH HH 1039 US.C. § 3662(c) H'HH" H.H.................HH.. . 1,7,2439 US.C. § 366LH H.. H.H.................HH.. . 2, 339 US.C. § 3663(c).H.H....HHH. . H 3
Rules:
Fed. R. Adm. P. 30(b)(l) H'H'" H...................HHHH 3939 C.FR 3010.II(k) 'HHHHHHHHHHH' HHHHHHHHHHH. "'HHHHHHHHHHHH "'HHH.45
Miscellaneous:
USPS Notice of Market-Dominant Price Adjustment, September 26, 2013,http://prc.gov/docs/87/8792llNotice%20(Price%20Adjustment).pdf 42
Vll
USCA Case #13-1229 Document #1468400
GLOSSARY
Commission
DVD
JA.
Postal Service
...Vlll
Filed: 1210212013 Page 9 of 58
Postal RegulatoryCommission
Digital VersatileDisc
Joint Appendix
United States PostalService
USCA Case #13-1229 Document #1468400 Filed: 1210212013 Page 10 of 58
IN THE UNITED STATES COURT OF APPEALSFOR THE DISTRICT OF COLUMBIA CIRCUIT
No. 13-1229
UNITED STATES POSTAL SERVICE,
Petitioner,
v.
POSTAL REGULATORY COMMISSION,
Respondent,
and
GAMEFLY, INC.,
Intervenor.
BRIEF FOR RESPONDENT POSTAL REGULATORY COMMISSION
STATEMENT OF JURISDICTION
L This case arises out of intervenor GameFly's administrative complaint
that the Postal Service had unlawfully discriminated among users of the mail by
providing preferential treatment to other companies who use the mail to deliver
DVD's to their customers. The Commission had administrative jurisdiction under
39 U.s.c. § 3662(c).
USCA Case #13-1229 Document #1468400 Filed: 1210212013 Page 11 of 58
2. On June 26, 2013, the Postal Regulatory Commission, on remand ordered
by the Court in GameFly, Inc. v. Postal Regulatory Comm'n ("GameFly F'), 704
F.3d 145 (D.C. Cir. 2013), directed the Postal Service to propose for the
Commission'5 consideration equalized rates for certain DVD mail as a remedy for
unlawful discrimination. Joint Appendix ("JA.") 268. The Postal Service filed a
petition for judicial review of that order on July 25, 20 13.
On the same date, the Postal Service filed with the Commission a motion for
administrative reconsideration and clarification, which the Commission granted in
part and denied in part on August 13,2013. JA. 315, 356. On August 22, 2013,
the Postal Service amended its prior petition for judicial review to include the
Commission's order on reconsideration and clarification.
On September 4, 2013, the Commission issued an order prescribing specific,
equalized rates for certain First-Class flat-shaped DVD mail and First-Class letter
shaped DVD mail. JA.368. On September 10,2013, the Postal Service amended
its prior petition for judicial review for a second time so as to include the
Commission's September 4 order.
3. The Postal Service's second amended petition is sufficient to vest this
Court with appeIlate jurisdiction under 39 V.S.c. § 3663. That statute provides
that a person, including the Postal Service, that is aggrieved or adversely affected
2
USCA Case #13-1229 Document #1468400 Filed: 1210212013 Page 12 of 58
by an order or decision the Commission may appeal by petitioning this Court for
judicial review "within 30 days after such order or decision becomes final." Ibid.
The Commission's initial order of June 26 and its subsequent order of
August 22 each contemplated further administrative consideration of an
appropriate remedy and thus were not final. The Postal Service's initial petition
for judicial review and its first amended petition for review were consequently
premature. See Marcum v. Salazar, 694 F.3d 123 (D.C. Cir. 2012) (ongoing
agency review renders an agency order non-final and judicial review premature);
Bennett v. Spear, 520 U.S. 154, 177 (1997) (to be final, agency decision must mark
consummation of the agency's decision-making process and give rise to rights,
obligations, or legal consequences).
The Commission's September 4 order, however, resolves intervenor
GameFly's complaint of discrimination and is thus a final order amenable to
judicial review. The Postal Service's second amended petition is in substance a
timely request for judicial review of that final order. The Court therefore has
appellate jurisdiction under 39 U.S.c. § 3663(c).
STATEMENT OF THE ISSUE PRESENTED FOR REVIEW
Whether the Postal Regulatory Commission's remedial order complies with
the Court's remand in GameFly 1 and is based upon a reasonable exercise ofthe
Commission's statutory discretion under 39 U.S.C. § 3662(c) to "'take such action
3
USCA Case #13-1229 Document #1468400 Filed: 1210212013 Page 13 of 58
as the Conunission considers appropriate" in determining a remedy for
unreasonable discrimination among users of the mails.
STATEMENT
A. Nature of the Case and Course of Proceedings Below.
Petitioner GameFly is a company engaged in the online rental of video
games. If distributes its rental games by mailing DVD's to customers, who then
return the DVD's to GameFly in pre-addressed reply mailers. In 2009, it filed a
complaint with the Commission under 39 U.S.C. § 3662, alleging that the Postal
Service had unlawfully discriminated against GameFly by according preferential
treatment to Netflix, another company that uses the mails to distribute rental
DVD's. lA. 1.
The Commission sustained GameFly's allegations. If found that the Postal
Service had failed to establish reasonable and legitimate reasons for providing
GameFly less favorable treatment than Netflix, and that the Postal Service had
unduly discriminated against GameFly, in violation of39 U.S.C. § 403(c). lA. 18.
The Commission ordered the Postal Service to make certain changes in the rates
and surcharges imposed on DVD mailers. lA. 135-36.
The Postal Service did not appeal the Commission's rmding of
discrimination. GameFly, however, appealed, contending that the remedies ordered
4
USCA Case #13-1229 Document #1468400 Filed: 1210212013 Page 14 of 58
by the Commission did not adequately redress the Postal Service's discrimination
among users of the mail.
This Court reversed and remanded for further administrative proceedings. It
held that the Commission's remedial order was arbitrary and capricious because it
left discrimination in place without sufficient explanation. GameFly 1,704 F.3d at
149. It therefore vacated the Commission's prior order and remanded the matter
for further consideration. Ibid.
On remand, the Commission, after considering a variety of potential
remedies, issued an order directing the Postal Service to elect between two options
for equalizing the rates charged for letter-shaped and flat-shaped DVD mail. JA.
368. The Postal Service now appeals.
B. Statutory Background.
1. The Postal Reorganization Act of 1970.
In 1970, Congress abolished the old Post Office Department of the
Executive Branch and created in its place the United States Postal Service. Pub.
L. No. 91-375, 84 Stat. 719 (1970). The statute establishes the Postal Service as a
government-owned corporation, 39 U.S.c. § 201, and directs the Postal Service to
"plan, develop, promote, and provide adequate and efficient postal services at fair
and reasonable rates and fees." 39 U.S.c. § 403(a). To that end, the Postal Service
is specifically empowered "to provide for the collection, handling, transportation,
5
USCA Case #13-1229 Document #1468400 Filed: 1210212013 Page 15 of 58
delivery, forwarding, returning, and holding of mail * * *," and "to prescribe, in
accordance with this title, the amount of postage and the manner in which it is to
be paid." 39 U.S.c. §§ 404(a)(I) & (2); see generally Nat. Ass'n a/Greeting Card
Publishers v. USPS, 462 U.S. 810 (1983).
Congress further decreed that the Postal Service may not unreasonably
discriminate among users of the mail. The statute thus provides that:
In providing services and in establishing classifications, rates, andfees under this title, the Postal Service shall not, except as specificallyauthorized in this title, make any undue or umeasonablediscrimination among users of the mails, nor shall it grant any undueor lUlreasonable preferences to any such user.
39 U.S.c. § 403(c).
The 1970 statute also established the Postal Rate Commission - the
forerunner of the respondent here, the Postal Regulatory Commission. The Rate
Commission was created as an independent establishment and directed to make
reconunendations to the Governors of the Postal Service with respect to rate, fee,
and mail classification matters. 39 U.S.c. §§ 3601, 3622, 3623, and 3624 (2000).
The Rate Commission was also vested with authority to review and make findings
on complaints of Postal Service discrimination. The 1970 statute, however, did not
authorize the Rate Commission to impose specific remedies. It instead provided
that if "the Conunission after hearing fmds the complaint to be justified, it shall
render a public report thereon to the Postal Service which shall take such action as
6
USCA Case #13-1229 Document #1468400 Filed: 1210212013 Page 16 of 58
it deems appropriate." 84 Stat. 764 (1970), formerly codified at 39 V.s.C. § 3662
(2000).
2. The Postal Accountability and Enhancement Act of2006.
The Postal Accountability and Enhancement Act of2006, Pub. L. No. 109-
435, 120 Stat. 3198 (2006), established the Postal Regulatory COlrunission in lieu
of the Postal Rate COlrunission, see 39 V.S.c. § 501, and substantially revised the
Commission's powers to review and remedy complaints of discrimination. Under
the prior law, the predecessor Rate Commission was only authorized to issue a
report of its findings to the Postal Service. By contrast, the revised statute vests the
newly-established Regulatory Commission with broad discretion to order the
implementation of such remedies as the Commission deems appropriate. The
statute now provides that if the Commission finds a complaint of unreasonable
discrimination to be justified:
it shall order that the Postal Service take such action as theCommission considers appropriate in order to achieve compliancewith the applicable requirements and to remedy the effects of anynoncompliance (such as ordering unlawful rates to be adjusted tolawful levels, ordering the cancellation of market tests, ordering thePostal Service to discontinue providing loss-making products, orrequiring the Postal Service to make up for revenue shortfalls incompetitive products).
39 V.S.c. § 3662(c).
7
USCA Case #13-1229 Document #1468400 Filed: 1210212013 Page 17 of 58
C. Statement of Facts: GameFly's Discrimination Complaint.
GameFly's complaint of discrimination centers on the Postal Service's
methods for processing round-trip DVD's sent through the mail. A movie or game
DVD is small enough to be sent as a one-ounce letter if enclosed in a lightweight
mailer. Letter-shaped mailpieces, however, are generally processed on automated
sorter equipment, which subjects the letters to a variety of physical stresses as they
are bent around the machine's rollers and forced through the machine's gates and
chutes at high speed. JA. 4-5. This automated processing can damage an enclosed
DVD and is particularly problematic on the return trip, when DVD's are mixed
with First-Class mail of varying shapes. GameFly and other businesses that rely on
distributing and collecting rental DVD's through the mail have accordingly sought
to have their return mail processed manually or through other procedures less
likely to damage their product.
GameFly alleged that the Postal Service has unreasonably discriminated
among DVD mailers in making manual letter processing available. It asserted, in
particular, that DVD's mailed as letters by two of the largest businesses in the field
- Netflix and Blockbuster - routinely receive special manual handling. On the
return trip, their DVD letters are frequently removed from the automated
processing stream. This manual processing, however, has been denied GameFly
and other, similarly situated DVD mailers. JA. 8-9, 22. GameFly further alleged
8
USCA Case #13-1229 Document #1468400 Filed: 1210212013 Page 18 of 58
that, although an additional surcharge is ordinarily imposed on letters that are not
amenable to machine processing, the Postal Service had selectively refrained from
imposing the surcharge on Netflix. Ibid.
In the absence of a commitment from the Postal Service to process its
returning DVD's manually, GameFly took several alternative measures to ensure
that its DVD mail would avoid the automated, letter processing stream. First, it
mailed its DVD's in "flat-shaped" envelopes. JA.5. Flats are larger than
letter-shaped envelopes, and they are subject to higher postage rates as well. Like
letter-shaped mail, flats are processed automatically. But the machines for
processing flats subject the envelope to less severe physical stresses and are
therefore less apt to damage an enclosed DVD.
Second, GameFly inserted a cardboard protective insert in its DVD mailers.
JA. 5. The insert provides some additional cushioning against shock. More to the
point here, it helps ensure that the flat is not mistakenly routed to the automated
letter processing stream. The process for detennining whether to route mail to the
letter processing stream or flat processing stream is also automated. The selection
process, however, does not reliably distinguish between a letter-shaped envelope
and a relatively thin, flat-shaped envelope. Envelopes entered into the mail as thin
flats may therefore be inadvertently diverted to the automated letter processing
9
USCA Case #13-1229 Document #1468400 Filed: 1210212013 Page 19 of 58
stream - even though the mailer has paid the additional postage applicable to flats
and employed a flat-shaped mailpiece. lA. 134-35.
This problem can be avoided if the mailpiece is made thicker, because flats
ofa certain thickness can be automatically culled with greater reliability and routed
through the flat processing stream rather than the letter processing stream. Ibid.
GameFly's cardboard inserts thicken its mailpieces and serve this purpose. The
inserts, however, also increase the weight of each mailpiece above one ounce.
And because postal rates are determined by weight in addition to shape,
the cardboard inserts necessary to ensure that the flats are properly routed through
the flat processing stream caused GameFly to incur still more, additional postage.
GameFly alleged that these circumstances amount to unreasonable
discrimination, in part because the Postal Service denies GameFly the same
manual processing accorded Netflix, and in part because the lack of manual
processing compels GameFly to use more expensive flat-shaped mail in order to
achieve the same result - avoidance of the automated letter stream and its attendant
risk ofdamaging DVD's during processing. lA. 12. GameFly accordingly filed a
complaint with the Conunission under 39 U.S.c. § 3662(a), alleging that the Postal
Service violated 39 U.S.c. § 403(c) by umeasonably discriminating among users
of the mail.
10
USCA Case #13-1229 Document #1468400 Filed: 1210212013 Page 20 of 58
D. Prior Administrative and Judicial Decisions.
1. Commission's Initial Administrative Decision.
The Commission sustained GameFly's allegations and concluded that the
Postal Service had unduly discriminated against GameFly, in violation of 39
U.S.C. § 403(c). It found that GameFly and Netflix are similarly situated, and that
the Postal Service had afforded GameFly less favorable rates and terms and
conditions of service than Netflix. JA. 129. The Commission further found that
the Postal Service had failed to establish reasonable and legitimate reasons for
these differences in treatment. Ibid.
The Commission fashioned two complementary remedies for this
discrimination. First, the Commission directed the Postal Service to refrain from
imposing a non-machinable surcharge on any qualifying round-trip DVD mailer
that is sent as letter mail and that weighs one ounce or less. It thereby ordered
relief ending the Postal Service's selective enforcement of non-machinable
surcharge on DVD mailers and the preferential treatment ofNetflix with respect to
these charges. JA. 135.
Second, the Commission directed the Postal Service to offer a base rate for
mailing a two ounce, round-trip DVD flat that would be equal to the rate
previously imposed on a one ounce flat. JA. 134-35. In practical effect, this meant
that the extra weight GameFly or other DVD mailers must add to a flat mailpiece
11
USCA Case #13-1229 Document #1468400 Filed: 1210212013 Page 21 of 58
in order to ensure that the flat is thicker and avoids the automatic letter processing
stream would not result in additional postal charges.
The Postal Service did not seek judicial review. GameFly, however,
appealed, contending that the Commission's remedial order did not adequately
redress the Postal Service's discrimination among users of the mail.
2. The Court's Prior Decision in GameFlv I.
The Court vacated the Commission's decision and remanded for further
consideration of an appropriate remedy. It reasoned that the Commission had left
discrimination in place by allowing the Postal Service to continue providing
manual processing to Netflix without extending the same opportunity to GameFly,
thereby forcing GameFly to employ a more costly form of mail to achieve
comparable protection from damage to its DVD's. GameFly I, 704 F.3d at 149. It
held that "ltJhe Commission must either remedy all discrimination or explain why
any residual discrimination is due or reasonable under [39 U.S.c.] § 403." Ibid.
The Court accordingly vacated the Commission's decision and remanded for
further consideration of an appropriate remedy. Ibid. The Court did not, however,
impose further limitations on the range ofremedies the Commission might
consider on remand. It instead stated that the Commission was not obligated to
adopt the remedies requested by GameFly, and that "there may be a range ofother
possible remedies which would withstand appellate review." Ibid.
12
USCA Case #13-1229 Document #1468400 Filed: 1210212013 Page 22 of 58
E. Commission's Decision on Remand.
On remand, the Commission convened a settlement conference to consider
potential remedies. fA. 202-16. It identified six potential remedies for
consideration. fA. 214-16. Three of those remedies had been proposed by the
parties. fA. 214. Three additional potential remedies were identified by the
Commission. fA. 215-16. The parties were also invited to propose other possible
remedies. fA. 210, 212.
After the settlement conference proved to be unproductive the Commission
issued the remedial order challenged here. 11 specified several criteria that a
remedy must satisfY. First, it concluded that a remedy must provide GameFly
effective relief from discrimination by ensuring that GameFly would have
processing options that would afford it disc protection comparable to that afforded
Netflix, without requiring it to pay higher rates or incur other injury. fA. 282-83.
Second, it concluded that any remedy must be enforceable. The
Commission noted that the record demonstrated "the Postal Service's pattern of
intentional preferences favoring Netflix and its consistent refusal to provide
GameFly any credible assurances ofa comparable level" of treatment. fA. 284.
The Commission detennined that, in light of this record, any remedy selected must
be amenable to a means of ensuring that the Postal Service has implemented it.
Ibid.
13
USCA Case #13-1229 Document #1468400 Filed: 1210212013 Page 23 of 58
Finally, the Commission concluded that the remedy must afford GameFly
timely relief. JA. 284. The Commission noted GameFly's assertions that
unremedied discrimination was costing the company $5.6 million per year (JA.
293) and reasoned that potential remedies must be ones that could be developed
and implemented expeditiously. JA. 292-93.
Applying these factors, the Commission imposed a remedy requiring the
Postal Service to equalize the prices charged for DVD letter mail and DVD flat
shaped mail weighing two ounces or less. It thus directed the Postal Service to
reduce the price for a two-ounce, First-Class, flat-shaped, round-trip DVD
mailpiece to the price of a First-Class, letter-shaped, round-trip DVD mailpiece.
Consequently, under the remedy imposed by the Commission, the Postal Service's
DVD customers may all purchase a First-Class, flat mail product that affords
protection from disc breakage comparable to that afforded by manually-processed
letter mail, for the same price as manually-processed letter mail.
The COnmllssion arrived at this decision after considering a variety of
potential remedies. One set of proposed remedies, which the parties have referred
to here as "operational" remedies, would have ordered the Postal Service to change
the manner in which it processes DVD's mailed as First-Class letters. These
proposals ranged from denying manual processing to all DVD mailers, including
14
USCA Case #13-1229 Document #1468400 Filed: 1210212013 Page 24 of 58
Netflix, to affording comparable levels of manual processing to all DVD mailers.
JA.283-84.
The Commission concluded that these operational remedies would not result
in effective and reasonable redress for the Postal Service's discrimination among
DVD mailers. Some of the operational remedies, such as the Postal Service's
proposal to afford DVD mailers manual processing "to the extent possible and
practicable" did not, in the Commission's view, establish concrete standards that
would assure GameFly ofmanual processing at levels equal to that accorded
Netflix, especially in light of Postal Service comments "emphasiz[ing] the
likelihood that local variations in processing will lead to different degrees of
manual processing for different DVD mailers." JA.287.
Other potential operational remedies, such as that proposed by GameFly in
the initial administrative proceedings, contemplated manual processing at levels
that would satisfy a specific, objective performance standard applicable to all
round-trip DVD mailers. The Commission, however, concluded that there was no
reasonable means ofenforcing such objective standards. It reasoned in this regard
that the Postal Service had stated that it would be ",difficult, if not practically
impossible, or exceeding costly, to maintain an ongoing enforcement mechanism
that would ensure that every mailer's DVD letters will receive exactly the same
levels of manual processing * * *'''' JA. 290, quoting Postal Service letter of May
15
USCA Case #13-1229 Document #1468400 Filed: 1210212013 Page 25 of 58
3,2013 (reprinted at lA. 223). It further noted that even if there were an effective
means of monitoring and enforcing compliance with objective perfonnance
standards, such measures would impose burdensome additional costs on the Postal
Service, other mailers, and the Commission itself lA. 291. The Commission
stated that it was "particularly reluctant to impose this burden on the Postal Service
when a more complete and efficient rate-based remedy exists." Ibid.
Finally, the Commission noted that GameFly and the Postal Service had
both asserted that any operational remedy would require reopening the record for
additional fact-fmding bearing on the feasibility of such remedies. lA. 292. It
concluded this would potentially harm GameFly by further delaying imposition of
an appropriate remedy. lA. 293.
The Commission held that, unlike these various operational remedies, a rate
based remedy would be effective, enforceable, and capable of implementation
without unreasonable delay. It reasoned that equalizing the rates paid for DVD
letter-shaped mail and DVD flat-shaped mail would redress the residual
discrimination found in GameFly I (JA. 294), that the remedy could be easily
enforced (JA. 301), and that new, equalized rates could be developed
expeditiously, without extensive additional fact-finding (JA. 302-03). The
Commission accordingly afforded the Postal Service an opportunity to propose
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new, equalized rates for round-trip DVD mail and to submit documentation
supporting any such rate proposal. JA. 304, 307.
The Postal Service responded by proposing to create a new "competitive
product" for all round-trip DVD mail, which is currently market-dominant mail,
and to offer the competitive product at a newly-specified postal rate. JA. 328.
There are important distinctions between "market-dominant" products and
competitive products. Market-dominant products are: (I) those as to which the
Postal Service has a level of market power in providing that service that would
allow it to raise prices without losing «a significant level of business," or.,
(2) products that are reserved to the Postal Service by the statutory postal
monopoly. 39 U.S.c. § 3642(h)(I), or (2). Market dominant products are subject
to limitations on price increases, 39 U.S.c. § 3622(d), and more thoroughly
regulated than competitive products. See 39 U.S.c. § 3622(a)-(c).
All other products are considered competitive products. 39 U.S.c.
§ 3642(h)(1). As the name indicates, these are products or services as to which the
Postal Service faces direct competition, such as the expedited, direct delivery
service provided by Priority Mail. Competitive products must be priced at levels
sufficient to cover the costs specifically attributable to them and to make, in
addition, an appropriate contribution to the Postal Service's fixed, institutional
costs. 39 U.S.c. § 3633(a).
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The Commission established separate administrative proceedings to develop
an appropriate factual record and evaluate the Postal Service's request to establish
a new, competitive product for DVD mail. lA. 335-36, 369. It concluded,
however, that, in light of the complexity of the issues presented by the competitive
product request, as well as the significant opposition expressed by multiple other
parties, the Postal Service's request could not be resolved promptly. lA.372. It
further concluded that it would be inappropriate to delay imposition of an
equalized rate remedy for GameFly's complaint of discrimination until final
resolution of the Postal Service's request to create a new, competitive product for
DVD mail. Ibid.
The Commission held that the appropriate solution is to prescribe without
further delay the rate level proposed by the Postal Service in the Service's
competitive product request as the appropriate «market-dominant" product rate for
DVD's mailed as either First-Class round-trip letters or First-Class round-trip flats
weighing two ounces or less.! lA. 372. As these rates would be equal for both the
letter mail employed by Netflix and the flat mail employed by GameFly, the
Commission reasoned that they would afford effective redress for the prior
discrimination among DVD customers. The Commission further reasoned that
these rate levels would not result in any material injury to the Postal Service
1 The specific rate for each leg of the round-trip is equal to the current rate for aFirst-Class letter: 46 cents.
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because the rate would be set at the same level proposed by the Postal Service
itself in its request to establish a new competitive product for DVD mail. lA. 373.
The Commission accordingly ordered the Postal Service: (I) to set the rate
for mailing a two-ounce, First-Class flat-shaped, round-trip DVD at the same rate
as that applicable to a one-ounce First-Class, letter-shaped, round-trip DVD mail,
and (2) to provide for the rate to take effect on September 30, 2013. lA.376. It
further provided for additional proceedings to consider the Postal Service's request
to have DVD round-trip mail treated as a competitive product rather than a market-
dominant product. lA. 335-36, 373.
SUMMARY OF THE ARGUMENT
The Commission's remedial determination is consistent with the Court's
remand in GameFly I, adequately supported by the record, and well within its
broad statutory discretion to order such action as it considers appropriate to remedy
discrimination.
As an initial matter, the Postal Service errs in asserting that the Court's
mandate in GameFly I limits the Commission to remedies that adjust the terms and
conditions of processing DVD letter mail. The Conunission concluded that it
lacked the practical ability to ensure nondiscriminatory manual processing of all
DVD letter mail, and that the most efficacious remedy would therefore entail
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equalizing the price ofDVD flat mail affording a comparable level of protection
from disc breakage.
Nothing in GameFly 1 suggests rhat such rate-based remedies are
impermissible. The Court there rejected a less complete rate-based remedy, not
because it concluded rate-based remedies were impermissible per se, but because
the Commission's prior remedy did not go far enough in ending discrimination. In
remanding to the Commission, the Court stated that a range of permissible
remedies could be sustained, provided they adequately redressed undue
discrimination. The Commission's latest order satisfies that condition and must be
affmned nuder the highly deferential review standards applicable to the
Commission'$ exercise of remedial discretion.
Moreover, the Commission had ample basis for rejecting various
"operational" remedies involving compulsory changes in the levels of manual
processing accorded other users of DVD letter mail. The Commission fonud that a
vague commitment to accord manual processing to the «extent practicable" would
not adequately redress discriminatory treatment of GameFly, particularly in light of
the Postal Service's record of unlawful preferential treatment and the Service's
candid acknowledgment that ensuring equal manual processing would be
"difficult, ifnot practically impossible, or exceedingly costly." JA. 291. The
Commission further found that, because actual levels ofmanual processing are a
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function of a myriad of local conditions that are difficult to track and control,
specific perfonnance benchmarks for manual processing would be impractical and
unduly burdensome for the Commission, other mailers, and the Postal Service
itself. These reasons for rejecting various "operational" remedies are rational and
well supported by the record.
The Postal Service also errs in asserting that the Commission lacked an
adequate cost basis for prescribing a specific rate for DVD round-trip mail. The
Postal Service failed to respond to the Commission's request for a rate proposal
backed by adequate cost data and meeting the Commission's remedial
requirements. It must therefore be deemed to have waived any such cost-based
objection here. United States v. L.A. Tucker Truck Lines, Inc., 344 U.S. 33, 37
(1952). In any event, in the proposal that the Postal Service did submit - one for a
new competitive product - the Postal Service represented that round-trip DVD mail
provided at the rate ultimately prescribed by the Commission would provide
sufficient revenue to meet the product's attributable costs without diminishing the
collective contribution ofcompetitive products to the Postal Service's institutional
costs. That, in conjunction with the imperative to remedy discrimination in the
treatment ofDVD mail, affords adequate cost justification for the Commission's
order.
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The Postal Service further errs in asserting that the Commission failed to
give sufficient consideration to the various statutory criteria governing regulation
ofa market dominant product. GameFly 1 requires the Commission to give
precedence to remedying discrimination in the treannent ofDVD mail. While the
statute affords the Commission's broad discretion to consider a range of factors
and objectives when regulating market-dominant products, GameFly 1 holds that
these criteria cannot, on this record, justify continued unequal treatment absent
compelling explanation. The Commission did not act arbitrarily in hewing to the
letter and spirit of the Court's mandate by according precedence to enforcing the
statutory nondiscrimination requirement.
Finally, the prescribed rate remedy is well within the Commission's
authority to adjust rates where necessary to redress discrimination. Prior approval
of a rate does not preclude the Commission from subsequently adjusting it where
necessary to remedy discrimination. And contrary to the Postal Service's
contentions, the statute affords the Commission authority to create special rate
classifications for particular products as part of a remedy for prior discrimination.
See 39 U.S.c. § 3622(b)(8). The prescribed rate thus does not unlawfully
discriminate against other users of flat mail.
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ARGUMENT
Filed: 1210212013 Page 32 of 58
I. The Commission's Remedy Is Consistent With The Statute AsWell As The Court's Mandate in GameFly 1.
Congress has vested the Commission with broad authority to detenmine
appropriate remedies for discrimination among users of the mail. The
Commission's remedial discretion is not unlimited and may be set aside on judicial
review if the choice of remedies is illogical or inadequately explained. GameFly I,
704 F.3d at 148. Judicial review of an agency's choice of remedies must
nonetheless be accorded particularly deferential review and may not be overturned
unless '\mwarranted in law * * * or without justification in fact." Blitz v. Glover
Livestock Comm'n Co., Inc., 411 U.S. 182, 185-86 (1946); accord Towns of
Concord, Norwood, & Wellesley, Mass. v. FERC, 955 F2d 67, 76 (D.C. Cir. 1992).
The Postal Service asserts that the Commission has exceeded its broad
discretionary authority by imposing, as a remedy for discriminatory preferences in
manual processing of letter mail, an obligation to provide a service that affords
comparable protection from DVD breakage - First-Class, flat-shaped mail- at the
same price. The Commission concluded that it lacked the practical means of
ensuring that manual processing would be extended to all DVD mailers on a
nondiscriminatory basis, and that equalizing the cost of DVD letter mail and two-
Olillce flat-shaped mail would therefore be the most effective and expeditious
means of redressing the Postal Service's prior, preferential treatment ofNetflix.
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The Postal Service nonetheless maintains that, because the underlying
fmding of discrimination entails discrimination in the provision of manual
processing services for First-Class mail, the only remedies open to the Commission
are those that entail some modification of manual letter processing. It thus
contends that the Court's mandate in GameFly I, by remanding for a remedy of the
Commission's finding of discrimination in the tenms of service afforded GameFly,
limits the Commission to "operational" remedies involving changes in the manual
processing of letter mail. USPS Br. at 36-38. And it further contends that, because
the underlying fmding of discrimination involves discrimination in the "terms of
service" applicable to manual processing of letter mail, the Commission is limited
to operational remedies. USPS Br. at 39-40.
Neither the statute nor the Court's mandate in GameFly I imposes such
limitations on the Commission's authority. The remedial provisions of the statute
are worded in the broadest of tenms, vesting the Commission with authority to
"take such action as the Commission considers appropriate in order to achieve
compliance" with the nondiscrimination requirement. 39 U.S.c.
§ 3662(c). This statutory authority extends, not merely to ordering changes in the
underlying discriminatory conduct, but to directing such action as is necessary "to
remedy the effects * * * " of such conduct" and to «ordering unlawful rates to be
adjusted to lawful levels." Ibid (emphasis added).
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Moreover, the statutory nondiscrimination requirement proscribes only
"unreasonable" discrimination and «undue or unreasonable" preferences. 39 U.S.C.
§ 403(c). These qualifications leave the Commission with discretion to determine
that differences in processing do not rise to "unreasonable" or "undue"
discrimination if the Commission ensures that a comparable service is available at
the same price. That in tum confinns that the Commission has authority to remedy
discrimination in the provision of one service by adjusting the price of a
comparable service.
Here, the effect of the Postal Service's discrimination is to compel GameFly
to pay more than Netflix for a service affording protection from DVD breakage
comparable to that afforded by manual processing ofletter mail. The Commission
reasonably concluded that, because enforcing even-handed manual processing of
all DVD letter mail is impractical, the most effective means of redressing
discrimination would be to equalize the price differential between DVD letter mail
and DVD flat mail. Contrary to the Postal Service's assertions, that is well within
the Commission's statutory authority.
The Postal Service also errs in asserting that the Court's mandate in
GameFly I precludes the Commission from imposing a rate-based remedy
designed to ensure that GameFly pay no more than Netflix for comparable
protection from DVD breakage. USPS Br. at 34-38. As the Postal Service notes,
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the decision of a federal appellate court estahlishes the law binding further action
by an agency on remand. The agency is thus "without power to do anything which
is contrary to either the letter or spirit of the mandate" of the reviewing court. City
ofCleveland v. Federal Power Comm 'n, 561 F.2d 344, 346 (D.C. Cir. 1977);
accord AT&T Wireless Serv., Inc. v. FCC, 365 F.3d 1095, 1099-1101 (D.C. Cir.
2004). The Court's remand order, however, does not preclude the Commission
from redressing the discriminatory preferences accorded Netflix by requiring the
Postal Service to charge GameFly the same price for services affording comparable
protection from DVD breakage.
That is clear from a brief review of the issues before the Court in GameFly 1.
The relief ordered in the Commission's initial decision did not include any
"operational" changes in the manual processing ofDVD letter mail. It instead
included a rate-based remedy directing the Postal Service to reduce the price
charged for First-Class, flat-shaped, DVD mail affording comparable protection
from DVD breakage. The rate reduction, however, did not equalize the price of
DVD flat mail and DVD letter mail. 11 thus left in place rates and practices that
effectively required GameFly to pay more than Netflix for comparable protection
from DVD breakage.
The Court found the continued price disparity unreasonable, concluding that
"lwJhere the Commission allows discrimination to exist in the postal rate
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structure, it must explain why that discrimination is due or reasonable under [39
V.S.c.] § 403(c)." GameFly 1,704 F.3d at 148 (emphasis added). But although
the Court had before it a Commission remedy that responded to "terms of service"
discrimination by modifying the rates charged for a different service, it nowhere
suggested that the Commission was foreclosed from considering more complete,
rate-based relief on remand. Indeed, the Court invalidated the Commission's rate
based remedy, not because it deemed rate-based remedies impennissible per se,
but because it concluded the Commission's initial rate-based remedy did not go far
enough.
Nothing in GameFly I indicates that the only permissible means of
remedying discrimination in the provision of a particular service would be to direct
"operational" changes in that service. The Postal Service itself argued on remand
that the Commission had the option of better explaining its original remedy -- a
remedy that was confined to rate-based relief. See JA 186, 196. And the Court,
consistent with the Commission's broad statutory authority to fashion any
"appropriate" remedy, stressed that a range of possible remedies might withstand
appellate review. GameFly 1,704 F.3d at 149. The Postal Service thus errs in
asserting, contrary to its position below, that rate-based remedies are inconsistent
with the Court's remand order in GameFly 1.
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II. The Commission Reasonably Rejected Operational Remedies.
The Commission opted for a rate-based remedy after concluding that
mandating appropriate changes in the Postal Service's manual processing ofDVD
letter mail would be ineffective, unenforceable, and apt to unreasonably delay
relief for discrimination that had persisted since at least 2009. Each of these
conclusions rests on determinations that must be accorded substantial deference on
judicial review. Forecasts about the practical impact of proposed remedial action
lie within a regulatory agency's specialized expertise and experience and must be
accorded due respect for that reason. Consumer Federation ofAmerica v.
Consumer Product Safety Comm'n, 990 F.2d 1298, 1300 (D.c. Crr. 1993).
Judgments as to the feasibility of undertaking various enforcement actions and
potential drain on the agency's enforcement resources are presumptively
committed by law to agency discretion. Heckler v. Chaney, 470 U.S. 821 (1985).
And the evaluation of whether an administrative remedy advances statutory policy
is ordinarily regarded as peculiarly a matter for administrative competence. Blitz,
411 U.S. at 185. As the Court has long held:
[T]he breadth of agency discretion is, if anything, at [its1zenith whenthe action assailed relates primarily not to the issue of ascertainingwhether conduct violates the statute, or regulations, but rather to thefashioning of policies, remedies and sanctions * * * in order to arriveat maximum effectuation of Congressional objectives.
Niagara Mohawk Power COip. v. FPC, 379 F.2d 153, 159 (D.C.Cir.1967).
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The Commission's remedial discretion is not unbounded. But the Court has
cautioned that "it is not the role ofthe courts to second guess the [agency's]
judgment because we think we could devise a better solution than that which the
agency has adopted, so long as the agency's determination has a rational basis."
Columbia Gas Transmission Corp. v. FERC, 750 F.2d lOS, 109 (D.C. Cir. 1984).
The Commission's rejection of operational remedies in favor of a rate-based relief
satisfies this highly deferential standard ofreview.
A. The Commission Reasonably Determined That OperationalRemedies That Do Not Entail The Prescription Of Specific,Measurable Performance Standards For The Manual ProcessingOf DVD Mail Will Not Adequately Prevent ContinuedDiscrimination Among DVD Mailers.
The Commission rejected several proposed operational remedies on the
ground that they rested on vaguely phrased obligations to accord manual
processing "to the extent possible and practicable" and thus offered no assurance
that GameFly's letter mail would receive the same treatment as that accorded
Netflix's letter mail. JA.287. It noted that the Postal Service had itself
"emphasize[d] the likelihood that local variations in processing will lead to
different degrees of manual processing for different DVD mailers." JA. 287. The
Commission concluded that if it "'C3lll10t reasonably expect that its remedy will
provide GameFly and Netflix with equal degrees of manual processing, it has not
addressed the Court's concern with residual tenns of service discrimination." Ibid.
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The Postal Service asserts that this determination is arbitrary because it:
(1) imposes an unsupported requirement to guarantee mailers protection from
DVD breakage (USPS Br. at 41), (2) unreasonably rejects remedies that would
afford "substantial parity" in levels of manual letter processing (id. at 42-43), and
(3) conflicts with the Commission's previously-announced policy of avoiding
unnecessary interference with the Postal Service's flexibility to determine how
mail should processed (id. at 42).
These objections are meritless. First, the Commission did not hold that a
remedy must provide specific guarantees against DVD breakage. It rather held that
a DVD mailer must have access to processing options that afford protection from
DVD breakage that is comparable to the protection afforded by processing options
made available to other mailers. The actual rate of damage is a function of both
the stresses created by different modes of mail processing and the physical
characteristics of an individual mailer's DVD and envelope. See USPS Br. at 44
n.l3. The Commission, however, only addressed itself to equalizing the risks
posed by the mail processing component of this equation. Contrary to the Postal
Service's assertions~ it did not require that a remedy equalize actual rates ofDVD
damage.
Second, the Commission was well within its discretion in concluding that
vague promises of substantial parity in manual processing would not afford
30
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satisfactory relief from discrimination. The Commission found that "[tJhe existing
record demonstrates that the Postal Service viewed its past discriminatory
treatment of GameFly as approaching substantial parity with Netflix," and
concluded that a directive limited to that standard was apt to perpetuate unequal
treatment. JA. 287 (emphasis added).
The Commission's conclusion that, in the circumstances presented here, a
remedy must ensure equal treatment of similarly situated mailers, not mere
"substantial parity," is eminently reasonable. The record reflects an established
history of unlawful preferential treatment arising from both management
instructions and a multitude of local processing decisions that are difficult to track
and control. JA. 86-89. Moreover, the Commission noted that the Postal Service
had itself advised that differences in local decisions as to whether to process DVD
mail manually were still likely to result in different degrees of manual processing
for different DVD mailers. JA. 287. The Commission accordingly had a
reasonable basis for concluding that the amorphous "substantial parity" standard
urged by the Postal Service would allow these differences in treatment to persist,
that given the established history of affording Netflix improperly preferential
treatment, these differences were likely to devolve into continued, unreasonable
discrimination against GameFly, and that a more stringent remedial standard was
necessary to ensure that undue discrimination against GameFly would not recur.
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That is well within the Connnission's remedial discretion and entitled to deference
on judicial review. 2
Even assuming, for purposes of argument, that a "substantial parity"
standard would be supported by the record and a reasonable construction of the
statute, the Court's mandate in GameFly I, would not appear to allow it. This
matter was remanded to the agency by the Court with instructions "either to
remedy all discrimination or to explain why any discrimination it left in place was
due or reasonable under § 403(c)." GameFly 1,704 F.3d at 148. The Court's
directive is unequivocal and would not appear to allow the Commission to tolerate
disparities in treatment absent a compelling reason to do so. As the Connnission
reasoned (JA. 287), there is considerable doubt as to whether, on this record, a
remedy requiring only "substantial parity" in manual processing would be
consistent with the Court's order.
2 Cf Stilwell v. Office ofThrift Supervision, 569 F.3d 514, 519 (D.C Cir. 2009)("agencies can, of course, adopt prophylactic rules to prevent potential problemsbefore they arise. An agency need not suffer the flood before building the levee");see also Air Transpart Ass'n ofAmerica, Inc. v. US Dept. ofTransportation, 613F.3d 206, 213-14 (D.C Cir. 2010) (under Chevron deference principles, reviewingCourt must defer to any pennissible agency interpretation of statute barringairports from imposing "unjustly discriminatory" airport fees); Illinois PublicAss'n v. FCC, 117 F.3d 555, 567-68 (D.C Cir. 1997) (court must defer to FCC'sinterpretation of the nondiscrimination provisions of the Telecommunications Act);Associated Gas Distributors v. FERC, 824 F.2d 981,1001 (D.C. Cir. 1987) (courtmust defer to FERC determination of what constitutes undue discrimination underthe Natural Gas Act).
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Finally, as the Commission's rate-based remedy does not direct any
operational changes in how mail is handled, there is no basis for the Postal
Service's contention that the remedy conflicts with the Commission's previously
announced policy of preserving the Postal Service's operational flexibility.
For all these reasons, the Commission acted reasonably in concluding that
operational remedies that did not mandate specific performance standards would
not adequately redress discrimination.
B. The Commission Reasonably Determined That OperationalRemedies Mandating Specific Levels Of Manual ProcessingWere Unenforceable And Apt To Unreasonably DelayRelief.
Operational remedies requiring the Postal Service to afford all DVD mailers
a specific and equal level of manual processing would, in theory, guarantee equal,
nondiscriminatory treatment. The Commission, however, rejected these remedies
after concluding that they would be difficult to enforce in practice, and that they
could not in any event be implemented without unreasonable delay. The
Commission thus found that "[iJt would be extremely difficult for the Commission
and the Postal Service to carry out the kind of day-to-day, nationwide monitoring
of the Postal Service's extensive operational network that would allow the
Commission to detennine whether GameFly was receiving the same treatment as
other DVD mailers." JA. 289. It found that even if such monitoring were
feasible, it would likely result in the imposition of potentially large and undesirable
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costs on the Postal Service, mailers, and the Commission itself. JA 291. And it
further fonnd that all parties had agreed that the development of remedies
including such monitoring and enforcement measures would necessitate reopening
the record for additional factual development (lA. 292-93), thereby further
delaying redress for GameFly and prolonging uncertainty among other DVD
mailers. JA. 293.
The Postal Service's objections to the Commission's reasoning are
unfounded. First, it errs in asserting that the Commission's decision is arbitrary
because the Commission failed to explain why issues of enforceability and
timeliness matter. USPS Br. at 45. These considerations are plainly directed at
ensuring that any remedy will afford meaningful relief in practice and their
significance is explicit in the Commission's analysis. JA. 282-86. Even in
situations where the agency's reasoning is neither express nor self-evident, the
reviewing court may "uphold a decision of less than ideal clarity if the agency's
path may reasonably be discerned." Bowman Transp. Inc. v. Arkansas-Best
Freight System, 419 U.S. 281, 286 (1974). Here, the Commission's intent to
ensure meaningful, workable remedies pervades its analysis and opinion.
Considerations of enforceability and timeliness are patently related to those
objectives. That the Commission did not elaborate on the obvious does not render
its decision arbitrary or capricious.
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Second, the Postal Service also errs in asserting the Commission's findings
are untenable because there are administrative and judicial procedures for
resolving complaints of discrimination, along with authority to fine or enjoin
unlawful conduct. USPS Br. at 45-47. GameFly's right to file a subsequent
administrative complaint does not give the Commission any greater ability to
determine the levels of manual processing accorded DVD mailers. And the
general authority to impose fmes or injunctive relief does not give the Commission
any greater ability to prescribe rules that would, in practice, ensure equality of
manual processing - an outcome the Postal Service has itself described as
"difficult, if not practically impossible, or exceedingly costly" to attain. JA. 291.
Third, contrary to the Postal Service's contentions, data from scanning the
bar codes affixed to DVD mail will not solve the many practical difficulties of
enforcing a mandate to accord DVD mailers equality in manual processing. Even
assuming bar code scans would permit a reliable determination of the rate of
manual processing, they would shed no light on important qualitative differences
in manual processing. Manual processing, for example, might include sorting,
stacking, or other special processing steps. See JA. 237. Bar code data would not
afford any means ofdetermining whether the Postal Service had continued to
discriminate among users of the mail by extending these special manual processing
procedures to one DVD mailer but not another. Moreover, continual compliance
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monitoring would impose costs on the Commission as well, overtaxing its limited
resources and casting it in an unwelcome, supervisory role over day-ta-day postal
operations. See lA. 289-90; see also lA. 132. All these factors support the
Commission'$ detennination that an operational remedy is impracticable.
Finally, the Commission reasonably concluded that the additional record
development necessary to devise an appropriate operational remedy would
unreasonably delay relieffor GameFly. The Postal Service acknowledged below
that any such remedy would require reopening of the record. lA. 292-93. It argues
here that the attendant delay in issuing a final remedy is of no moment. USPS Br.
at 48. But the Commission noted GameFly's uncontradicted assertion that
continued delay in prescrihing relief was costing the company approximately
$470,000 per month. lA.293. The Commission could reasonably take that into
account when structuring a remedy.
The Postal Service argues that despite the harm caused by delay, further
fact-fmding is not precluded and immediate relief is not required. USPS Br. at 48.
That is true but irrelevant. The statute affords the Commission broad authority to
detennine how best to vindicate the purposes of the statute. The nondiscrimination
provisions are intended, among other objectives, to protect mailers from economic
hann caused by preferential treatment of other mailers. It is thus entirely rational
for the Commission to take into account the harm that would befall the
36
USCA Case #13-1229 Document #1468400 Filed: 1210212013 Page 46 of 58
complainant if a remedy is umeasonably delayed by further administrative
proceedings, especially where more expeditious remedies are available.
III. The Commission's Rate-Based Remedy Is Reasonable.
Rather than prescribe changes in manual processing ofDVD letter mail, the
Conunission elected to equalize the rates charged for round-trip DVD flat and
letter mail. lA. 300-303. The Postal Service argues that the resulting rates are
arbitrary and capricious because they: (I) are unsupported by adequate cost and
pricing infonmation, (2) have been imposed without consideration of the statutory
factors and objectives governing the Commission's regulation of market-dominant
products, and (3) impenmissibly discriminate against other customers using flat
mail by establishing special, reduced rates for DVD mail. See USPS Br. at 50-56.
Each of these contentions is incorrect.
A. The Postal Service Waived Its Objections To The Adequacy ofSupporting Price and Cost Infonmation, And The Record, InAny Event, Supports The Commission's Detenmination.
After deciding that it would impose a rate-based remedy, the Commission
directed the Postal Service to propose equalized rates for round-trip DVD mail and
to provide appropriate, supporting documentation. lA. 303-04. It thus instructed
the Postal Service to submit an equalized rate proposal within 30 days, along with
documentation consisting of a general description of the rates and how they
comply with the Court's opinion in GameFly I, the rate schedule and appropriate
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USCA Case #13-1229 Document #1468400 Filed: 1210212013 Page 47 of 58
modifications of the Mail Classification Schedule and Domestic Mail Manual, and
price cap calculations or an explanation as to why such calculations are
unnecessary. lA. 304-05, 307.
The Commission did not require that the rates equal the rates for First-Class
letters. It instead left the Postal Service free to propose equalized rates that would
be higher than the current rate for First-Class letter mail, and that would take
appropriate account of the cost characteristics of flat mail. It further ordered,
however, that if the Postal Service elected not to propose new equalized rates, the
Postal Service would be required to reduce the price for a two ounce, flat-shaped,
roundtrip DVD to the then current price of a one-ounce First-Class letter-shaped
DVD. lA.307.
In response, the Postal Service submitted a request to have round-trip DVD
treated as a competitive product rather than a market dominant product. lA. 327.
It did not make any proposal with respect to the appropriate rate for a market
dominant product complying with the Commission's remedial order. Nor did it
argue that the proposed, competitive product should be priced at a rate higher than
the then current rate for a First-Class letter. It instead proposed a single rate equal
to the rate for First-Class letter mail. See Request of the USPS Under Section 3642
38
USCA Case #13-1229 Document #1468400 Filed: 1210212013 Page 48 of 58
to Create Round-Trip Mailer Product, Attachment A at p.l. 3 The Postal Service
expressly represented that, at the proposed rate, the new product would cover its
attributable costs and be unlikely to diminish the collective contribution made by
all competitive products to the Postal Service's institutional costs. /d. at 2-3.
The Conunission, again citing the need for an expeditious remedy, accepted the
rates in the Postal Service's competitive product proposal as the rates appropriate
for market-dominant DVD mail and scheduled further proceedings on whether to
add round-trip DVD mail to the competitive product list. lA.373-74.
The Postal Service stresses that letters and flats are separate products with
separate cost characteristics. It asserts, in particular, that the prescribed rates are
unreasonable because they do not comply with statutory provisions requiring these
differences to be taken into account when regulating the price ofmarket dominant
products. USPS Br. at 51-52. It has waived this contention, however, by failing to
make any argument below with respect to the appropriate price of a market-
dominant DVD product complying with the Commission's remedial order.
3 We did not designate for inclusion in the joint appendix the attachments to thePostal Service's request to add DVD round-trip mail to the competitive productslist. The attachments are nonetheless part of the administrative record and maythus be considered by the Court. See FRAP 30(b)(I). The attachments areavailable at<http://www.pre. gov/Docs/87187436/3642%20Reguest%20(Final).pdf>.
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USCA Case #13-1229 Document #1468400 Filed: 1210212013 Page 49 of 58
A party challenging an administrative decision must raise its objections in
the administrative process in order to preserve them for judicial review. United
Slales v. L.A. Tllcker Truck Lines, Inc., 344 U.S. 33, 37 (1952). Here, the
Commission afforded the Postal Service an opportunity to propose an appropriate
price for a market-dominant product meeting the requirements of the
Commission's remedial order. The Postal Service was thus free to propose a rate
that: (I) recognized the new product required by the Commission's remedial order
would include First-Class, flat-shaped mail and, (2) took adequate account of the
unique cost and pricing characteristics associated with flat mail. The Postal
Service instead elected not to propose any market-dominant price at all.
"Simple fairness to those who are engaged in the tasks of administration, and
to litigants, requires as a general rule that courts should not topple over
administrative decisions unless the administrative body not only has erred but has
erred against objection made at the time appropriate under its practice." L.A.
Tllcker Trllck, 344 U.S. at 37. The Postal Service must consequently be deemed to
have waived its cost objections.
In any event, the rates prescribed by the Commission are consistent with the
statute and adequately supported by the record. The statute provides that in
regulating market-dominant products, the Commission must take account of a
range of objectives and factors. 39 U.S.C. § 3622(b) & (c). The statute also
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USCA Case #13-1229 Document #1468400 Filed: 1210212013 Page 50 of 58
requires the Commission to rectify undue discrimination among users of the mail
(39 U.S.c. §§ 403, 3622(c)) and to take account ofthis sfatutory policy against
discrimination when regulating market-dominant products. See 39 U.S.c. §
3622(c)(14)). No single factor or objective controls. Rather, each statutory
objective governing market-dominant products instead "shall be applied in
conjunction with the others * * *" 39 U.S.c. 3622(b). The Commission may
thus determine that, on balance, the need for an adequate remedy for
discrimination takes precedence over the other criteria governing regulation of
market-dominant products. Consequently, arguments that a discrimination remedy
is inconsistent with some of the objectives or factors governing regulation of
market-dominant products do not, standing alone, establish that the remedy
exceeds the Commission's statutory authority.
Even apart from that consideration, the Postal Service has failed to
demonstrate how the rate prescribed by the Commission fails to meet one of the
cost-related objectives or factors set forth in 39 U.S.C. § 3622 (b) & (c). Several
of the objectives and factors specified in section 3622 pertain expressly to rates.
The Commission must thus consider whether a rate appropriately allocates the
Postal Service's institutional costs between market-dominant and completive
products (§ 3622(a)(9)), whether the product bears its attributable costs
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USCA Case #13-1229 Document #1468400 Filed: 1210212013 Page 51 of 58
(§ 3622(c)(2)), and whether it will generate revenue that will assist the Postal
Service in maintaining its financial stability (§ 3622(b)(5)).
Here, the Postal Service's submission asserts that the rate it proposed for a
competitive product - the same rate ultimately accepted by the Commission for a
market-dominant product - meets these criteria. In particular, it advised the
Commission that the prescribed, single rate for DVD flat and letter mail would
meet the costs attributable to the new product and preserve the collective
contribution of competitive products to the Postal Service's institutional costs.
Request of the USPS Under Section 3642 to Create Round-trip Mailer Product,
Attachment A at pp. 2-3.
The Postal Service offers no explanation as to how a rate covering a
product's attributable costs would nonetheless be inconsistent with the section
3622 objectives and factors governing regulation of market dominant products.
Indeed, in a recent, post-decision submission to the Commission seeking price
increases for market-dominant products, the Postal Service represented that the
current rate structure, including the special rates for DVD round-trip mail ordered
in this proceeding, is consistent with the objectives and factors set forth in 39
U.S.c. § 3622. See USPS Notice of Market-Dominant Price Adjustment,
September 26, 2013, at pp. 2,11, available at
<http://prc.gov/docs/87/8 792I/Notice%20(Price%20Adjustment).pdf>.
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USCA Case #13-1229 Document #1468400 Filed: 1210212013 Page 52 of 58
The Postal Service's own submissions thus support the Commission's rate
detennination.
B. The Commission Reasonably Determined That Its Mandate ToRemedy Discrimination Takes Precedence Over Other CriteriaGoverning Regulation of Market-Dominant Products.
The Postal Service further asserts that the Commission erred by failing to
take account of other objectives and factors governing regulation of market
dominant products. It notes that section 3622 directs the Commission to consider
such matters as the Postal Service need for pricing flexibility, adequate revenue,
and whether postal rates are "just and reasonable" in regulating market-dominant
products. And it concludes that the Commission erred by prescribing a rate for
DVD mail without evaluating these statutory objectives and factors. USPS Br. at
53-54.
The Commission, however, correctly concluded that in light of GameFly I,
these statutory factors could not justify a continued disparity between the rate for
DVD letter mail and the rate for DVD flat mail. See JA. 299-301. In GameFly I,
the Commission concluded that operational changes to ensure nondiscriminatory
manual processing ofDVD letter mail would be infeasible. Thus, the only
practicable option was to adjust the rate charged for flat mail affording comparable
protection from DVD breakage. The Commission did not, however, equalize the
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USCA Case #13-1229 Document #1468400 Filed: 1210212013 Page 53 of 58
rates charged DVD letter mail and DVD flat mail. It instead allowed the Postal
Service to continue to charge a higher rate for DVD flat mail than letter mail.
In GameFly 1, the Commission, citing many of the same statutory provisions
cited by the Postal Service here, reasoned that other statutory factors and objectives
governing regulation of market-dominant products justified this continued pricing
disparity. Thus, in defending its initial remedial choice in GameFly 1, the
Commission argued that:
The Commission's mandate upon finding discrimination is to adoptsuch remedies as it deems "appropriate." In making thatdetermination, the Commission is free to consider the impact of aproposed remedy on other statutory interests. Those interests includeassuring revenues sufficient to maintain the Postal Service's [maneialstability (id. § 3622(b)(5)), preserving the Postal Service's authority todraw reasonable distinctions "within, between, or among classes ofmail" (Id. § 3622(b)(8)), preserving the simplicity of the rate structure(39 U.S.c. § 3622(c)(6)), and maintaining the Postal Service's pricingflexibility (id. § 3622(c)(7)). Thus, the Commission is not obligated toimpose, as a remedy for disparate treatment among DVD mailers, new ratesthat would blur the distinction between letter mail and flat mail.
GameFly 1, Conunission Br. at 48-49.
GameFly 1 rejected this reasoning. It instead held that if the Postal Service
forces a mailer to use flat mail by selectively denying it manual processing of letter
mail, it cannot rely upon the special characteristics of flat mail as basis for
charging a higher price. 1d., 704 F.3d at 148-49. On remand, the Commission
consequently concluded that it could no longer rely on its statutory authority to
take account of the special characteristics of flat mail as a basis for a continued
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USCA Case #13-1229 Document #1468400 Filed: 1210212013 Page 54 of 58
disparity in price. lA. 300. It instead held that the imperative to afford a complete
remedy for undue discrimination, in conjunction with the lack of a viable
operational remedy, compelled it to equalize the rates for DVD flat mail and letter
mail, notwithstanding other statutory provisions governing market-dominant
products. Ibid.
The Postal Service disputes this interpretation of the Court's opinion by
reiterating its contention that the Court mandated operational remedies addressed
to changes in the manual processing of letter mail and thus did not permit
consideration of rate-based relief in the fIrst instance. USPS Br. at 53. But as we
have shown above, that is simply not so. The GameFly I panel had before it a rate-
based remedy. It reversed, not because it deemed rate-based remedies
inappropriate per se, but because the Commission's prior rate remedy did not go
far enough, and because it found the Commission's explanation for the continued
rate disparity inadequate. GameFly 1,704 F.3d at 148-49. Contrary to the Postal
Service's position, the Court's mandate required the Commission to give
precedence to the need for a full remedy, notwithstanding the criteria that would
otherwise be considered in establishing market dominant prices.
C. The Prescribed Rate Adjustments Are Consistent With TheStatute And Nondiscriminatory.
The Postal Service [mally argues that the prescribed rate must be set aside
because it impermissibly modifIes a presumptively lawful rate for flat mail, and
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USCA Case #13-1229 Document #1468400 Filed: 1210212013 Page 55 of 58
because it is itself discriminatory with respect to other flat mail customers. USPS
Br. at 52-56. Both contentions are unavailing.
The Postal Service initially errs in asserting that the prior rate for DVD flat
mail was approved in the annual compliance review process established by 39
u.s.c. § 3653 and is therefore presumptively lawful. The prior flat mail rate - the
rate modified in the Commission order at issue here - was proposed and took
effect in January 2013. That rate, however, has not yet been subject to a section
3653 compliance determination. The 2013 rate has instead only been subject to the
Commission's provisional approval and is expressly subject to further review. See
39 C.F.R. 3010.ll(k). Further review may occur in the Annual Compliance
Determination referenced by the Postal Service, but that has not yet occurred and is
not scheduled to begin until December 2013. See 39 US.C. § 3652(a) (providing
that Postal Service must submit annual compliance reports within 90 days afler
close of pertinent fiscal year); 39 U.S.c. § 3653(b) (providing that Commission
must make compliance detennination within 90 days of receiving required cost
reports). The premise of the Postal Service's argument - that the Commission
order modifies a rate that has been approved in a section 3653 compliance
determination - is thus incorrect.
Moreover, the Postal Service misstates the Commission's authority to adjust
previously approved rates. The compliance review statute on which the Postal
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USCA Case #13-1229 Document #1468400 Filed: 1210212013 Page 56 of 58
Service relies makes clear that a prior finding of compliance establishes only a
rebuttable presumption of compliance in a section 3662 proceeding to remedy
complaints of discrimination. See 39 U.S.C. § 3653(e). A prior section 3653
determination that a rate complies with the statute thus does not constrain the
Commission's authority to make subsequent rate adjustments where necessary to
remedy discrimination.
Finally, the Postal Service errs in asserting the prescribed rate unduly
discriminates against non-DVD users of flat mail, who must now pay a higher
price for the same service. The Commission has statutory authority to establish
special classifications and services of mail as part ofa system for regulating
market-dominant products. 39 U.s.c. § 3622(b)(8). Its fmding of discrimination
and conclusion that it would be infeasible to order changes in the manual
processing of DVD mail support establishment of a special niche product for
round-trip DVD mail. Section 3622(b)(8) makes plain that such special
classifications are penmissible and not unduly discriminatory.
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USCA Case #13-1229 Document #1468400
CONCLUSION
Filed: 1210212013 Page 57 of 58
The Commission's decision should be affirmed.
Respectfully submitted,
OfCounse!:
STEPHEN L. SHARFMANGeneral Counsel
R. BRIAN CORCORANDeputy General Counsel
RICHARD A. OLIVERALLISON J.W. McDONALD
AttorneysPostal Regulatory CommissionWashington, DC 20268
48
STUART F. DELERYAssistant Attorney General
MICHAEL S. RAAB(202) 514-4053
/s/ JEFFREY CLAIR(202) [email protected]
Attorneys, Civil DivisionRoom 7243, Department ofJustice950 Pennsylvania Ave., N. W.Washington. D.C. 20530
USCA Case #13-1229 Document #1468400 Filed: 1210212013 Page 58 of 58
FRAP 32(3)(7) CERTIFICATE OF COMPLIANCE
I certifY that this brief has been prepared using a 14-point, proportionally
spaced font and that, based on word processing software, this brief contains 10,437
words.
/s/ Jeffrey ClairRoom 7243, Civil DivisionDepartment of Justice950 Pennsylvania Ave., NWWashington, D.C. [email protected](202) 514-4028
CERTIFICATE OF SERVICE
I certifY that on December 2, 2013, I served the foregoing Brief for the
Respondent by electronically filing the brief with the Court. As counsel for the
petitioner and intervenor are registered with the Court's Electronic Case Filing
System, the electronic filing of the Brief for Respondent constitutes service upon
them.
/s/ Jeffrey ClairRoom 7243, Civil DivisionDepartment of Justice950 Pennsylvania Ave., NWWashington, D.C. [email protected](202) 514-4028
49