By: Brian Gauthier
In U.S. Postal Service v. Postal Regulatory Commission, the D.C. Circuit refused to grant review of an appeal brought by the U.S. Postal Service (hereinafter, “the USPS”) where the Postal Regulatory Commission (hereinafter, “the Commission”) denied the Service’s request to re-classify its “round-trip mailers.” The round-trip mailer is a product that is only sold by the USPS; competitors United Parcel Service (UPS) and Federal Express (FedEx) do not offer this service. Indeed, intervener Netflix accounts for 97% of sales of the round-trip mailer by the USPS.
The USPS formally requested that the Commission reclassify round-trip mailers from their previous “market dominant” product classification to the “competitive” classification. Market dominant products are subject to a statutory price ceiling, where competitive products are subject only to a statutory price floor. The USPS’s rationale was that by having the round-trip mailers keep their “market dominant” status, the USPS would continue losing money on them without being able to compensate, as they were statutorily barred from adjusting prices on round-trip mailers.
In denying the USPS’s request, the Commission stated that USPS “exercised sufficient power within that market to justify a market-dominant classification,” since there were no other competitors who provided products similar to the round-trip mailer.
The USPS felt that the Commission made too much of the difference between streaming services and DVD-by-mail customers, arguing that anti-trust laws had traditionally recognized different products that serve the same or substantially similar purposes as being a part of the same market. First, the USPS argues that as popularity in DVD-by-mail products wanes, the number of streaming customers for Netflix and GameFly increases. The USPS argues that a substantial substitution of one product for another is taking place in the market, and thus the streaming services would have the effect of policing the price the USPS can charge for “round-trip mailers,” mitigating market power.
Additionally, the USPS claimed that the Commission too narrowly defined the group of DVD-by-mail consumers. This unfair definition, the USPS claims, does not take into account the constraints on the USPS in setting its price for the round-trip mailers.
In the alternative, the USPS argued that Netflix can and does exert a strong countervailing buying power, since they are essentially the only customers of the round-trip mailers and it is this power that would help regulate the price.
Under federal law, the USPS is limited in how it sells its products when it controls a majority of the market:
“[t]he market-dominant category of products shall consist of each product in the sale of which the Postal Service exercises sufficient market power that it can effectively set the price of such product substantially above costs, raise prices significantly, decrease quality, or decrease output, without risk of losing a significant level of business to other firms offering similar products. The competitive category of products shall consist of all other products.
The Court of Appeals for the D.C. Circuit noted that deference should be given to the agency – in this case, the Commission – for their own interpretation of the law. The Court found two fatal flaws with the USPS’s arguments. First, that regardless of the downstream market, the USPS controlled the upstream market entirely, since no other company sold the round-trip mailers. Second, the Court found that the plaintiff, USPS, had not produced any evidence to show “at what point an increase in the price the Service charged would cause Netflix and Gamefly to look elsewhere for distribution.” Ultimately, the D.C. Circuit upheld the Commission’s decision, maintaining the “market dominant” classification for the round-trip mailers.
This case has implications for the future of the postal service. Without the flexibility to self-regulate prices for its services, competitors like UPS and FedEx may try to carve out more of its market. It remains to be determined whether Netflix will continue to use round-trip mailers, as more and more individuals move towards streaming services. Generally, the lack of autonomy that the USPS has in regulating its own finances makes it unlike most other businesses trying to turn a profit. As a result, the postal service could face increasing difficulty in remaining a solvent enterprise.
 No. 15-1018, 2016 WL 1104748 (D.C. Cir. Mar. 22, 2016).
 Id. at *1.
 Id. at *2.
 39 U.S.C.A. § 3542(b) (West).
 U.S. Postal Service, 2016 WL 1104748 at *3.
 Id. at *4.
 Id. at *5.