Press release from Postal  Regulatory Commission:

Washington, DC –The Postal Regulatory Commission today issued Order No. 718, in the Complaint of Gamefly, Inc. (GameFly) against the United States Postal Service, concluding that the Postal Service has unlawfully discriminated against GameFly.

The Commission directed the Postal Service to modify its Mail Classification Schedule for round-trip DVD mail. The Postal Service was given 60 days to implement the remedy. This is the first case decided under the Commission’s new complaint process. The full decision can be found at www.prc.gov.

EXECUTIVE SUMMARY

In this proceeding, the Commission considers a complaint filed by GameFly, Inc. (GameFly), a firm that rents and sells video games recorded on DVDs.In its Complaint, GameFly alleges that it is the victim of undue discrimination by virtue of Postal Service violations of 39 U.S.C. sections 101(d), 403(c), 404(b) and 3622(b)(8).

GameFly mails DVDs to its customers via First-Class Mail. Customers return DVDs to GameFly via First-Class Mail Business Reply Mail. Both outgoing and incoming GameFly DVD mailers enter the mailstream as flats. GameFly alleges that two other DVD mailers, Netflix, Inc. (Netflix) and Blockbuster, Inc., (Blockbuster), both of which send and receive DVDs by letter mail, are accorded undue processing preferences and rates. Specifically, GameFly alleges that both Netflix and, to a lesser extent, Blockbuster receive hand processing at no additional charge and that GameFly is denied these or comparable benefits. GameFly asserts that these actions constitute unlawful preferences and/or discrimination.

Upon consideration of the evidentiary record and the arguments made in the initial and reply briefs of the parties, the Commission concludes that the Postal Service has unduly discriminated against GameFly in violation of 39 U.S.C. 403(c). In reaching this conclusion, the Commission expressly rules on GameFly’s right to file its Complaint (see section IV.A.); discusses the legal standards for evaluating claims of discrimination and the filed rate doctrine invoked by GameFly (see sections IV.B. and C.); and evaluates the fact-based issues raised by the parties (see section IV.D.). In this latter section, the Commission confirms evidentiary rulings made by the Presiding Officer; finds that GameFly is similarly situated to Netflix and Blockbuster; concludes that Netflix and Blockbuster have been given a number of preferences, including various forms of manual processing coupled with the avoidance of the non-machinable surcharge; and determines that the Postal Service has failed to present adequate and legitimate justifications for these preferences.

DVDs returned by subscribers to Netflix in its prepaid letter-sized mailers are non-machinable, and are frequently damaged or cause machine jams. DVDs returned by subscribers to GameFly also are damaged from processing on automated letter processing equipment. The Postal Service separates and hand processes a substantial proportion of Netflix’s returns without imposing a non-machinable surcharge. The Postal Service is unwilling to hand process GameFly’s returns causing GameFly to incur an additional ounce charge on its mail, which the Postal Service refuses to waive.

To remedy this unreasonable preference, the Commission orders the Postal Service to establish two parallel rate categories within First-Class Mail for roundtrip DVD mail. One category establishes that DVDs sent as presorted First-Class Mail letters to subscribers will not be subject to the non-machinable surcharge when returned. The other rate category provides that DVDs mailed as First-Class Mail flats to and from subscribers will not be subject to an additional ounce charge.

The Postal Service is given 60 days to implement this remedy.

PRC Gamefly Decision Order NO. 718