Appeals Court rules in favor of Gamefly in Netflix/USPS dispute

The DC Circuit Court of Appeals has ruled in favor of Gamefly in its dispute with the US Postal Service and the Postal Regulatory Commission. The Court ruled that the USPS gave special treatment to Netflix DVDs, while refusing GameFly the same level of service for its DVDs. The Court summarized the dispute:

Because the disks are small and light, they qualify for mailing in one ounce letters through the Postal Service. Unfortunately for GameFly, but as it develops not Netflix, the Postal Service’s automated mail processing often damages the DVDs— particularly on the return trip. Conversely, DVD mailers tend to jam the Postal Service’s automated letter sorting equipment. Again, this has been to the detriment of GameFly but not Netflix. The Postal Service has saved Netflix— apparently its biggest DVD mailer customer— from this crippling otherwise industry-wide problem by diverting Netflix mail from the automated letter stream, shifting it to specially designated trays and containers, hand culling it, and hand processing it. Rather obviously, this is not without cost to the Postal Service. Nonetheless, the Service provides it to Netflix free of charge.

GameFly has requested that the Postal Service extend to its mailings the same treatment afforded Netflix. The Postal Service has refused…

Gamefly asked the Postal Regulatory to intervene in 2009. The Commission, known for its sluggish decision making process, took two years to come up with a fairly incomprehensible decision that basically said GameFly was right, but failed to eliminate the discrimination:

The Commission rejected both of GameFly’s proposed remedies and fashioned one of its own instead. First, it ordered the Postal Service to waive the 20-cent second-ounce charge for DVDs mailed as flats. Second, it ordered the Postal Service to refrain from imposing a nonmachinable surcharge on any qualifying round-trip DVD mailer that is sent as letter mail and that weighs one ounce or less. The Commission acknowledged that its order could still require GameFly to “continue to generate more than double the contribution per piece than Netflix mail,” but it explained that “the remaining rate disparity is reasonable in light of the differences between the letter-shaped and flat-shaped roundtrip DVD mailers.” GameFly petitioned for review of the Commission’s order.

Not surprisingly, the Appeals Court has found the PRC’s decision to be “arbitrary and capricious”, because it did nothing to remedy the discriminatory practices of the USPS.

Unfortunately for GameFly. the remedy provided by the Court is to send the case back to the PRC- and it didn’t set a deadline for coming up with a better decision…