USPS loses appeal in Netflix/Gamefly case

From The Hill:

The U.S. Postal Service cannot remove the cap and hike prices on the mailers that Netflix and GameFly use to ship their rentals to customers, the U.S. Court of Appeals for the D.C. Circuit ruled Tuesday.

netflixA three-judge panel ruled that the post office dominates the market in the round-trip mailers used by Netflix and others because companies like Fed Ex and UPS do not offer similar services. Because of that, the Postal Service cannot remove the “statutory price ceiling” on those shipments.

The ruling is a win for GameFly and Netflix.

Read the full story: Overnight tech: Netflix wins victory over Postal Service | TheHill

Netflix Postal Advantage Comes to an End

(CN) – The D.C. Circuit approved the Postal Commission’s plan to end DVD-mailer discrimination – and Netflix’s favored status at the U.S. Postal Service – by equalizing the postage for DVD flats and letters.

Last year, the D.C. Circuit ended the U.S. Postal Service’s favoritism toward Netflix mail, which sorted Netflix DVD-mailers by hand, free of charge, while sending other companies’ DVD-mailers through automated processing machines.

GameFly, a video game rental service, challenged the Post Office’s bias in court, claiming that automatic processing often damages DVDs, requiring Gamefly to package their discs in heavier – and therefore, more expensive – cardboard packaging.

Read more: Courthouse News Service.

Boston Mail Handler Arrested for Stealing Gamefly Discs From the Mail

uspsoigBOSTON – Federal charges against a former postal worker from Dorchester were unsealed today in U.S. District Court.

On July 30, James L. White, 38, was indicted for theft of mail by a postal employee. It is alleged that from July through November 2012, White, while working as a mail handler at the Boston General Mail Facility, stole GameFly video games from the mail. White was arrested today and his initial appearance is at 2 p.m.

The offense with which White is charged has a maximum penalty of five years in prison, followed by three years of supervised release and a $250,000 fine.

United States Attorney Carmen M. Ortiz and Rafael Medina, Special Agent in Charge of the United States Postal Service, Office of Inspector General for the Northeast Area Office, made the announcement today. The case is being prosecuted by Assistant U.S. Attorney Eugenia M. Carris of Ortiz’s Public Corruption and Special Prosecutions Unit.

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…

Gamefly asks PRC to hurry up- postage dispute is eating into its profits

In a letter to Postal Regulatory Chairman Ruth Goldway, Gamefly CEO David Hodess has asked the PRC to expedite its consideration of Gamefly’s appeal against the USPS’s alleged discrimination against the company. Gamefly, which rents game DVDs by mail, claims that the USPS gives preferential treatment to Netflix:

I am writing to you to request that the Commission do what it can to expedite its decision in the GameFly complaint proceeding. GameFly frled this complaint nearly two years ago. Before that, GameFly spent 18 months working with the Postal Service in an attempt to resolve informally the issues on which the complaint was based.

I understand that the Commission has competing demands on its resources. Delay in resolving the case, however, is costly to GameFly. At the company’s current volume of approximately 1.2 million shipments per month, the difference between the two-ounce flats rate of $1.05 that GameFly must pay to avoid automated letter processing for most of its DVD mailers, and the one-ounce letter rate of $0.44 that Netflix pays to avoid automated letter processing of return mailers, amounts to about $730,000. This amount represents more than 100% of GameFly’s monthly net income in 2011.

Respectfully submitted,
David Hodess
President and CEO