GameFly wins two-year battle over "discriminatory" US mail fees

Video game rental company GameFly has won a two-year regulatory battle against the US Postal Service regarding “discriminatory” mailing fees compared to rivals Netflix and Blockbuster. The Postal Regulatory Commission issued a ruling yesterday that sided with GameFly, a Los Angeles-based company that allows customers to rent video games via a website, which are then sent out and returned through the First-Class Mail.

The order gives the USPS 60 days in which to set up new postal rates for round-trip DVD mailpieces, although the order could be appealed by the Postal Service.

DVDs are “frequently” damaged in USPS automated processing machines, and can cause machine-jams, and as a result are often hand-processed.

But in its ruling yesterday, the PRC said the USPS had unfairly waived non-machinable surcharges when manually processing Netflix and Blockbuster DVDs in the mailstream, while imposing the extra costs on GameFly.

“The Commission concludes that the Postal Service has unduly discriminated against GameFly,” said the Commission after considering “extensive” testimony from both sides.

“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.”

Order

To comply with the PRC’s order, the Postal Service must now set up two parallel postal rate categories for round-trip DVD mailpieces within the next 60 days.

One of these categories would be for pre-sorted First-Class Mail letters, for items sent to subscribers, which would not be subject to non-machinable surcharges when returned. The other category would be for DVDs mailed as First Class Mail flats, but would not be subject to an additional ounce charge.

However, the PRC told Post&Parcel today that its rulings could always been taken to the law courts, and the US Postal Service could therefore appeal the GameFly verdict.

Regarding the order to remedy the GameFly situation within 60 days, PRC spokesman Norman Scherstrom said: “They could seek some sort of judicial restraint on that”. The USPS has not responded to requests for comment on the case.

A spokesperson for GameFly told Post&Parcel today: “We are currently reviewing the details in the PRC decision and will take several weeks to determine our next steps, if any.” Lawyers at the USPS were similarly reviewing the PRC ruling today, with a spokesman confirming the matter was “under consideration”, but adding that he was unable to comment further at this time.

GameFly

GameFly was founded back in 2002, working with the USPS on a number of issues during its first few years, not least the theft of its DVDs from the mailstream and damage from processing.

Its envelopes were designed to blend in with other mail, with heavier cardboard to protect against automatic processing machines. But, the design meant pieces were viewed by the Postal Service as two-ounce flats, rather than single-ounce letters, adding a 61-cent extra charge for a single First Class Mail trip.

Since 2007, the company had been asking for a special rate for round-trip DVD mailings to help it avoid paying the two-ounce rate.

Refusals from the USPS saw GameFly seeking legal action, with a complaint being made to the PRC in April 2009 based on alleged discrimination compared to DVD mailers Netflix, and to a lesser extent Blockbuster.

In its evidence, the USPS argued that GameFly had never requested manual processing of its mail, and that its fees were based on the two-ounce flats design of its mailpieces.

USPS denied making commitments to Netflix and Blockbuster on a minimum amount of hand sorting for their mailpieces, stating that its local processing units made the decisions on manual processing in order to cut costs and prevent machine jams, and that Netflix and Blockbuster DVDs were more easily hand-sorted because of their distinctive appearances.

In its ruling yesterday, the Commission disagreed with the Postal Service, dismissing some of its testimony for being based on “no credible evidence”, and casting doubt on key contentions, such as that manual sorting of Netflix and Blockbuster DVDs helped cut costs.

Hammond

Commissioner Tony Hammond said in a personal view on the case that the multiple USPS defenses had been “at best, strained”, criticising the Postal Service for seeking to absolve itself of responsibility for decisions taken by its local processing units.

Nevertheless, the Commissioner pointed out that the discriminatory practices found by the PRC ruling had been the result of the USPS working with Netflix to improve its use of the mail.

He said he had “reluctantly” concurred with his fellow commissioners in the ruling since he was concerned it might discourage the USPS from working with other mailers to improve their use of the mail.

“The Postal Service worked with a customer, Netflix, to help its business thrive through the use of the mail,” Hammond said. “Netflix explained to the Postal Service what treatment would be most helpful to it. There is nothing wrong with that. In fact, the Postal Service should encourage this type of communication.

“I hope this decision does not discourage the Postal Service from helping businesses to use the mail.”