Amicus Curiae Brief — Postal Service v. Flamingo Industries (USA) Ltd.

In The

Supreme Court of the Gnited States

¢

UNITED STATES POSTAL SERVICE,

Petitioner,

Vv.

FLAMINGO INDUSTRIES (U.S.A.) LTD.

AND ARTHUR WAH,

Respondents.

On Writ Of Certiorari To The

United States Court Of Appeals

For The Ninth Circuit

+

BRIEF OF POSTALWATCH

INCORPORATED AS AMICUS CURIAE

SUPPORTING RESPONDENTS

o

WILLIAM S. STANCIL

Counsel of Record

Suite 600, 1717 K St., NW

Washington, DC 20036

(202) 508-1042

Counsel for Amicus Curiae

COCKLE LAW BRIEF PRINTING CO. (800) 225-6964

OR CALL COLLECT (402) 342-2831

—— ee

TABLE OF CONTENTS

Page

EE CPI dctivrecscecnscnscesccncconscsscnessnsuonees i

TABLE OF AUTHORITIES .................:ccccsseeesssseeeeees ili

INTEREST OF AMICUS CURIAE ..............cccesseeeeees 1

SUMMARY OF ARGUMENT................:ccccseseeeeeeeeeees 1

ARGUMENT:

I. USPS is a substantial, competitive commer-

cial person that fiercely competes in a num-

ber of markets, though it persistently seeks

to deny that status and don the cloak of sov-

ereignty to avoid restraints on anticompeti-

| a TN 3

II. The Postal Service today represents but a

fraction of a large and proliferating set of

communication and transportation services

which bind the nation together, and link the

nation with others. None of these services

require sovereign status for their provision... 8

III. USPS seeks impermissible blanket immunity

from the antitrust laws for anticompetitive

conduct in any and all lines of commerce....... 12

IV. The Circuit Court’s “conduct based immu-

nity” approach is a reasonable, and neces-

sary, means of reconciling the governmental

mandate of monopoly mail delivery, and the

application of the fundamental national pol-

icy of competition to conduct not within the

necessary scope of that mandate.................... 18

li

TABLE OF CONTENTS - Continued

Page

V. The practical, or operational, justifications

offered for antitrust immunity lack eviden-

tiary basis, are self-serving as to USPS’s

proprietary interests, and are inconsistent

with USPS’s own management practices ....... 20

CONCLUSION ..0ccccccccccccoccccresecenenssssnsesssensessennnnnnnnnn 22

-~ eae —

——~—s1e ee

TABLE OF AUTHORITIES

Page

CASES:

Otter Tail v. United States, 410 U.S. 366 (1977)............... 18

Standard Oil Co. v. Federal Trade Commission, 340

crs rrcnrccenmeenensscceseccccoocece 18

U.S. v. Topco Assoc., Inc., 405 U.S. 596 (1972).............000+- 18

Federal Express Corporation v. United States Postal

Service, 151 F.3d 536 (6th Cir. 1998) .0.0............cceceeeeeeeees 7

Global Mail Ltd. v. United States Postal Service,

142 F.3d 208 (4th Cir. 1998)...............ccscccccesssrerssssssseeeress 7

MCI Communications Corp. v. Am. Tel. & Tel. Co.,

ee 18

CONSTITUTIONAL PROVISIONS:

| TT TD 9

STATUTES AND REGULATIONS:

Administrative Procedures Act 5 U.S.C.

ee 4

air reccnenenseencsnunsssnscsesces 4

Postal Reorganization Act, Pub. L. No. 91-375 (39

U.S.C.)

Se Ti occcncnsseccccensereccsscssesssessccsecsscccosccccosoocseoreee 4

SETI TiN hcrrecnccessccceseevssscenssesceesossescosceocececeoces 5

Domestic Mail Manual, Delivery to CMRA (39

EE 19

iv

TABLE OF AUTHORITIES — Continued

Page

OTHER AUTHORITIES:

ComputerUser.com, Study — 55 percent of world’s

Web traffic non-U.S. (January 25, 2001) at http://

www.computeruser.com/news/01/01/25/news6.html.........

Peter J. Ferrara, Free the Mail: Ending the Postal

Monopoly, Cato Institute (1989) ..............:cccccceeeseeeees

Rick Geddes, Neither Snow Nor Sleet ... Can

Dampen This Monopoly, Hoover, Digest No.

2-2000, (2000) available at http://www-hoover.

stanford.edu/publications/digest/002/geddes.htm!........

General Accounting Office, U.S. Postal Service

Issues Related to Corporate Governance, GAO

Report No. GGD-97-141, at 2 (August 1997).................

InfoWorld Magazine, You’ve got mail: 60 billion

a day by 2006 (September 6, 2002) at http://

archive.infoworld.com/articles/hn/xml/02/09/26/020

926hnemail6b.xml?s=IDGNS ..............cccccceererereeeeeeeeeeees

International Data Corporation, Worldwide Email

Usage Forecast, 2002-2006, IDC Doc #27975

(September 2002) at http://www.idc.com/getdoc.

jhtml?containerld=27975&pid=35 178981 ...............000+

Postal Rate Commission, Petition of Consumer

Actions for Review of Unclassified Services, PRC

Docket No. *2003 (October 15, 2002) available at

http://www. prc.gov/dockets.asp?node=dbt&ID=%2A

I ccoccscasccensecncccenasnctenssmenmennnsesnesenmmmmeanemmnensemunnts

Vv

TABLE OF AUTHORITIES — Continued

Postal Rate Commission, Comments of the Com-

puter & Communications Industry Association on

the Motion of the Office of the Consumer Advocate

to Request That the Commission Institute a Pro-

ceeding to Consider the Postal /Nonpostal Char-

acter of Specified Services and the Establishment

of Rules to Require a Full Accounting of the Costs

and Revenues of Nonpostal Services, PRC Docket

*2003, (January 28, 2003) available at http://

www.prc.gov/docs/36/36838/CCIA_PRC_comments.

~~

Postal Rate Commission, Comments of United

States Postal Service on Consumer Action Peti-

tion, PRC Docket No. *2003 (January 1, 2003)

available at http://www.prc.gov/docs/36/36904/

Postal Rate Commission, Substantive Comments of

the United States Postal Service, PRC Docket No.

RM2003-3 (July 2, 2003) available at http://www.

pre.gov/docs/38/38562/Substantive.comments.final.

DTI cccscniatantusnitestsremamusnmnementnenmenimmenumennenmness

President's Commission on The United States

Postal Service, Embracing the Future, at 18

(July, 2003) available at http://www.treas.gov/

offices/domestic-finance/usps/pdf/freport. pdf ..........

President's Commission on the United States

Postal Service, Statement of James I. Campbell,

at 22 (February 20, 2003) available at http://www.

treas.gov/offices/domestic-finance/usps/testimony-

USPSComments_CA-OCA_Petn.pdf ..................000+

Page

vi

TABLE OF AUTHORITIES — Continued

Page

Michel Schuyler, Antitrust Law and the Postal

Service, Institute for Research on the Economics

of Taxation (August 25, 2003) at ftp://ftp.iret.

ET cnrcetivintatrcncninicnsinannennimemnnees 12

Sidak and Spulber, Protecting Competition From

the Postal Monopoly, AEI Press (1996)..................000e00++ 11

U.S. Census Bureau, 2001 Service Annual Survey

(Feb. 2003) at pp. 8, 16 and 17, available at http:

/www.census.gov/svsd/www/sas0 Irpt.pdf...................... 9

U.S. Postal Service 1998 Annual Report at 57................... 9

U.S. Postal Service 2001 Annual Report at 21................... 9

U.S. Postal Service Office of Inspector General,

Review of the Revised Rules Governing Commer-

cial Mail Receiving Agencies, Audit Report DE-

AR-01-002, (April 4, 2001) available at http://

www.uspsoig.gov/foia_files/DE-AR-01-002%20%20

Revised%20Rules%20Governing%20Commercial%

IIIT cnssnnteinsnsineiinanntenimenianemisenntianmnnenense 19

Wickwire Gavin, What are the major differences

between USPS’s purchasing regulations and those

of other federal agencies? at http://www. wickwire.

com/practice/postal/postalfaqs. htm#dozen ....................++. 5

mew 4

1

INTEREST OF AMICUS CURIAE'

PostalWatch Incorporated (“PostalWatch”) is a not-for-

profit Virginia corporation organized in 1999, and exempt

from income tax under § 501(c)(4) of the Internal Revenue

Code. The principal functions of PostalWatch are to

monitor, report to the public and policymakers on, and

comment upon the operations, regulatory actions and

competitive activities of the United States Postal Service.

PostalWatch seeks to encourage honesty, efficiency, and

responsiveness to public needs on the part of the Postal

Service. PostalWatch seeks to discourage wasteful, unnec-

essary and anticompetitive activities by the Postal Service,

which could stifle and distort gee across broad

areas of the economy.

4

SUMMARY OF ARGUMENT

The issue in this case has broader dimensions and

implications than either party has explicitly or fully

addressed, or the Ninth Circuit fully explicated.

USPS has become a commercial entity, an economic

person, with actual and potential effects on many markets,

not merely those affected by procurement decisions. In

broader context, in its current form and in essential function,

USPS is part of a large and progressively proliferating set of

* PostalWatch files this brief with the consent of all parties. The

letters granting consent have been filed with the Court. No counsel for

a party authored this brief in whole or in part, nor did any person or

entity, other than PostalWatch or its counsel, make a monetary

contribution to the preparation or submission of this brief.

2

communications and transportation services available to

the public. Such services do not require sovereign status

for their provision.

Increasingly beset by direct and indirect competition,

USPS has expanded into lines of commerce beyond the

scope of those mandated it by Congress. However, the

protections from competition currently provided USPS’s

mail delivery functions afford it unique opportunities to

stifle and distort competition in markets directly related to

mail delivery and in other communications and transpor-

tation services. Any broad status-based exemption from

the antitrust laws for activities outside its congressionally

mandated mail delivery function, in any line of commerce,

would create broad anticompetitive potentials subject to

no adequate check.

The antitrust laws embody the fundamental national

policy in favor of a competitive economy, which is to be

given the broadest feasible applicability. The construction

of Congress’s specification that the Postal Service may

“sue and be sued” to allow applicability of the antitrust

laws to anticompetitive USPS activity, while maintaining

“conduct based” antitrust immunity tailored to the precise

contours of Congress’s grant of a charter to perform mail

services with an attendant monopoly, would effect a

necessary and appropriate accommodation of relevant

policies — indeed, the only rational resolution under

current conditions.

The rationales for exemption from the antitrust laws

offered by the Solicitor General on behalf of the Postal

Service have little weight, are self-serving, and are incon-

sistent with its own administrative practice.

¢

ARGUMENT

I. USPS is a substantial, competitive commer-

cial person that fiercely competes in a num-

ber of markets, though it persistently seeks to

deny that status and don the cloak of sover-

eignty to avoid restraints on anticompetitive

conduct.

The Postal Reorganization Act of 1970 (PRA) specifi-

cally formulated the Postal Service as to operate less as a

government entity and more along the lines of a business.

Several features of that architecture, with which Postal-

Watch has become familiar in its observations of the

USPS’s operation, should be appreciated to give adequate

scope to this formulation under current conditions.

The Act set up a Board of Governors, which is analo-

gous to a Board of Directors, under which functions, a

chief executive officer — the Postmaster General.

The Service was to recover its operating expenses

from charging postage fees for its services in the market,

rather than to be funded by congressional appropriations.

Though it was allowed to borrow from the Treasury, the

legislative design clearly mandated the Service be self-

sustaining and breakeven over time.

The rates of the USPS are governed in a fashion

similar to the practice in regulated industries where

limited grants of monopoly have been allowed commercial

entities — that is, through the use of a rate-reviewing

commission: in this case the Postal Rate Commission. The

scope of this Commission’s authority is currently, however,

more limited than those of traditional regulatory agencies,

in that it operates largely in an advisory capacity.

4

In support of the business-like formulation, Congress

freed the Postal Service from direct Executive Branch

influence. In addition, Congress mandated that USPS be

self-sustaining and thus divorced from the Congressional

controls inherent in the appropriations process. In further

support of the business-like formulation, the PRA took

USPS off-line from normal agency-like oversight and

removed it from “Agency” status as defined in the Admin-

istrative Procedure Act (APA).’

Application of other laws (a) Except as provided

by subsection (b) of this section, and except as

otherwise provided in this title or insofar as such

laws remain in force as rules or regulations of

the Postal Service, no Federal law dealing with

public or Federal contracts, property, works, offi-

cers, employees, budgets, or funds, including the

provisions of chapters 5 and 7 of title 5, shall ap-

ply to the exercise of the powers of the Postal

Service.’

The USPS exemption from the Administrative Procedure

Act, taken with the APA's distinction between those

entities subject to its scope (agencies), and those not

(persons), suggests that the USPS should be treated as a

“person” rather than an “agency” in the situation pre-

sented this Court.

* 5 U.S.C. § 551 — Defimtions — (1) “agency” means each authority

of the Government of the United States, whether or not it is within or

subject to review by another agency, but does not include ... (2)

“person” includes an individual, partnership, corporation, association,

or public or private organization other than an agency.

* 39 U.S.C. § 410 —- Application of other laws.

yr are =O ER, PT 8 y

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5

The USPS values and frequently exploits its non-

agency personhood, regularly claiming the status and

characteristics of a commercial entity where that is to its

advantage.

In claiming exemption from the Administrative

Procedures Act, USPS does not comply with the Paper-

work Reduction Act or the Small Business Regulatory

Flexibility Act. USPS regularly claims to be exemption

from agency rulemaking notice anc tomment require-

ments and is not required to adhere to normal governmen-

tal purchasing procedure and controls.‘

The Service regularly denies’ Freedom of Information

Act (FOIA) requests, citing a FOIA exemption‘ for “infor-

mation of a commercial nature.”

The USPS regularly registers its trademarks and

copyrights, has abandoned its governmental www.usps.gov

web address in favor of the commercial www.usps.com and

regularly sells, licenses or otherwise profits from the

commercialization of its intellectual property. It generates

tens of millions of dollars from the licensing of its change-

of-address database, address correction data: and stamp

artwork for commercial reproductions sold to the public.

* See Wickwire Gavin, What are the major differences between

USPS’s purchasing regulations and those of other federal agencies? at

http://www.wickwire.com/practice/postal/postalfaqs.htm#dozen.

* For the USPS’s perspective on its FOIA exemption see: Postal

Rate Commission, Substantive Comments of the United States Postal

Service, PRC Docket No. RM2003-3 (July 2, 2003) available at

http://www.prc.gov/docs/38/38562/Substantive.comments.final.rev.doc.

* 39 U.S.C. § 410(cX2).

6 | 7

Taking all these factors and others into account, the | is not a “person” continues a consistent course of action

General Accounting Office has characterized the Postal | that has been rejected by several lower courts.

Service as a “corporation-like organization”.’ ag mee

é e 6th Circuit als Court in Federal Express

It is true, as the Solicitor General suggests in his brief Corporation v. Stet dee Postal Service, 151 Rsd 536

that in 1970 Congress surely intended that the USPS : (6th Cir. 1998) observed a recurring pattern of behavior:

continue a service widely depended upon by the general

public. It is also true that the USPS is limited to a signifi-

cant degree in its management discretion as to facilities,

rates and other matters directly related to its letter-mail

monopoly. These limitations are largely symmetrical with

and counterbalanced by its protections from competition.’

As previously indicated, this circuit adopts the

well reasoned decisions of the Fourth and Eighth

Circuits, which refute USPS’r contention that it

is not a “person” accountable for its misdeeds -

proscribed by the Lanham Act. In its arguments,

the Postal Service has illustrated a penchant of

some federal government agencies and officers to

proactively seek the benefits and protections af-

forded by the law while simultaneously endeav-

oring to avoid the responsibilities and burdens

imposed by legal restraints and standards of

conduct, which constrain others. In this case, de-

spite its apparent vigorous participation, as a

quasi-private enterprise, in roiling free market

competition with private sector commercial

document carriers, the Postal Service has hastily

elevated the shield of governmental privilege

when accused of competitive wrongdoing... .

Congress did not intend to launch [USPS] into

the commercial world and also to immunize

USPS from liability for federally-created com-

mercial torts such as the Lanham Act.

In rejecting similar immunity claims in the 1998 tort

action Global Mail Ltd. v. United States Postal Service,

142 F.3d 208 (4th Cir. 1998) the Fourth Circuit concluded,

- These factors recognized, it is obvious that Congress

moved in the direction of making the Postal Service

operate along the lines of commercial enterprises, and in

doing so waived sovereign immunity for commercial

conduct. As the 9th Circuit Court observed, in this context

the “sue and be sued” clause of U.S.C. 39 should be com-

pelling evidence of Congressional intent that the USPS

respond to those laws which generally govern commerce in

the United States.

The USPS’s effort in this court to remove itself from

constraints on anticompetitive conduct by asserting that it

” General Accounting Office, U.S. Postal Service Issues Related to

Corporate Governance, GAO Report No. GGD-97-141, at 2 (August

1997).

* Whether these symmetries and counterbalances in fact work out

well in an increasingly diverse and competitive United States market is

by no means currently clear or assured in the future. This version of the

“regulato pacts” long prevalent in the United States be | , '

miu, 0 has comund i ow areas. r we enent ply USPS is not an enterprise that occasionally af-

debates on the future of the postal monopoly. fects commercial firms indirectly in its endeavors.

Rather, the language and the legislative history of

the PRA make clear that Congress intended USPS

8

to be a full-fledged competitor in the business of

carrying letters, parcels and packages, and USPS

has fulfilled that intention by competing head-to-

head with a host of private courier services... .

In sum, we hold that § 409(c) does not limit the

PRA’s waiver of sovereign immunity such that

USPS is liable in tort only for those torts cogni-

zable by the FTCA.

The Sherman Act is designed primarily to protect

competition, rather than competitors. But firms through-

out the economy have a protected interest in the opportu-

nities available in competitive, unconstrained markets.

And the general public has an interest in the benefits of

such free and fair competition. Such competitive opportu-

nities and public benefits will not be available in full

measure where the USPS is allowed to participate in

private competitive markets yet evade antitrust strictures

by denying “personhood.”

II. The Postal Service today represents but a

fraction of a large and proliferating set of

communication and transportation services

which bind the nation together, and link the

nation with others. None of these services re-

quire sovereign status for their provision.

In this proceeding, the Postal Service attempts to cast

its role as “quintessentially sovereign.” If that were ever

the case, it is no longer the case in the today’s communica-

tion and transportation environment.

When the Constitution was cast, its essence was to

link together diverse states into one political and commer-

cial entity. It therefore endowed Congress with the ability

9

to facilitate commerce between the States in general,

including communications. Thus, in Article 1, Chapter 8,

Clause 7, Congress was authorized, not directed, “To

establish Post Offices and Post Roads”. This was a limited

grant of authority, upon which Congress expanded to

create the modern-day Postal Service.

Communication capabilities were relatively limited in

1789. But during the past two centuries, means of com-

munications have proliferated greatly. Progressively,

telegraph, telephone, “facsimile”, radio, television, “cou-

rier” services, and now the Internet continue to weave an

ever-denser web of communications services binding the

Nation together.

The Postal Service’s share of this expanding commu-

nication sector was 10 percent in 2001, trending down-

ward from nearly 12 percent in 1998."

The “e-mail” feature of the Internet, taken alone, now

accommodates roughly twenty-two times the message

* In 2001, “Broadcasting and telecommunications” (1997-NAICS

513), “Couriers and messengers” (1997-NAICS 492), “Online informa-

tion services” (1997-NAICS 514191), and the Postal Services (1997-

NAICS 491110) generated revenues totaling $642.6 billion, of which

USPS’s $65.8 billion represented 10.2 percent. The Postal Service’s

share of these categories continues to trend downward from 1998 when

revenues of $60.1 billion represented 11.9 percent of the combined total

of $501.2 billion (NAICS code 513 includes wire-line and wireless

telephony, cable TV networks and distribution, and radio and television

broadcasting, NAICS 492 includes messenger services, and air and

ground parcel deliverers, and NAICS 514191 includes internet service

providers). U.S. Census Bureau, 2001 Service Annual Survey (Feb.

2003) at pp. 8, 16 and 17, available at http//www.census.gov/svsd/

www/sas0Iirpt.pdf, U.S. Postal Service 2001 Annual Report at 21, U.S.

Postal Service 1998 Annual Report at 57.

10

volume of physical mail."” Such messages are cheaper,

faster, and much more easily manipulated and dissemi-

nated than letter messages.

These communications services have generally been

performed by private, rather than government, entities, in

the United States.

Thus, demonstrably, it is no longer necessary that the

“sovereign” perform communication services, in order to

bind the nation together. There is nothing inherent in the

function of transporting messages written on paper, using

ink, or like materials, between private, commercial, and

other parties in the United States, which uniquely re-

quires sovereign status or sovereign immunity.

” In the rapidly expanding, mutable Internet world, census data

becomes quickly out of date. InfoWorld Magazine reported on Septem-

ber 26, 2002, an International Data Corporation study pegging world-

wide e-mail message volume at 31 billion messages daily, projecting 60

billions daily by year 2006. The final report of the President’s Commis-

sion on The United States Postal Service states that the approximately

200 billion pieces of mail the USPS delivers each year makes up

roughly 40% of the worldwide mail volume. Thus worldwide mail

volume is approximately 1.4 billion letters per day or 1/22 the global

volume of e-mail. A July 18, 2003 ComputerUser.com report puts the

United States share of internet traffic at about 45%. InfoWorld Maga-

zine, You’ve got mail: 60 billion a day by 2006 (September 6, 2002) at

http//www.archive.infoworld.com/articles/hn/xml/02/09/26/020926hnemail

6b.xml?s=IDGNS; International Data Corporation, Worldwide Email

Usage Forecast, 2002-2006, IDC Doc #27975 (September 2002)

at http//www.idc.com/getdoc.jhtml?containerld=27975&pid=35 178981,

President’s Commission on The United States Postal Service, Embrac-

ing the Future, at 18 (July, 2003) available at http//www.treas.gov/

offices/domestic-finance/usps/pdf/freport.pdf, ComputerUser.com, Study

- 55 percent of world’s Web traffic non-U.S. (January 25, 2001) at

http://www.computeruser.com/news/01/01/25/news6.html.

eee =?

11

Indeed, mounting competitive pressures on USPS

have put in question its continued viability in its current

form. This, and a worldwide tendency toward deregulation

and privatization of functions historically performed or

regulated by government entities,” has led to considerable

scholarly discussion on needs to reorganize USPS, includ-

_ —_— that the postal monopoly should be abol-

ished.

Various legislative “reform” proposals have been

offered in Congress in recent years. A Presidential Com-

mission empanelled to study the USPS has recently issued

its report” and recommendations, which will undoubtedly

be followed by new legislative initiatives.

" Recognizing a reduced dependence on hard-copy communications

and the changing needs of their citizenries, many industrialized nations

around the world are making significant strides in liberalizing and de-

monopolizing their, once perceived to be necessarily governmental,

postal and telecommunication authorities. For a brief overview

demonstrating the trend towards liberalization and de-monopolization

of foreign postal administrations see The President’s Commission on

the United States Postal Service, Statement of James I. Campbell, at 22

(February 20, 2003), available at http://www.treas.gov/offices/domestic-

* See, for example, Peter J. Ferrara, Free the Mail: Ending the

Postal Monopoly, Cato Institute (1989); Rick Geddes, Neither Snow Nor

Sleet ... Can Dampen This Monopoly, Hoover, Digest No. 2, 2000,

(2000) available at http//www-hoover.stanford.edu/publications/digest/

002/geddes. html.

As to protecting competitors from extension of the USPS monopoly

into competitive lines of commerce, see Sidak and Spulber, Protecting

Competition From the Postal Monopoly, AEI Press (1996).

” President’s Commission on The United States Postal Service,

Embracing the Future (July, 2003) available at http//www.treas.gov/

offices/domestic-finance/usps/pdf/freport. pdf. .

12

All this is not to say that traditional mail services are

not a significant service. Though economic forces press

increasingly hard on the historically evolved postal service

structure, necessary institutional adaptations will be

carefully and contentiously hammered out. The histori-

cally developed expectations of mail service by individual

citizens and various constituencies, such as commercial

mass mailers, will condition the pace and scope of change

in the ways mail services will be defined and delivered in

the future.

Our basic point is this: the imperial robes in which the

USPS has garbed itself in this proceeding, as a sovereign

entity performing a uniquely sovereign set of services, are,

in economic terms, in today’s communications markets,

diaphanous. Workable law related reasonably to economic

reality, we suggest, cannot be premised off the USPS’s

time worn, self-serving, increasingly transparent preten-

sions.“

III. USPS seeks impermissible bianket immunity

from the antitrust laws for anticompetitive

conduct in any and all lines of commerce.

The USPS has traditionally offered parcel post and

other “special” services, as non-monopoly, “non jurisdic-

tional” or “non-postal” services competitive with private

sector services.

“ For a perceptive economics oriented perspective on the antitrust

law issues presented in this case see, Michel Schuyler, Antitrust Law

and the Postal Service, Institute for Research on the Economics of

Taxation (August 25, 2003) at ftp://ftp.iret.org/pub/ADVS-159.PDF.

13

As alternative technology, communication and trans-

portation markets have evolved — particularly e-mail — and

USPS revenues have been subjected to increasing competi-

tive pressure, the USPS has responded by attempting to

develop services of the sort used by its direct and indirect

competitors. One illustrative example is USPS eBillPay

and Send Money, which provides USPS-branded bill

presentment services and person-to-person transfers and

bill payments with electronic cash transfers.

Recently Consumer Action, a California based con-

sumer watchdog organization, joined by the Postal Rate

Commission’s Office of Consumer Advocate, has peti-

tioned” the Postal Rate Commission to inquire into the

financial results of such initiatives. In its petition, Con-

sumer Action lists fourteen services about which it is

concerned. Postal management’s response in PRC Docket

*2003 furnishes the most recently available public cata-

logue of USPS’s “non-jurisdictional” initiatives, beyond

its traditional mail service programs.

We think it fair to say that at this point USPS’s

initiatives are exploratory and in the process of evolution.

It is also fair to say that USPS clearly seeks to expand

upon the scope of services directly and clearly authorized

by Congress.

“ Postal Rate Commission, Petition of Consumer Actions for

Review of Unclassified Services, PRC Docket *2003, (10/15/2002)

available at http://www.prc.gov/dockets.asp?node=dbt&ID=%2A2003.

* Postal Rate Commission, Comments of United States Postal

Service on Consumer Action Petition, PRC Docket *2003 (1/30/2003)

} at http//www.prc.gov/docs/36/36904/USPSComments_CA-OCA_

Petn. pdf.

14

Such initiatives raise a host of significant competitive

issues, which will be addressed for years to come.

PostalWatch is concerned about issues of “fair compe-

tition.” These include issues raised by USPS’s clear desire

to exploit the best of both worlds — the use of a governmen-

tal grant of market protections and claims of “sovereign”

status, as well as preferential access to Treasury financ-

ing, while aggressively pursuing commercial aims far in

excess of its statutory charter. PostalWatch is concerned

about issues of cross subsidization, deceptive advertising,

dissipation of postal revenues on ill conceived and poorly

executed adventures beyond basic postal services, disin-

centives to economy and efficiency resultant from market

protections, and similar issues. Consumer Action and the

Postal Rate Commission’s Office of Consumer Advocate are

apparently concerned about cross subsidization and

income dissipation issues, as well.

’ Private sector vendors of information services are

concerned about the effects of a protected monopoly

entering competition with them. In a recent filing with the

Postal Rate Commission, the Computer and Communica-

tions Industry Association (CCIA) points out that the

Postal Service has discussed plans to assign e-mail ad-

dresses to all Americans or all physical addresses, to take

control of the .us web domain, and to deploy computer

kiosks in all post offices for sending and retrieving e-mail.

CCIA fears more.”

" In its filing, CCIA quotes former Postmaster General William

Henderson articulating the Postal Service’s vision, in a published

interview, as follows.

(Continued on following page)

—— ——

15

As we read the thrust of the Presidential commission’s

recommendations, they are that the USPS organization be

further modified along corporate lines, that its scope be

limited to “products and services directly related to the

delivery of letters, newspapers, magazines, advertising

mail, and parcels” (Report, p. 28), that the universal

service obligation be maintained substantially in current

form but the USPS be given much more freedom in man-

aging and disposing of facilities, and that the Postal Rate

Commission be elevated to an independent regulatory

body (termed the Postal Regulatory Board), with modern-

ized, incentive based rate controls.

And the next [strategy] is to leverage our own electronic in-

frastructure for commercial purposes. We have on every —

on most every — will have on most post offices that have

POS, a point-of-sale machine, a backup satellite capability

... It now has voice and video capability, which makes it an

enormous tool, a giant highway, and it’s more reliable than

optical fiber because we have optical fiber into the POS ma-

chines. So it’s a huge asset that this organization has, that

it’s now looking and thinking about who — and you say who

could use it? Well, anyone could use it who has a data

transmission need. It’s completely secure. You would just

lock into the post office, and you could transmit data any-

where in the world.

Postal Rate Commission, Comments of the Computer & Communica-

tions Industry Association on the Motion of the Office of the Consumer

Advocate to Request That the Commission Institute a Proceeding to

Consider the Postal /Nonpostal Character of Specified Services and the

Establishment of Rules to Require a Full Accounting of the Costs and

Revenues of Nonpostal Services, PRC Docket *2003, (January 28, 2003)

available at http://www. prc.gov/docs/36/36838/CCLA_PRC_comments.doc.

"

16

As to the scope of the postal monopoly,” the Presiden-

tial Commission suggested the following:

The Commission also recommends that the

Postal Regulatory Board be tasked with clarify-

ing and administering the scope of the postal

monopoly. Given the Postal Service’s status both

as a monopoly and a competitor, administrative

authority over the monopoly should reside out-

side the institution. It is inappropriate for a

commercial organization to decide the scope of a

law that restrains its competitors. To the con-

trary, it is a fundamental premise of American

justice that the law should be administered by

persons without a financial interest in the out-

come. (Report, p. 65).”” -

In issuing certiorari, this Court has undertaken to

define the scope of controls external to USPS on anticom-

petitive conduct, under existing law. We submit that the

Court should therefore, in accord with its own traditions and

the fundamental concepts recognized by the Presidential

In describing to the President's Commission the scope of the

postal monopoly at present, Campbell observed with acute insight

“What most mailers now think of as an ancient monopoly is in truth a

set of administrative regulations bearing little relationship to the acts

of Congress... . At best, the purpose and scope of the postal monopoly

law are uniquely murky.” Statement of James I. Campbell, supra, at 21.

* In proposing that a Postal Regulatory Board govern the scope of

the postal monopoly, the Presidential Commission did not deal in detail

with all of the issues presented in this case. Such issues may — we

presume will — surface in Congressional consideration of the Commis-

sion’s recommendations. The scope of the regulatory authority to be

given any such Postal Regulatory Board, if created, and the relation-

ships between its functions and the application of the antitrust laws

will, again, presumably, be addressed at that time.

~ A wee ee ee eee

17

Commission, here and now provide clear guidance that

activities beyond the USPS’s core monopoly are subject to

judicial restraint under the antitrust laws.

Under the extremely expansive, status-based immu-

nity the USPS seeks it would be free to engage in price

fixing, market allocations, and other per se violations of

the antitrust laws, as well as practices otherwise subject

to “rule of reason analysis,” in any market of its choosing,

without, Congressional appropriations related oversight,

any direct Executive Branch controls, any regulatory

check from the Postal Rate Commission, or any judicial

review under the antitrust laws. And it would be free to

leverage its statutory grant of monopoly to restrain compe-

tition in any such line of commerce, without any such

check.

USPS is proposing a massive overreach, based pri-

marily on its proprietary interests rather than governmen-

tal needs.

Conceivably this Court could craft a decision on the

specific facts of this case which would avoid ruling on such

broad ranging matters. But the USPS has asserted such a

broad status-based immunity, and the Circuit Court has

crafted an approach for disposing of such a claim. If such

broad issues are to be addressed, we recommend the

approach taken by the Circuit Court below.

18

IV. The Circuit Court’s “conduct based immu-

nity” approach is a reasonable, and neces-

sary, means of reconciling the governmental

mandate of monopoly mail delivery, and the

application of the fundamental national pol-

icy of competition to conduct not within the

necessary scope of that mandate.

This Court has long and consistently stated that the

fundamental national economic policy of the United States

is that of fostering and relying upon competitive markets.

E.g., U.S. v. Topco Assoc., Inc., 405 U.S. 596, 610 (1972);

Standard Oil Co. v. Federal Trade Commission, 340 U.S.

231, 248 (1951).

The USPS argues that apart from the clear “sue and

be sued” language, a plaintiff must show that there is an

explicit, statutorily mandated right of action against the

USPS. But the long-standing rule under the antitrust laws

is that they are to be applied absent an explicit statutory

immunity, or a “plain repugnancy” between the antitrust

laws and any specialized regulatory scheme. See Otter Tail

v. United States, 410 U.S. 366 (1977); MCI Communica-

tions Corp. v. Am. Tel. & Tel. Co., 708 F.2d 1081 (7th Cir.

1973).

We can agree with the USPS argument that the

Congress did not intend that either the government or

private parties would be able to maintain actions against

the USPS for exercise of its monopoly grant to perform its

mandated mail delivery function and acts and practices

reasonably ancillary thereto. Putting aside issues of

sovereignty, particular causes of action could be plainly

repugnant to the basic, specific responsibilities entrusted

to the Postal Service, and the (somewhat limited) regula-

tory system paralleling the grant of monopoly services.

—_

te ——— ee

19

But there is no evidence that Congress intended that

the USPS should be free to use the leverage provided it in

its basic mail-delivery function to restrain competition in

related markets,” or to engage in classic anticompetitive

behavior to restrain competition in any other sector of the

economy which it might choose to enter.

PostalWatch submits that little reflection is required

to see that the Postal Service’s argument for blanket

status-based antitrust immunity for any actions, in any

line of commerce, attendant to its claim of “sovereign”

status, would lead to absurd and impermissible results.

The Postal Service would be free to use the force of gov-

ernment, acting as a “sovereign”, to extend its monopoly

scope, and to cartelize markets in its own interests, and in

the essentially commercial interests, which it shares with

actual and potential competitors.

Thus, it appears to us, taking into account the larger

scope of competitive issues we have attempted to outline,

* For example, the Postal Service recently attempted to use its

ability to withhold mail to control competition between itself and

private mailbox stores, and between such private stores and “business

center” operations. USPS engaged in a classic price related agreement

among competing entities to structure competition in such markets.

Notwithstanding the USPS’s arguments to the contrary, we do not

think USPS’s statement of justifications would survive review under

the antitrust laws in a judicial proceeding. See 39 C.F.R. 111 — D042.2.6

— Domestic Mail Manual — Delivery to CMRA. The USPS’s own Office of

Inspector General found Postal Management's actions to lack any

adequate evidentiary basis. See: U.S. Postal Service Office of Inspector

General, Review of the Revis. ' Rules Governing Commercial Mail

Receiving Agencies, Audit iceport DB-AR-01-002, (April 9, 2001)

available at http://www.uspsoig.gov/foia_files/DE-AR-01-002%20%20

Revised%20Rules%20Governing%20Commercial %20Mail%20Rece. pdf.

20

one is necessarily led to the view of the Ninth Circuit, to

the effect that Courts can, and must, distinguish between

those restraints which might be imposed by the Postal

Service which are directly and properly attendant to

whatever grant of monopoly service Congress may have

accorded the Postal Service, and those which are not

reasonably ancillary to such monopoly services.

The Circuit Court’s invocation of the “conduct based

immunity” doctrine aptly integrates deference to the scope

of the monopoly currently given the USPS, and the defer-

ence to be given to the policy and provisions of the anti-

trust laws.

V. The practical, or operational, justifications

offered for antitrust immunity lack eviden-

tiary basis, are self-serving as to USPS’s pro-

prietary interests, and are inconsistent with

USPS’s own management practices.

The USPS arguments that it should not be burdened

by the costs of litigation to determine whether its practices

beyond the necessary scope of mail delivery are anticom-

petitive would be offered by any private firm seeking to

avoid constraint on anticompetitive conduct, and can have

little weight. Litigation costs are the necessary attendant

to judicial review to preserve competition in the economy

as a whole, and may be minimized by avoiding anticom-

petitive conduct.

Any argument that the USPS would suffer great

burdens in distinguishing between its basic mail delivery

functions and other functions would be meretricious.

Postal Service management now regularly makes a num-

ber of such distinctions. We have pointed out that USPS

21

management routinely differentiates between “postal” and

“non-postal” services in its efforts to avoid or minimize the

impact of Postal Rate Commission review of its prices and

classes of service in “competitive” — that is, non-mail —

lines of commerce. Its management surely can distinguish

between its mail services and other markets affected by

mail services, faced with allegations that it is attempting

to leverage its monopoly into such related markets.

USPS’s bold assertion on p. 28 of the Solicitor Gen-

eral’s initial brief on the merits that “Congress has there-

fore entrusted the Postal Service with the responsibility

for determining whether its operations are anti-

competitive, and if so whether other public benefits none-

theless warrant its actions” must be given highly qualified

meaning.

It is true that within the scope of its monopoly ser-

vices, the USPS should weigh whether its actions may, as

to their impact on other parties, have anticompetitive

consequences. But we can see no support in legislative

history, in logic, or in sound public policy for extending

such an assertion to mean that the Congress has given the

USPS a warrant to determine whether and how it will

extend its monopoly to restrain competition in markets

related to mail delivery but not within its central scope, or

freely to engage in anticompetitive conduct in lines of

commerce other than mail service.

In mandating that the USPS operate more as a

business, Congress was successful in endowing the USPS

with a profound proprietary instinct. That instinct should

not be allowed the sovereign, indeed imperial, and un-

checked, scope which the USPS advocates.

¢

22

CONCLUSION

If and as this Court addresses the broad issues posed

on appeal of the Ninth Circuit ruling, rather than dispos-

ing of the claim of Flamingo Industries on grounds par-

ticular to it, PostalWatch, as Amicus Curiae, respectfully

urges the Court to affirm the holding of the Circuit Court

below, to the effect that the scope of any immunity of the

antitrust laws as may be accorded the USPS be limited to

“conduct based immunity” related to the necessities of its

specific mandates to deliver mail, that the USPS not be

allowed to extrapolate its specific authorities so as to

prejudice competition in markets related to mail delivery

in contravention of the provisions of the antitrust laws,

and that it not be permitted to conduct extensive and

expanding commercial undertakings without the checks of

the competitive policies embodied in the antitrust laws.

Respectfully submitted,

WILLIAM S. STANCIL

Counsel of Record

Suite 600, 1717 K St., NW

Washington, DC 20036

(202) 508-1042

Counsel for Amicus Curiae