Settlement Conference, 23786-23790 [2013-09373]

Agencies

• POSTAL REGULATORY COMMISSION

[Federal Register Volume 78, Number 77 (Monday, April 22, 2013)]
[Notices]
[Pages 23786-23790]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-09373]


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POSTAL REGULATORY COMMISSION

[Docket No. C2009-1R; Order No. 1700]


Settlement Conference

AGENCY: Postal Regulatory Commission.

ACTION: Notice.

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SUMMARY: The Commission is noticing a recent order convening a 
settlement conference between GameFly, Inc. and the Postal Service. 
This notice informs the public of this development and takes other 
administrative steps, including appointment of a settlement 
coordinator.

DATES: Settlement conference: April 23, 2013 at 10:00 a.m.

ADDRESSES: Submit comments electronically via the Commission's Filing 
Online system at https://www.prc.gov. Those who cannot submit comments 
electronically should contact the person identified in the FOR FURTHER 
INFORMATION CONTACT section by telephone for advice on filing 
alternatives.

FOR FURTHER INFORMATION CONTACT: Stephen L. Sharfman, General Counsel, 
at 202-789-6820.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Introduction
II. Background
III. GameFly Motion, Postal Service Reply, and GameFly Response
IV. Analysis
V. Settlement Procedures

I. Introduction

    The latest issues in this docket come before the Commission on 
remand from the United States Court of Appeals for the District of 
Columbia.\1\ Following the issuance of the Court's mandate, on March 7, 
2013, GameFly, Inc. (GameFly) filed a motion requesting the Commission 
to establish standards and procedures for proceedings on remand.\2\
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    \1\ GameFly, Inc. v. Postal Regulatory Commission, 704 F.3d 145 
(D.C. Cir. 2013) (GameFly).
    \2\ Docket No. C2009-1, Motion of GameFly, Inc., to Establish 
Standards and Procedures to Govern Proceedings on Remand, March 7, 
2013 (GameFly Motion).
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    The Postal Service replied to the GameFly Motion and GameFly filed 
a response.\3\ For the reasons discussed below, the Commission defers 
action on these filings and will convene a settlement conference to 
pursue the possibility of the parties agreeing to a mutually acceptable 
resolution of the remaining issues in the remanded proceeding. The 
settlement conference will convene at 10:00 a.m. April 23, 2013 in the 
Commission's hearing room.
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    \3\ See United States Postal Service Reply in Opposition to 
Motion of GameFly, Inc., to Establish Standards and Procedures to 
Govern Proceedings on Remand, March 14, 2013 (Postal Service Reply); 
Response of GameFly, Inc., to March 14 USPS Opposition to GameFly 
Motion to Establish Standards and Proceedings on Remand, March 18, 
2013 (GameFly Response). Accompanying the GameFly Response was a 
motion requesting leave to respond to the Postal Service Reply. 
Motion of GameFly, Inc., for Leave to Respond to March 14 USPS 
Opposition to March 7 GameFly Motion, March 18, 2013. The motion for 
leave to respond is granted.
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II. Background

    Proceedings in this docket were instituted by GameFly's filing of a 
complaint under 39 U.S.C. 3662. In its complaint, GameFly alleged that 
rates and services offered by the Postal Service to certain DVD mailers 
violated prohibitions on undue or unreasonable discrimination under 39 
U.S.C. 101(d), 403(c), 404(b), and 3622(b)(8).\4\
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    \4\ Docket No. C2009-1, Complaint of GameFly, Inc., April 23, 
2009, at 1 (Complaint).
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    GameFly, which is in the business of renting video game DVDs, 
alleged that the Postal Service discriminated against GameFly by not 
providing the same treatment to GameFly's mail as it did to the mail of 
Netflix and Blockbuster (which are primarily in the business of renting 
movie DVDs). Id. at 12. GameFly alleged further that the Postal Service 
manually culled and processed Netflix and Blockbuster's mail, allowing 
them to mail one-ounce First-Class letters without paying a non-
machinable surcharge or exposing their DVDs to the risk of breakage on 
automated machines.

[[Page 23787]]

Id. at 8-9. GameFly asserted that, unlike Netflix and Blockbuster, it 
decided to add a protective cardboard insert and mail its DVDs as two-
ounce First-Class flats in order to avoid automated machines and reduce 
the risk of breakage. Id. at 5. At the time the Complaint was filed, 
the First-Class one-ounce letter rate was $0.42 and the First-Class 
two-ounce flat rate was $1.00. Id. at 6.
    Determination of undue discrimination. After extensive discovery, 
testimony, filings, and hearings, the Commission issued an order in 
which it determined that the Postal Service had unduly discriminated 
against GameFly.\5\ The Commission reached this conclusion by using a 
three-part test that considered whether: (1) GameFly had been offered 
less favorable rates or terms and conditions than another mailer; (2) 
GameFly was similarly situated to the other mailer; and (3) there was 
no rational or legitimate basis for the Postal Service to deny it the 
more favorable rates or terms or conditions provided to the other 
mailer. Id. at 28. The Commission determined that all three prongs of 
the test had been satisfied. Id. at 108.
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    \5\ Order on Complaint, April 20, 2011, at 108 (Order No. 718).
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    GameFly's proposed remedies. Although it found that the Postal 
Service had unduly discriminated against GameFly, the Commission 
rejected the two remedies suggested by GameFly. The first was an 
operational remedy that would have required the Postal Service to offer 
``a measurable and enforceable level of manual culling and processing 
of DVD mailers sent at machinable letter rates.'' Id. at 110. The 
Commission explained that it was reluctant to assume responsibility for 
oversight of Postal Service operations at the level proposed by GameFly 
and wary of the ``significant administrative costs'' that the Postal 
Service could incur attempting to enforce a particular level of manual 
culling and processing. Id. at 111.
    GameFly's second proposed remedy was a rate-based remedy, under 
which the Postal Service would have been required to publish a reduced 
rate for flat-shaped DVD mailers designed to produce the same average 
contribution per piece for both flat-shaped and letter-shaped DVD mail 
(the ``equal contribution remedy''). Id. The Commission rejected this 
second proposed remedy because the models used by GameFly's witness in 
support of this remedy were ``not sufficiently accurate'' to establish 
an appropriate rate. Id. at 112. The Commission stated a preference for 
allowing the Postal Service, rather than the Commission, to ``exercise 
statutory flexibility'' in ratemaking and expressed concern that the 
rate-based remedy ``fails to directly address the consequences of the 
preferential treatment afforded Netflix.'' Id. at 112-113.
    Commission remedy. In lieu of GameFly's proposed remedies, the 
Commission opted to establish a ``niche classification'' for round-trip 
DVD mail. Id. at 113. Order No. 718 added a ``Letter Round-Trip 
Mailer'' category and a ``Flat Round-Trip Mailer'' category to the Mail 
Classification Schedule (MCS). Id. Appendix B. The Letter Round-Trip 
Mailer category allowed round-trip DVD mailers to send one-ounce 
letter-shaped mail at the single-piece machinable letter rate and 
prevented the Postal Service from applying a non-machinable surcharge 
to such mail. Id. at 1. The Flat Round-Trip Mailer category allowed 
round-trip DVD mailers to send flat-shaped mail of up to two ounces at 
the one-ounce single-piece First-Class flats rate. Id. at 2. The 
Commission characterized this remedy as providing GameFly with 
treatment comparable to the treatment the Postal Service gave Netflix. 
Id. at 114. However, the remedy also resulted in a higher rate and a 
higher per-piece contribution for round-trip DVD mail sent as flats. 
Id. at 115. The Commission found the higher rates and contribution to 
be justified by ``cost differences and by general pricing differences 
between First-Class Mail flat and letter products.'' Id.
    D.C. Circuit Opinion. Unsatisfied with the remedy imposed by Order 
No. 718, GameFly filed an appeal with the Court. The Postal Service 
elected not to appeal the Commission's finding of undue discrimination, 
but did participate in the appellate proceedings in support of the 
remedy prescribed by Order No. 718.
    The Court rejected the Commission's remedy because it left in place 
part of the discrimination it was attempting to remedy without 
explaining why the ``residual discrimination'' was due or reasonable. 
704 F.3d at 149. The residual discrimination identified by the Court 
consisted of continuing differences in the terms of service offered to 
DVD mailers of letter-shaped and flat-shaped mail. The Court explained 
that the Commission ``cannot justify the terms of service 
discrimination its remedy leaves in place (providing manual letter 
processing to Netflix but not to GameFly) based on the companies' use 
of different mailers when the use of different mailers is itself the 
product of the service discrimination.'' Id.
    The Court vacated the Commission's order and remanded the case to 
the Commission to ``either remedy all discrimination or explain why any 
residual discrimination is due or reasonable under Sec.  403.'' Id. It 
expressed the opinion that the Commission would ``surely consider'' 
GameFly's proposed remedies on remand, but noted that ``there may be a 
range of other possible remedies which would withstand appellate 
review.'' Id.

III. GameFly Motion, Postal Service Reply, and GameFly Response

    In response to GameFly, the parties filed a series of documents 
setting out their respective positions and expectations for proceedings 
on remand. The first of these was the GameFly Motion, followed by the 
Postal Service Reply and the GameFly Response.
    GameFly Motion. The GameFly Motion begins by outlining the issues 
that GameFly considers to have been resolved by the Court's Opinion. 
GameFly Motion at 1-8. It then sets forth a new proposed remedy and 
several possible alternatives, as well as the standards and procedures 
that GameFly asserts should be used to evaluate any alternative 
remedies. Id. at 8-18.
    GameFly's new remedy would require the Postal Service to charge the 
First-Class Mail letter rate for all round-trip DVD mailers, whether 
they choose to mail letters or flats. Id. at 9. GameFly characterizes 
this remedy as ``the next best alternative'' to requiring the Postal 
Service to provide GameFly's mail with the same degree of manual 
processing that Netflix receives for its letter-shaped DVD mail. Id. at 
11. In proposing this remedy, GameFly withdraws its previous request 
for the equal contribution remedy. Id. GameFly argues that the 
Commission should impose its new remedy immediately, without re-opening 
the record in this docket. Id. at 13.
    GameFly also identifies two alternatives to its new, preferred 
remedy. The first of these alternatives would allow the Postal Service 
30 days to propose a rate for DVD mailers that is the same for both 
flats and letters but higher than the preferred remedy's First-Class 
Mail letter rate. Id. at 14. GameFly asserts that the Postal Service 
should be required to provide certain additional information to support 
any such proposed rate. Id. If the Postal Service were to choose not to 
submit a proposed new rate within 30 days, GameFly would have the 
Commission establish a new rate for both letter- and flat-shaped

[[Page 23788]]

DVD mail at the First-Class Mail letter rate. Id.
    GameFly's second proposed alternative remedy is an operational 
remedy that would require the Postal Service to either provide the same 
level of manual processing to Netflix and GameFly mail or to 
discontinue manual processing of Netflix mail. Id. at 15. GameFly 
argues that the record in this docket ``imposes a heavy presumption'' 
against an operational remedy, citing potential problems with 
enforcement. Id. at 15-16. GameFly suggests that if the Commission 
adopts an operational remedy, the Postal Service should be required to 
provide certain information in support of that remedy. Id. at 17-18.
    Postal Service reply. The Postal Service Reply rejects the remedies 
proposed in the GameFly Motion, arguing instead that the Commission 
should maintain its original remedy, but explain better why that remedy 
addresses any residual discrimination. Postal Service Reply at 2, 10-
14. The Postal Service also takes issue with GameFly's list of settled 
issues, asserting that GameFly is attempting to eliminate the 
Commission's discretion and authority by preventing the Commission from 
re-opening the record and obtaining additional guidance. Id. at 2.
    The Postal Service asserts that the record contains sufficient 
evidence for the Commission to explain to the Court's satisfaction that 
its original remedy was sound and that any remaining discrimination is 
due to local operational decisions dictated by differences in the 
volume, density, and appearance of Netflix's and GameFly's mail. Id. at 
11-12.
    The Postal Service argues further that any rate-based remedy would 
require the Commission to re-open the record to conform with 
``statutory and regulatory provisions governing the establishment of 
rates and classifications under the [Postal Accountability and 
Enhancement Act]'' and to respect the Postal Service's authority to 
direct its own operational policies. Id. at 6. It states that the 
record in this docket lacks sufficient evidence to support GameFly's 
proposed rate-based remedy. Id. at 6-7. The Postal Service warns that 
GameFly's remedy would ``inevitably lead to questions about the 
presence and effects of discrimination embodied in all rates, and the 
Mail Classification Schedule in general.'' Id. at 8.
    Finally, the Postal Service argues that the record does not reflect 
changes in the processing of DVD mail and ``major parts of the 
operating environment'' that have occurred since the record in this 
docket was established. Id. at 9.
    GameFly response. GameFly responds to the Postal Service Reply by 
reiterating its position that the Postal Service is not permitted to 
relitigate factual issues resolved by Order No. 718 (either before the 
Commission or before the Court in a future appeal) or the findings of 
GameFly. GameFly Response at 4-6.
    GameFly concedes that there may be alternative remedies available 
that would require the Commission to re-open the record. Id. at 8. 
However, GameFly asserts that the degree to which the record should be 
re-opened will depend on the particular alternative remedy. Id. For 
instance, GameFly believes that its first alternative remedy (price 
equalization at a rate established by the Postal Service) would require 
little additional information, but that its second alternative remedy 
(operational directives) may require ``more elaborate fact-finding.'' 
Id. at 8-9.
    GameFly contends that, rather than attempting to place substantive 
limits on potential remedies, it is proposing filing requirements 
designed to elicit the information necessary to support an alternative 
remedy. Id. at 9. It asserts that each of these filing requirements is 
reasonable in light of the nature of the proposed alternative remedies. 
Id. at 10. In particular, it asserts that because the Postal Service 
argued against an operational remedy in earlier proceedings in this 
docket, the Postal Service must make additional showings if it now 
believes an operational remedy is justified. Id.
    Finally, GameFly argues that a remedy that equalized rates for 
letter- and flat-shaped DVD mailers is neither discriminatory against 
other flat-shaped mail nor likely to have a significant impact on the 
Postal Service's financial situation. Id. at 11-12.

IV. Analysis

    The Commission has before it several remedies which the parties 
believe would satisfy the court's directive to ``either remedy all 
discrimination or explain why any residual discrimination is due or 
reasonable under Sec.  403.'' 704 F.3d at 149. GameFly prefers a remedy 
that establishes an identical rate for round-trip DVD letter and flats 
mail that is equal to the First-Class Mail letter rate. GameFly Motion 
at 8-13. The Postal Service vigorously opposes GameFly's preferred 
remedy and encourages the Commission to stand by the remedy prescribed 
by Order No. 718. Postal Service Reply at 4-5, 10-11 (``there is 
sufficient evidence in the existing record to support the original 
remedy, and the Commission has the authority to conduct proceedings for 
that purpose, if necessary.'').
    The Court has given the Commission sufficient latitude to consider 
both of these remedies, as well as others including the two remedies 
originally proposed by GameFly. 704 F.3d at 149 (``Upon rehearing, the 
Commission will surely consider those [i.e., GameFly's earlier] 
remedies, but there may be a range of other possible remedies which 
would withstand appellate review.''; ``The Commission must either 
remedy all discrimination or explain why any residual discrimination is 
due or reasonable under Sec.  403.'').
    The Commission is considering various remedies, each of which is 
intended to satisfy the Court's directive. The Commission has 
identified, at least preliminarily, the following options: \6\
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    \6\ There is no significance to the order in which the options 
are presented. As noted below, the Commission has made no decision 
about any possible remedy.
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    GameFly proposed remedies:
     An equal rate remedy;
     An equal contribution remedy;
    Postal Service proposed remedy:
     Original remedy set forth in Order No. 718 with 
additional explanation as to why the residual discrimination is 
justified; Remedies identified by the Commission:
     A remedy that retains the Letter Round-Trip DVD 
Mailer and Flat Round-Trip DVD Mailer categories created by Order No. 
718, imposes a requirement that the Postal Service manually process all 
letter-shaped DVD mail, and establishes an enforcement mechanism to 
ensure manual processing is occurring at a certain level;
     An operational remedy that would eliminate all special 
treatment of DVDs and impose rates that apply to the mailpiece, e.g., 
the non-machinable surcharge and second ounce rates; and
     An operational remedy that would require manual handling 
of all letter-shaped DVDs subject to certain standards.
    The Appendix provides a brief description of these alternatives. 
The options outlined above do not foreclose the parties from fashioning 
their own mutually agreeable relief.
    The parties take different positions on whether, and to what 
extent, further administrative hearings (including additional 
discovery) might be necessary to resolve the remedy issue. GameFly 
advocates the immediate imposition of its preferred rate-based remedy 
on the basis of the existing record. GameFly Motion at 12. The Postal 
Service appears to advocate a re-opening of the record to revisit many 
of

[[Page 23789]]

the issues decided in Order No. 718. Postal Service Reply at 5-8.\7\
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    \7\ Without, at this juncture, ruling on the propriety of 
revisiting any of these subjects in the context of developing a 
remedy, the Commission notes that its finding of undue 
discrimination, which was not challenged by the Postal Service in 
the appellate proceedings, is final and has not been remanded by the 
Court for further Commission consideration.
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    Given the significant differences between their positions on 
remand, the parties could be headed toward further prolonged 
administrative and appellate review proceedings. Such a result is 
neither in the public interest nor the best interest of a sound 
administrative process. This prolonged proceeding has already consumed 
substantial resources of the parties and the Commission. There is no 
assurance that a Commission imposed remedy will be satisfactory to both 
parties. The Commission believes that it is in the public interest and 
prudent for all concerned to explore the possibility of resolving the 
remedy issue by settlement. Accordingly, the Commission is convening a 
settlement conference to be attended by representatives of GameFly, the 
Postal Service, intervenors, and the Public Representative previously 
appointed to this proceeding.
    The Commission takes this step with the hope that a better sense of 
the remedies under consideration on remand may allow the parties to 
address their differences and reach a mutually agreeable outcome. As 
yet, the Commission has made no decision on a possible remedy and 
expresses no preference among those described in this Order. It fully 
expects that the parties will make the most of this opportunity to 
fashion a remedy acceptable to both without the unnecessary use of time 
or resources.

V. Settlement Procedures

    Initial meeting. Pursuant to 39 CFR 3030.40, the Commission will 
convene a settlement conference on April 23, 2013. To facilitate 
discussions, the Commission appoints James Waclawski as settlement 
coordinator. In discussing the possibility of settlement, the parties 
are free to consider the remedies identified above and any others they 
deem appropriate. Among the factors they should bear in mind is the 
desirability of avoiding an unnecessary re-opening of the record.
    Expeditious proceedings. Time is of the essence. The purpose of 
these settlement discussions is to allow the parties an opportunity to 
identify a mutually agreeable remedy as expeditiously as possible. The 
Commission has no desire to delay unnecessarily the resolution of the 
outstanding issues in this docket. To that end, the Commission directs 
the settlement coordinator to discourage dilatory behavior by the 
parties and to notify the Commission as soon as possible if he 
determines that negotiations between the parties are unlikely to be 
fruitful. The settlement coordinator shall file a report on the 
progress of settlement not later than 20 days after the issuance of 
this Order.
    Should the parties fail to agree on an appropriate remedy, the 
Commission will rule on the GameFly Motion and will proceed with all 
reasonable dispatch to complete the remand proceeding and satisfy its 
obligation ``either to remedy all discrimination or to explain why any 
discrimination it left in place was due or reasonable under Sec.  
403(c).'' 704 F.3d at 148. Whether further administrative proceedings 
will be needed to create a record adequate to support the remedy 
ultimately selected by the Commission is a matter that will be 
determined by further order of the Commission.
    It is ordered:
    1. The Commission convenes a settlement conference at its offices 
at 10:00 a.m. on April 23, 2013, for the purpose of reaching agreement 
on a remedy of the undue discrimination previously found to exist by 
Order No. 718.
    2. The Commission directs GameFly and the Postal Service to 
immediately engage in settlement negotiations with the goal of 
expeditiously resolving this controversy based on the potential 
remedies and considerations discussed in this Order.
    3. The Commission appoints James Waclawski as settlement 
coordinator concerning the settlement discussions ordered herein and to 
coordinate those discussions.
    4. The Commission directs the settlement coordinator to file a 
report not later than 20 days after the date of this order.
    5. Emmett Rand Costich, previously appointed in this proceeding as 
Public Representative, shall continue in that capacity to represent the 
interests of the general public.
    6. The Commission directs the Secretary of the Commission to 
arrange for publication of this Order in the Federal Register.

Appendix--Summary Descriptions of Potential Remedies

I. GameFly Proposed Remedies

a. Equal Rate Treatment

    Rates for letter- and flat-shaped DVD mail at the First-Class 
Mail letter rate would be equalized either at the current first 
ounce letter rates or at rates higher than the First-Class Mail 
letter rate.

b. An Equal Contribution Remedy

    An equal contribution remedy would reduce rates for flat-shaped 
DVD mail to a level that would produce an equal contribution for 
letter- and flat-shaped DVD mail. The Commission rejected GameFly's 
proposed equal contribution remedy, in part, on the limitations of 
the then-current record.\8\ This option may require the parties to 
develop supplemental or revised cost data to address the 
deficiencies of the then-record data.
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    \8\ Order No. 718 at 112, ] 5019 (``Even if the Commission were 
to accept GameFly's contention that the cost differences do not 
justify the extent of the difference in rates paid by the mailers, 
such estimates are not sufficiently accurate to be used to design a 
rate for flat-shaped round-trip DVD mailers in the manner suggested 
by GameFly's rate-based remedy.'').
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II. Postal Service Proposed Remedy

    A remedy that would require an explanation of why any residual 
discrimination is due or reasonable, such as the Commission's 
original remedy. This would preserve the remedy adopted in Order No. 
718, permitting DVD mailers either to send one-ounce letter-shaped 
mail without paying a non-machinable surcharge or to send flat-
shaped mail of up to two-ounces at the applicable one-ounce single-
piece First-Class flat rates. Order No. 718 at 1-2. This remedy 
could require the Commission to provide a more extensive and 
persuasive explanation of the rationale for any remaining 
discrimination in order to withstand further appellate review.

III. Remedies Identified by the Commission

    a. Retain the Letter Round-Trip DVD Mailer and Flat Round-Trip 
DVD Mailer categories, impose a requirement that the Postal Service 
manually process all letter-shaped DVD mail, and establish an 
enforcement mechanism to ensure manual processing is occurring at a 
certain level.
    This remedy would retain the Letter Round-Trip Mailer and Flat 
Round-Trip Mailer categories and rates as established in Order No. 
718. It would require the Postal Service to provide manual 
processing for all letter-shaped DVD mail and it would establish an 
enforcement mechanism to ensure that a certain level of manual 
processing was in fact provided. Mailers who are satisfied with the 
prescribed level of manual processing could send their DVDs as 
letter mail. Mailers who are not satisfied with the prescribed level 
of manual processing could send DVDs as flats and would get the 
second ounce free. If this remedy were adopted, mailers could choose 
the type of mail service that gives them the level of protection 
they desire.
    b. An operational remedy that would eliminate all special 
treatment of DVDs and impose rates that apply to the mailpiece, e.g. 
the non-machinable surcharge and second ounce rates.
    This remedy eliminating all special treatment of DVDs would 
require the Postal

[[Page 23790]]

Service to collect a non-machinable surcharge on all letter-shaped 
DVD mail. The Letter Round-Trip Mailer and Flat Round-Trip Mailer 
categories established in Order No. 718 would be eliminated and the 
Postal Service would impose the full charge for the second ounce of 
First-Class DVD flats mail.
    c. An operational remedy that would require manual handling of 
all letter-shaped DVDs subject to certain standards.
    The remedy would require the Postal Service to provide uniform 
manual processing to all letter-shaped DVD mail, e.g., the type 
afforded Netflix's mail. The non-machinable surcharge would not be 
imposed. However, the Letter Round-Trip Mailer and Flat Round-Trip 
Mailer categories would not be retained. While manual processing of 
DVD letter mail would be made available to all mailers on a non-
discriminatory basis, it nevertheless would recognize that 
operational factors can affect the feasibility of providing manual 
processing at any point in time and that individual mailers cannot 
be guaranteed the exact same level of manual processing. This 
recognition that manual processing levels may fluctuate and vary 
from mailer to mailer distinguishes this operational remedy from the 
GameFly operational remedy that would require that each mailer 
receive the same level of manual processing. Enforcement of the 
requirement that such manual processing be provided on a non-
discriminatory basis could be facilitated by requiring the Postal 
Service to monitor and report manual processing levels, e.g., based 
on IMb scans.

Appendix--Summary Descriptions of Potential Remedies

I. GameFly Proposed Remedies

a. Equal Rate Treatment

    Rates for letter- and flat-shaped DVD mail at the First-Class 
Mail letter rate would be equalized either at the current first 
ounce letter rates or at rates higher than the First-Class Mail 
letter rate.

b. An Equal Contribution Remedy

    An equal contribution remedy would reduce rates for flat-shaped 
DVD mail to a level that would produce an equal contribution for 
letter- and flat-shaped DVD mail. The Commission rejected GameFly's 
proposed equal contribution remedy, in part, on the limitations of 
the then-current record.\9\ This option may require the parties to 
develop supplemental or revised cost data to address the 
deficiencies of the then-record data.
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    \9\ Order No. 718 at 112, ] 5019 (``Even if the Commission were 
to accept GameFly's contention that the cost differences do not 
justify the extent of the difference in rates paid by the mailers, 
such estimates are not sufficiently accurate to be used to design a 
rate for flat-shaped round-trip DVD mailers in the manner suggested 
by GameFly's rate-based remedy.'').
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II. Postal Service Proposed Remedy

    A remedy that would require an explanation of why any residual 
discrimination is due or reasonable, such as the Commission's 
original remedy. This would preserve the remedy adopted in Order No. 
718, permitting DVD mailers either to send one-ounce letter-shaped 
mail without paying a non-machinable surcharge or to send flat-
shaped mail of up to two-ounces at the applicable one-ounce single-
piece First-Class flat rates. Order No. 718 at 1-2. This remedy 
could require the Commission to provide a more extensive and 
persuasive explanation of the rationale for any remaining 
discrimination in order to withstand further appellate review.

III. Remedies Identified by the Commission

    a. Retain the Letter Round-Trip DVD Mailer and Flat Round-Trip 
DVD Mailer categories, impose a requirement that the Postal Service 
manually process all letter-shaped DVD mail, and establish an 
enforcement mechanism to ensure manual processing is occurring at a 
certain level.
    This remedy would retain the Letter Round-Trip Mailer and Flat 
Round-Trip Mailer categories and rates as established in Order No. 
718. It would require the Postal Service to provide manual 
processing for all letter-shaped DVD mail and it would establish an 
enforcement mechanism to ensure that a certain level of manual 
processing was in fact provided. Mailers who are satisfied with the 
prescribed level of manual processing could send their DVDs as 
letter mail. Mailers who are not satisfied with the prescribed level 
of manual processing could send DVDs as flats and would get the 
second ounce free. If this remedy were adopted, mailers could choose 
the type of mail service that gives them the level of protection 
they desire.
    b. An operational remedy that would eliminate all special 
treatment of DVDs and impose rates that apply to the mailpiece, e.g. 
the non-machinable surcharge and second ounce rates.
    This remedy eliminating all special treatment of DVDs would 
require the Postal Service to collect a non-machinable surcharge on 
all letter-shaped DVD mail. The Letter Round-Trip Mailer and Flat 
Round-Trip Mailer categories established in Order No. 718 would be 
eliminated and the Postal Service would impose the full charge for 
the second ounce of First-Class DVD flats mail.
    c. An operational remedy that would require manual handling of 
all letter-shaped DVDs subject to certain standards.
    The remedy would require the Postal Service to provide uniform 
manual processing to all letter-shaped DVD mail, e.g., the type 
afforded Netflix's mail. The non-machinable surcharge would not be 
imposed. However, the Letter Round-Trip Mailer and Flat Round-Trip 
Mailer categories would not be retained.
    While manual processing of DVD letter mail would be made 
available to all mailers on a non-discriminatory basis, it 
nevertheless would recognize that operational factors can affect the 
feasibility of providing manual processing at any point in time and 
that individual mailers cannot be guaranteed the exact same level of 
manual processing. This recognition that manual processing levels 
may fluctuate and vary from mailer to mailer distinguishes this 
operational remedy from the GameFly operational remedy that would 
require that each mailer receive the same level of manual 
processing. Enforcement of the requirement that such manual 
processing be provided on a non-discriminatory basis could be 
facilitated by requiring the Postal Service to monitor and report 
manual processing levels, e.g., based on IMb scans.

    By the Commission.
Shoshana M. Grove,
Secretary.
[FR Doc. 2013-09373 Filed 4-19-13; 8:45 am]
BILLING CODE 7710-FW-P