Restrictions on Unfair Competition, 62289-62294 [2014-24376]

Download as PDF Vol. 79 Thursday, No. 200 October 16, 2014 Part III Postal Regulatory Commission asabaliauskas on DSK5VPTVN1PROD with RULES 39 CFR Part 3032 Restrictions on Unfair Competition; Final Rule VerDate Sep<11>2014 17:55 Oct 15, 2014 Jkt 235001 PO 00000 Frm 00001 Fmt 4717 Sfmt 4717 E:\FR\FM\16OCR2.SGM 16OCR2 62290 Federal Register / Vol. 79, No. 200 / Thursday, October 16, 2014 / Rules and Regulations POSTAL REGULATORY COMMISSION 39 CFR Part 3032 [Docket No. RM2013–4; Order No. 2207] Restrictions on Unfair Competition Postal Regulatory Commission. Final rule. AGENCY: ACTION: The Commission is issuing a set of final rules that enhance the formal complaint process in cases involving alleged violations of a law that prohibits the Postal Service from taking certain actions that might provide it with unfair competitive advantages. The rules implement the statutory prohibitions on unfair competition. Relative to the proposed rules, some of the changes are substantive and others are minor and non-substantive. Proposed rules of a procedural nature were either removed or modified. DATES: Effective November 17, 2014. FOR FURTHER INFORMATION CONTACT: David A. Trissell, General Counsel, at 202–789–6820. SUPPLEMENTARY INFORMATION: Regulatory History: 78 FR 35826, June 14, 2013. SUMMARY: Table of Contents I. Introduction II. Substantive Rules III. Section-by-Section Analysis IV. Ordering Paragraphs asabaliauskas on DSK5VPTVN1PROD with RULES I. Introduction On June 5, 2013, the Commission issued a notice of proposed rulemaking to promulgate implementing regulations for 39 U.S.C. 404a.1 Section 404a prohibits the Postal Service from certain anticompetitive behaviors, and permits any person to file a complaint with the Commission if that person believes the Postal Service has violated the section. Order No. 1739 contained proposals for both substantive rules relating to the standards by which complaints under section 404a are adjudicated and procedural rules accessible to only complaints that allege a violation of section 404a. The Commission received comments and reply comments from: The Public Representative,2 the Postal Service,3 Stamps.com and Endicia (jointly),4 1 Notice of Proposed Rulemaking Establishing Rules Pursuant to 39 U.S.C. 404a, June 5, 2013 (Order No. 1739). 2 Public Representative Comments, July 29, 2013 (PR Comments), Public Representative Reply Comments, August 28, 2013 (PR Reply Comments). 3 Initial Comments of the United States Postal Service, July 29, 2013 (Postal Service Comments), Reply Comments of the United States Postal Service, August 28, 2013 (Postal Service Reply Comments). 4 Joint Comments of Stamps.com and Endicia, July 29, 2013 (Stamps.com and Endicia Comments), VerDate Sep<11>2014 17:55 Oct 15, 2014 Jkt 235001 Valpak Direct Marketing Systems, Inc. and Valpak Dealers Association, Inc.,5 and Time Inc.6 Frederick Foster,7 IDEAlliance,8 United Parcel Service,9 Pitney Bowes,10 Valassis Direct Mail,11 National Association of Presort Mailers 12 and Grayhair Software, Inc.13 only filed initial comments. The Newspaper Association of America only filed reply comments.14 Overall the rules relating to the substantive implementation of section 404a were significantly less controversial than those creating procedures applicable only for 404a complaints. The Commission finds it appropriate to bifurcate action on the proposed rules. Pursuant to 39 U.S.C. 404a(b), this Order adopts substantive rules relating to the implementation of section 404a, but defers consideration of procedural rules to later proceedings. The Commission plans consideration of changes to the procedural rules governing all complaints before the Commission, and has determined that it is not appropriate at this time to create procedural rules only applicable to complaints alleging Postal Service violations of section 404a. As such, the Commission does not offer final rules for 39 CFR part 3032, subpart C, nor part 3033 accelerated procedures for complaints alleging violations of 39 U.S.C. 404a. The remainder of this Order is comprised of two sections. The first identifies each substantive rule to be implemented and discusses any issues or comments. The second provides a section-by-section analysis of the final rules with a description of any changes from the proposed rules. The full text of the final rules is set forth below. Joint Reply Comments of Stamps.com and Endicia, August 28, 2013 (Stamps.com and Endicia Reply Comments). 5 Valpak Direct Marketing Systems, Inc. and Valpak Dealers’ Association, Inc. Initial Comments on Notice of Proposed Rulemaking, July 29, 2013 (Valpak Comments), Valpak Direct Marketing Systems, Inc. and Valpak Dealers’ Association, Inc. Reply Comments on Notice of Proposed Rulemaking, August 28, 2013 (Valpak Reply Comments). 6 Comments of Time Inc. in Response to Order No. 1739, July 29, 2013 (Time Comments), Reply Comments of Time Inc. Regarding Order No. 1739 (Time Reply Comments). Concurrent with its reply comments, Time Inc. filed a Motion of Time Inc. for Acceptance of Late Filing on August 29, 2013. That motion is granted. 7 Frederick Foster’s Opinion on the PRC Notice of Proposed Rulemaking Establishing Rules Pursuant to 39 U.S.C. 404a, July 19, 2013 (Foster Comments). 8 Initial Comments of the International Digital Enterprise Alliance, Inc. (IDEAlliance), July 29, 2013 (IDEAlliance Comments). 9 Initial Comments of United Parcel Service in Response to Notice of Proposed Rulemaking Establishing Rules Pursuant to 39 U.S.C. 404a, July 29, 2013 (UPS Comments). 10 Comments of Pitney Bowes, Inc., July 29, 2013 (Pitney Bowes Comments). 11 Valassis Direct Mail, Inc., July 29, 2013 (Valassis Comments). 12 Comments of the National Association of Presort Mailers, July 29, 2013 (NAPM Comments). 13 Comments of Grayhair Software, Inc., July 29, 2013 (Grayhair Software Comments). 14 Reply Comments of the Newspaper Association of America, August 28, 2013 (NAA Reply Comments). B. Rule 3032.5 Unfair Competition Proposed rule 3032.5 implements section 404a(a)(1). It lists the elements that a complainant must show to bring a complaint that the Postal Service has violated 39 U.S.C. 404a(a)(1). Specifically, a valid complaint requires that the Postal Service have a rule, regulation, or standard that precludes competition or establishes the terms of the competition. It further requires that the rule, regulation, or standard harms or harmed the person filing the complaint and competition. The rule offers an affirmative defense available to the Postal Service, namely that it may demonstrate the rule at issue does not create an unfair competitive advantage for itself or any entity it funds. Finally, the rule defines terms (rule, regulation, or standard) to include other actions or edicts issued by the Postal Service that have the effect of a rule, regulation, or standard. At the outset, the Public Representative notes that the title of the rule is not clear. Public Representative Comments at 5, n.5. Unfair Competition is a broader concept than the rule itself. Therefore, the Commission finds it appropriate to alter the title of the rule (from Unfair Competition to Postal Service Rules that Create an Unfair PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 II. Substantive Rules In this section, each substantive rule that will be finalized is identified, briefly outlined, and comments or issues relating to the rule are discussed and analyzed. A. Rule 3032.1 Applicability Proposed rule 3032.1 identifies how the standards and rules that follow in part 3032 are applied. Specifically, it states that complaint proceedings filed under 39 U.S.C. 3662 for alleged Postal Service violations of 39 U.S.C. 404a are governed by the substantive standards set forth in part 3032. No comments address proposed rule 3032.1. However, the Commission implements several changes to the proposed rule because the proposed rule covers both the substantive standards appearing in subpart B of part 3032, as well as the procedural rules appearing in subpart C of part 3032 and all of part 3033. The final rule removes references to those procedural rules. E:\FR\FM\16OCR2.SGM 16OCR2 Federal Register / Vol. 79, No. 200 / Thursday, October 16, 2014 / Rules and Regulations asabaliauskas on DSK5VPTVN1PROD with RULES Competitive Advantage). Comments address five specific aspects of proposed rule 3032.5. 1. Harm Requirement in 3032.5(a)(2) Proposed 3032.5(a)(2) requires that the Postal Service’s action harms or harmed the person filing the complaint and competition. United Parcel Service objects to the inclusion of this harm requirement because that requirement is not present in the statute. UPS Comments at 5 (The rule would add elements to the complainant’s burden that are not currently in the statute.). See also Public Representative Reply Comments at 9, Stamps.com and Endicia Reply Comments at 2, NAA Reply Comments at 5. Pitney Bowes contends that the proposed harm requirement shifts the burden improperly away from the Postal Service to demonstrate that the rule or regulation does not cause harm, and is therefore inconsistent with the plain language of the statute. Pitney Bowes Comments at 2. United Parcel Service also notes that reading a requirement of harm into the rule makes the rule analogous to other antitrust and unfair competition standards that the Postal Service is already subject to by virtue of 39 U.S.C. 409(e). UPS Comments at 5. The Postal Service supports the inclusion of the harm requirement as a reasonable interpretation of the statute and consistent with the legal concept of standing. Postal Service Reply Comments at 5–7. The Postal Service contends that the requirement to show harm would limit the number of claims that would waste time because no party has suffered, nor ever would suffer, any harm. Id. at 7. Time, Inc. contends that the harm requirement should be read as purely jurisdictional, and could be broadened to include associations or representative bodies of those harmed. Time Reply Comments at 8. Time, Inc. comments that the harm to competition requirement should be read to mean that complainant must show how the Postal Service’s action precluded competition or established the terms of competition. Id. at 8–9. The Commission agrees with the comments that point out the harm requirement is not present in the statute. The Commission removes the harm requirement as a jurisdictional element that complainants must demonstrate to proceed under the rules. Harm may remain a relevant part of a complaint alleging a violation of 39 U.S.C. 404a(a)(1), and could be used to show how the Postal Service has established the terms of competition or precluded competition. It could also be used in the VerDate Sep<11>2014 17:55 Oct 15, 2014 Jkt 235001 Commission’s consideration of an appropriate remedy should a complaint be sustained. The Commission finds that the benefits of keeping the harm requirement, as articulated by the Postal Service, are outweighed by the extrastatutory restrictions it would impose upon complainants. The final rule, therefore, does not contain a requirement that the complainant demonstrate harm to himself and competition. 2. Affirmative Defense in 3032.5(b) Proposed 3032.5(b) offers the Postal Service an affirmative defense that no violation has occurred when the Postal Service can demonstrate that the rule, regulation or standard does not create an unfair competitive advantage for itself or any entity funded, in whole or part, by it. The Public Representative proposes that the defense should be rebuttable rather than affirmative. Public Representative Comments at 5. This would mean that even if the Postal Service shows that there is a regulatory justification for the rule subject to a 404a complaint, it could nonetheless be found in violation of 404a if anticompetitive harm outweighs the regulatory justification. Id. at 7–8. The Public Representative contends that this burden-shifting framework is used in antitrust litigation under the Sherman Antitrust Act of 1890 when applying the rule-of-reason analysis. Id. at 6–7. Stamps.com and Endicia support the Public Representative’s suggestion. Stamps.com and Endicia Reply Comments at 4–5. The Postal Service opposes the rebranding of its defense as rebuttable. The Postal Service characterizes this proposed change as importing principles of antitrust law that were not envisioned by Congress when section 404a was enacted. Postal Service Reply Comments at 22. The Commission is sympathetic to the arguments of the Public Representative and Stamps.com and Endicia, but the framework of section 404a is clear in its construction. The statute unequivocally states that the Postal Service is prohibited from certain behavior unless a condition is present. Put another way, if that condition is present, the Postal Service is not prohibited from that certain behavior. The Commission finds it appropriate to maintain the rule as constructed, as it better reflects the language and intent of the statute. The principles used under other laws to evaluate unfair competition are instructive and useful as reasoned analysis, but cannot be relied upon to change the plain meaning PO 00000 Frm 00003 Fmt 4701 Sfmt 4700 62291 of the controlling law. Congress enacted section 404a(a)(1) using substantially different language than the Sherman Act.15 If Congress intended for the Commission to use the entire rule-ofreason analysis to evaluate 404a(a)(1) complaints, it likely would have used language similar to the Sherman Act language in formulating section 404a(a)(1). 3. Rule, Regulation or Standard Definition Proposed 3032.5(c) broadly defines rule, regulation, or standard to include other edicts by the Postal Service that may have the effect of a rule, but without a title identifying it as such. The Postal Service contends that the definition is too broad, ambiguous, and should rather refer to the Postal Service’s own definition of its rules in the Code of Federal Regulations. Postal Service Comments at 5–6. The Postal Service comments that the proposed definition could be argued to have no boundaries and would expand the Postal Service’s potential liability. Id. at 6. Stamps.com and Endicia, Pitney Bowes, the Public Representative, United Parcel Service, and Newspaper Association of America counter that the broad definition is necessary to avoid the Postal Service’s ability to play semantics. Stamps.com and Endicia Comments at 3–4, Pitney Bowes Comments at 6, Public Representative Comments at 10, UPS Comments at 4, NAA Reply Comments at 7. The Commission does not find it appropriate to limit the jurisdiction of complaints brought under 404a(a)(1) to the Postal Service’s definition of its rules, regulations, or standards. As several commenters point out, the Postal Service is able to take action, as a regulator, without formally announcing its intent as a rule, regulation, or standard. Stamps.com and Endicia Comments at 3–4, UPS Comments at 4, NAA Reply Comments at 6–7. The Postal Service could also amend its definition through its rulemaking authority. The Commission finds that the uncertainty introduced by leaving the definition of rule, regulation, or standard open to action that has the effect of regulation without the title is not limitless as characterized by the Postal Service. Rather, it allows the Commission to review the facts and circumstances when a complainant believes the Postal Service has acted in its capacity as a regulator and violated the statute. 15 15 E:\FR\FM\16OCR2.SGM U.S.C. 1–38. 16OCR2 62292 Federal Register / Vol. 79, No. 200 / Thursday, October 16, 2014 / Rules and Regulations 4. Passive Violations of 404a(a)(1) The Public Representative and Stamps.com and Endicia suggest that complainants be able to pursue a 404a(a)(1) violation for a passive violation, where the Postal Service, by competing in a market, has established the terms of competition. Public Representative Comments at 10. Stamps.com and Endicia agree with the Public Representative and comment that the Postal Service entering a market that it also regulates could have the effect of precluding competition or establishing the terms of competition. Stamps.com and Endicia Reply Comments at 5. The Postal Service comments that allowing a complaint to proceed merely on the basis that the Postal Service has entered a market, and not more, would unlawfully expand the scope of section 404a(a)(1). Postal Service Reply Comments at 26. The Postal Service notes that other laws and regulations govern its activity in other spheres. Id. The Commission notes that both section 404a(a)(1) and proposed rule 3032.5 have no requirement as to the timing of the Postal Service’s rule versus its competing in a market. If the Postal Service enters a market, and existing rules coupled with that entry mean that the Postal Service has now precluded competition or established the terms of competition, the existing framework does not foreclose a complaint. If the Postal Service does not, however, have any rule, regulation or standard that applies, and enters a market, it is not possible for it to violate section 404a(a)(1). The Postal Service is correct that merely competing, without an applicable rule, regulation, or standard, cannot form the basis of a 404a(a)(1) complaint. The plain reading of the terms of 404a(a)(1) requires the Postal Service to preclude competition or establish the terms of competition with its establishment of a rule or regulation. asabaliauskas on DSK5VPTVN1PROD with RULES 5. Per se Violations of 404a(a)(1) Grayhair Software and Pitney Bowes encourage the Commission to specifically identify, in its substantive rules, actions by the Postal Service that would, by their nature, be anticompetitive and in violation of rule 3032.5. Grayhair Software Comments at 17–18 (Grayhair advocates a new rulemaking to consider specific guidance on standards regarding competitive foreclosure.). Pitney Bowes Comments at 5. Pitney Bowes provides an example of a product or service with a non-zero cost being offered for free as what could be termed a per se violation of the rule. Id. Stamps.com and Endicia agree that the rules would be improved VerDate Sep<11>2014 17:55 Oct 15, 2014 Jkt 235001 by offering guidance on Postal Service actions that would constitute per se violations. Stamps.com and Endicia Reply Comments at 2. The Postal Service opposes the Commission defining per se violations of the rule. Postal Service Reply Comments at 2. It notes the general move away from per se analysis in the antitrust law context, and that the availability of greater economic and market expertise has made for more nuanced analysis and adjudication. Id. at 2–4. The Public Representative also comments that per se declarations of prohibited conduct would be inappropriate. Public Representative Reply Comments at 11–12. The Public Representative notes the general disadvantages in offering declaratory judgments, where the facts of an individual case are not considered. Id. at 12. At this juncture, especially given that there have been no complaints adjudicated that have alleged a violation of 39 U.S.C. 404a, the Commission finds insufficient information exists in the record to determine what specific actions by the Postal Service would constitute a violation of section 404a(a)(1). C. Rule 3032.6 Disclosure, Transfer, and Licensing of Intellectual Property Proposed rule 3032.6 implements section 404a(a)(2), which prohibits the Postal Service from compelling or attempting to compel the disclosure, transfer, or licensing of intellectual property from the complainant to a third party. No comments address proposed rule 3032.6, and there are no revisions to the proposed rule. D. Rule 3032.7 Unlawfully Obtaining Information Proposed rule 3032.7 implements section 404a(a)(3), which prohibits the Postal Service from obtaining information from a party and later offer a product or service based on that information, unless the Postal Service has consent of the party or obtained (or could have obtained) the information from another source. Two aspects of proposed rule 3032.7 were addressed in the comments. 1. Provided or Sought To Provide to the Postal Service Stamps.com and Endicia comment that a party need only to provide or seek to provide a product, and that it need not be directed at the Postal Service. Stamps.com and Endicia Comments at 5–6. Stamps.com and Endicia contend that a product could be offered to the public, and the Postal Service could PO 00000 Frm 00004 Fmt 4701 Sfmt 4700 obtain information from the complainant through other submissions, approvals, or concurrence. Id. at 6. Stamps.com and Endicia comment that this revision conforms more closely to the language of 404a(a)(3). Id. at 5. The Postal Service counters that the intent of the statute is to protect parties in negotiation with the Postal Service, and it need not be extended beyond that scope. Postal Service Reply Comments at 32–33. The Postal Service contends that section 404a(a)(3) aims to protect confidential information shared with the Postal Service pursuant to a business relationship, and therefore should not apply outside the context of that relationship. Id. at 32. The Commission finds that Stamps.com and Endicia’s suggested revision is in keeping with the language of the statute, and amends the final rule. It may be difficult to envision a circumstance where the Postal Service would procure such confidential information outside the scope of an offering by the complainant, but that difficulty does not place the circumstance out of the realm of possibility. The Postal Service remains protected from a broad expanse of the rule by other requirements of the rule. Rule 3032.7(a)(2) requires the Postal Service to have obtained the information from the complainant, and 3032.7(b) and (c) give the Postal Service the ability to defend the acquisition by showing availability from other sources or provision by consent. 2. Informed Consent The Postal Service objects to the Commission’s linking of the District of Columbia’s Rules for Professional Conduct to the rule 3032.7 definition of informed consent. Postal Service Comments at 20. The Postal Service comments that the professional conduct rule was designed to apply to the attorney-client relationship, which is inapplicable to transaction negotiations as envisioned under section 404a. Id. at 20–21. Notwithstanding those specific objections, the Postal Service also opposes all the requirements concerning consent in proposed rule 3032.7 because the Postal Service believes the requirements are based on a faulty assumption—that there is inequality of bargaining power between the Postal Service and its business partners. Id. at 21. The Postal Service contends that these requirements concerning consent would interfere with the Postal Service’s ability to conduct business. Stamps.com and Endicia reply that it is unclear what about the nature of informed consent would interfere with the Postal Service’s ability to do E:\FR\FM\16OCR2.SGM 16OCR2 Federal Register / Vol. 79, No. 200 / Thursday, October 16, 2014 / Rules and Regulations asabaliauskas on DSK5VPTVN1PROD with RULES business. Stamps.com and Endicia Reply Comments at 4. The Public Representative replies that if the Postal Service is to rely on consent to defeat an allegation that it unlawfully appropriated intellectual property, that consent should be informed and uncoerced. Public Representative Reply Comments at 10. However, the Public Representative also agrees with the Postal Service that it should not have to make an affirmative prior communication explaining the risks of providing consent because it would be tantamount to treating business partners as fiduciaries. Id. The Commission’s intent with requiring informed consent in its proposed rules was to require the Postal Service to demonstrate more than a party’s signature on a form presented as a requirement before the Postal Service will enter negotiations. See Order No. 1789 at 16. A long-held tenet of tort law is that where a party consents a claim of conversion will not lie.16 Similarly, if a party consents to the Postal Service’s taking of its intellectual property, a claim the Postal Service violated section 404a(a)(3) cannot be sustained. Because the harm to an individual in losing rights to intellectual property can be great, the Commission sought to protect that interest. However, the Commission agrees with the Postal Service and the Public Representative that the heightened duty articulated in rule 3032.7 is more than would be necessary to protect that interest. The Commission finds that the standard for consent, to justify the taking of intellectual property is not informed and uncoerced consent but rather the traditional common law notion of consent with a minor modification.17 To attempt to mitigate the potential harm to an individual losing his or her rights to intellectual property, the Commission will require consent to be written rather than implied for instances where the Postal Service claims consent as a defense pursuant to 3032.7. The Commission will examine evidence that the complainant consented in writing to the taking of its intellectual property under rule 3032.7 in light of the traditional common law notion of consent, and make a 16 See, e.g., Tousley v. Board of Education, 40 N.W. 509 (Minn. 1888). 17 See American Jurisprudence, section 104 Conversion. Consent is a complete defense to a claim of conversion. See, e.g., Bank of New York v. Fremont General Corp., 523 F.3d 902, 914 (C.A.9 (Cal.), 2008). There can be no action for conversion where the dispossessed party consented to the taking of the property. The Commission notes that using the term uncoerced is duplicative as consent by its nature is voluntary. VerDate Sep<11>2014 17:55 Oct 15, 2014 Jkt 235001 determination based on the preponderance of the evidence whether complainant consented to the taking. The final rule will not include a requirement that the Postal Service has communicated adequate information and explanation about the risks of providing such consent. The Commission agrees with the Postal Service and the Public Representative that such a requirement, as used in evaluating legal representation agreements, is not appropriate to use in evaluating informed consent between the Postal Service and a contracting partner. By omitting this language, the Commission does not require the Postal Service to act in an advisory capacity to its contracting partners when it obtains consent. A requirement that a party provide written consent to the Postal Service’s taking of its intellectual property strikes an appropriate balance between the need to protect an individual’s property rights and avoid undue burden to the Postal Service. E. Rule 3032.8 Statutorily Authorized Affirmative Defense Proposed rule 3032.8 sets forth that the Postal Service may offer, as an affirmative defense to any alleged violation of section 404a, that it is specifically authorized by law to take such action (or inaction) that is alleged to be in violation of the section. Subsection (b) states that the Postal Service may not use its general or specific authority (enumerated in 39 U.S.C. 401 and 404) to form the basis of an affirmative defense. The Postal Service comments that the rule is not tenable, because it precludes the Postal Service from using its authority to act. Postal Service Comments at 15. The Postal Service gives an example of using its eminent domain authority over intellectual property. Id. at 16. Pitney Bowes, as well as Stamps.com and Endicia, comment that section 404a would be meaningless if the Postal Service could justify its actions based on its general and specific authority alone. Pitney Bowes Comments at 5, Stamps.com and Endicia Reply Comments at 3–4. Authority for all Postal Service action is derived from its general or specific authority that is set forth in 39 U.S.C. 401 and 404. The Commission does not read the proposed rule 3032.8 to foreclose the Postal Service’s ability to execute its general or specific authority as authorized by those sections. Action by the Postal Service pursuant to either of those sections is limited by and subject to 39 U.S.C. 404a, as both the PO 00000 Frm 00005 Fmt 4701 Sfmt 4700 62293 Postal Service and other commenters point out. There appears to be a misunderstanding, however, in the construction of rule 3032.8. The Postal Service, under the current iteration of the rule, is not precluded from offering its statutory authority in sections 401 or 404 as a justification for any action it may take. It is only prohibited from offering, as the basis of an affirmative defense, its general or specific authority. The Postal Service uses the example of its specific authority to exercise eminent domain, and contends that it could use that authority over intellectual property. Rule 3032.8 does not preclude the Postal Service’s use of its eminent domain authority. The rule makes clear that such authority is subject to the limitations imposed by section 404a. Rule 3032.8(c) clarifies that the Postal Service is not precluded from arguing that its use of its eminent domain authority does not have the requisite effect to violate section 404a(a). The rule is only meant to convey that both sections 401 and 404 are subject to the limitations of 404a and therefore unavailable as the basis for an affirmative defense of an alleged violation of 404a. Based on that understanding and interpretation, the Commission does not find it necessary to amend rule 3032.8. F. General Substantive Comments Several comments are more general, and though related to the substantive rules, are not tied to a specific proposed rule. Frederick Foster comments that the Commission should not administer 404a complaints, but rather should investigate allegations and report such results to the United States District Court. Foster Comments at 1–4. Title 39, section 404a(c), however, unequivocally confers the rights of any party to bring a complaint to the Commission on the basis of an alleged Postal Service violation of section 404a. Pitney Bowes comments that the Commission should take a broad view of its authority in enforcing anticompetitive practices, beyond 404a, and gives the example of workshare discounts that pass through less than 100 percent of costs avoided. Pitney Bowes Comments at 8. The Commission notes that the review of workshare discount pricing, as acknowledged by Pitney Bowes, appears to extend beyond the Commission’s section 404a responsibilities. However, the Commission does not make a determination as to the scope of section ` 404a vis-a-vis workshare discount pricing to avoid prejudicing any E:\FR\FM\16OCR2.SGM 16OCR2 62294 Federal Register / Vol. 79, No. 200 / Thursday, October 16, 2014 / Rules and Regulations particular complaint where such issues may arise. The Newspaper Association of America cautions that the Commission should not import any principles of antitrust law or unfair competition, but rather should use 404a as a check on a government entity’s monopoly power. The Commission’s aim in developing rules implementing 404a is to follow Congressional intent as enacted. The Commission’s reference to anticompetitive principles is meant as guidance for the Commission and parties as to relevant lines of inquiry, not as any replacement of the statutory intent of section 404a. III. Section-by-Section Analysis This section sets forth the title of each final rule adopted by this Order, and any changes, to the rule from the proposed rule. The discussion of the comments and basis for those changes appears in the preceding section. Rule 3032.1. This provision describes the type of proceedings that are covered by this part. Rule 30302.5. This provision describes the showing that a complainant must make in matters involving unfair competitive advantage and the type of affirmative defense the Postal Service may raise. It also addresses the scope of certain terms. Rule 3032.6. This provision describes the showing that the complainant must make with respect to matters involving intellectual property and addresses the scope of certain terms. Rule 3032.7. This provision describes the showing that the complainant must make with respect to unlawfully obtained information and the type of affirmative defense the Postal Service may raise. Rule 3032.8. This provision addresses affirmative defenses the Postal Service may raise that are based in law. IV. Ordering Paragraphs asabaliauskas on DSK5VPTVN1PROD with RULES It is ordered: 1. Part 3032 of chapter III, title 39, Code of Federal Regulations, is adopted as set forth below the signature of this Order, effective 30 days after publication in the Federal Register. 2. The Secretary shall arrange for publication of this order in the Federal Register. List of Subjects in 39 CFR Part 3032 Administrative practice and procedure, Postal Service, Trademarks. For the reasons discussed in the preamble, the Commission amends VerDate Sep<11>2014 17:55 Oct 15, 2014 Jkt 235001 chapter III of title 39 of the Code of Federal Regulations as follows: ■ 1. Add part 3032 to read as follows: PART 3032—SPECIAL RULES FOR COMPLAINTS ALLEGING VIOLATIONS OF 39 U.S.C. 404a Subpart A—General Sec. 3032.1 Applicability. 3032.2–3032.4 [Reserved] Subpart B—Requirements and Defenses 3032.5 Postal Service rules that create an unfair competitive advantage. 3032.6 Disclosure, transfer, and licensing of intellectual property. 3032.7 Unlawfully obtaining information. 3032.8 Statutorily authorized affirmative defense. Authority: 39 U.S.C. 404a; 3662. Subpart A—General § 3032.1 Applicability. The rules in this part govern proceedings filed under 39 U.S.C. 3662 alleging violations of 39 U.S.C. 404a that meet the requirements of §§ 3030.2 and 3030.10 of this chapter. §§ 3032.2–3032.4 [Reserved] Subpart B—Requirements and Defenses § 3032.5 Postal Service rules that create an unfair competitive advantage. (a) A complaint alleging a violation of 30 U.S.C. 404(a)(a)(1) must show that a Postal Service rule, regulation, or standard has the effect of: (1) Precluding competition; or (2) Establishing the terms of competition. (b) As an affirmative defense to a complaint under 39 U.S.C. 404a(a)(1), the Postal Service may demonstrate that the rule, regulation, or standard at issue does not create an unfair competitive advantage for itself or any entity funded, in whole or in part, by the Postal Service. (c) As used in this section, the term rule, regulation, or standard includes, among other things, documents or policies issued by the Postal Service to exercise its regulatory authority or otherwise act as a governmental entity. § 3032.6 Disclosure, transfer, and licensing of intellectual property. (a) A complaint alleging a violation of 39 U.S.C. 404a(a)(2) must show that the Postal Service has compelled or attempted to compel the disclosure, transfer, or licensing of the intellectual property of the person filing the complaint to a third party. PO 00000 Frm 00006 Fmt 4701 Sfmt 9990 (b) As used in this section, the term intellectual property includes, among other things, patents, copyrights, trademarks, trade secrets, and proprietary information. (c) As used in this section, the term disclosure, transfer, or licensing of intellectual property includes, among other things, an action that has an adverse effect on the value of intellectual property. § 3032.7 Unlawfully obtaining information. (a) A complaint alleging a violation of 39 U.S.C. 404a(a)(3) must show that: (1) The person filing the complaint has provided or sought to provide a product; (2) The Postal Service obtained information about such product from the person filing the complaint; and (3) The Postal Service offers or offered a postal service that uses or is based, in whole or in part, on the information obtained from the person filing the complaint. (b) As an affirmative defense to a complaint under 39 U.S.C. 404a(a)(3), the Postal Service may demonstrate that substantially the same information was obtained (or was obtainable) from an independent source or is otherwise obtained (or obtainable) through lawful means. (c) As an affirmative defense to a complaint under 39 U.S.C. 404a(a)(3), the Postal Service may show that the information obtained was provided by written consent. § 3032.8 Statutorily authorized affirmative defense. (a) As an affirmative defense to an allegation of a violation of 39 U.S.C. 404a(a), the Postal Service may demonstrate that it is specifically authorized by law to take the action or inaction alleged to be a violation of that section. (b) Authority under 39 U.S.C. 401 or 39 U.S.C. 404 may not form the basis of an affirmative defense under paragraph (a) of this section. (c) Paragraph (b) of this section does not preclude the Postal Service from arguing that a particular Postal Service regulation or other action (or inaction) does not have the requisite effect to violate 39 U.S.C. 404a(a). By the Commission. Ruth Ann Abrams, Acting Secretary. [FR Doc. 2014–24376 Filed 10–15–14; 8:45 am] BILLING CODE 7710–FW–P E:\FR\FM\16OCR2.SGM 16OCR2

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[Federal Register Volume 79, Number 200 (Thursday, October 16, 2014)]
[Rules and Regulations]
[Pages 62289-62294]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-24376]



[[Page 62289]]

Vol. 79

Thursday,

No. 200

October 16, 2014

Part III





 Postal Regulatory Commission





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39 CFR Part 3032





 Restrictions on Unfair Competition; Final Rule

Federal Register / Vol. 79 , No. 200 / Thursday, October 16, 2014 / 
Rules and Regulations

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POSTAL REGULATORY COMMISSION

39 CFR Part 3032

[Docket No. RM2013-4; Order No. 2207]


Restrictions on Unfair Competition

AGENCY: Postal Regulatory Commission.

ACTION: Final rule.

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SUMMARY: The Commission is issuing a set of final rules that enhance 
the formal complaint process in cases involving alleged violations of a 
law that prohibits the Postal Service from taking certain actions that 
might provide it with unfair competitive advantages. The rules 
implement the statutory prohibitions on unfair competition. Relative to 
the proposed rules, some of the changes are substantive and others are 
minor and non-substantive. Proposed rules of a procedural nature were 
either removed or modified.

DATES: Effective November 17, 2014.

FOR FURTHER INFORMATION CONTACT: David A. Trissell, General Counsel, at 
202-789-6820.

SUPPLEMENTARY INFORMATION: Regulatory History: 78 FR 35826, June 14, 
2013.

Table of Contents

I. Introduction
II. Substantive Rules
III. Section-by-Section Analysis
IV. Ordering Paragraphs

I. Introduction

    On June 5, 2013, the Commission issued a notice of proposed 
rulemaking to promulgate implementing regulations for 39 U.S.C. 
404a.\1\ Section 404a prohibits the Postal Service from certain 
anticompetitive behaviors, and permits any person to file a complaint 
with the Commission if that person believes the Postal Service has 
violated the section. Order No. 1739 contained proposals for both 
substantive rules relating to the standards by which complaints under 
section 404a are adjudicated and procedural rules accessible to only 
complaints that allege a violation of section 404a.
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    \1\ Notice of Proposed Rulemaking Establishing Rules Pursuant to 
39 U.S.C. 404a, June 5, 2013 (Order No. 1739).
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    The Commission received comments and reply comments from: The 
Public Representative,\2\ the Postal Service,\3\ Stamps.com and Endicia 
(jointly),\4\ Valpak Direct Marketing Systems, Inc. and Valpak Dealers 
Association, Inc.,\5\ and Time Inc.\6\ Frederick Foster,\7\ 
IDEAlliance,\8\ United Parcel Service,\9\ Pitney Bowes,\10\ Valassis 
Direct Mail,\11\ National Association of Presort Mailers \12\ and 
Grayhair Software, Inc.\13\ only filed initial comments. The Newspaper 
Association of America only filed reply comments.\14\
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    \2\ Public Representative Comments, July 29, 2013 (PR Comments), 
Public Representative Reply Comments, August 28, 2013 (PR Reply 
Comments).
    \3\ Initial Comments of the United States Postal Service, July 
29, 2013 (Postal Service Comments), Reply Comments of the United 
States Postal Service, August 28, 2013 (Postal Service Reply 
Comments).
    \4\ Joint Comments of Stamps.com and Endicia, July 29, 2013 
(Stamps.com and Endicia Comments), Joint Reply Comments of 
Stamps.com and Endicia, August 28, 2013 (Stamps.com and Endicia 
Reply Comments).
    \5\ Valpak Direct Marketing Systems, Inc. and Valpak Dealers' 
Association, Inc. Initial Comments on Notice of Proposed Rulemaking, 
July 29, 2013 (Valpak Comments), Valpak Direct Marketing Systems, 
Inc. and Valpak Dealers' Association, Inc. Reply Comments on Notice 
of Proposed Rulemaking, August 28, 2013 (Valpak Reply Comments).
    \6\ Comments of Time Inc. in Response to Order No. 1739, July 
29, 2013 (Time Comments), Reply Comments of Time Inc. Regarding 
Order No. 1739 (Time Reply Comments). Concurrent with its reply 
comments, Time Inc. filed a Motion of Time Inc. for Acceptance of 
Late Filing on August 29, 2013. That motion is granted.
    \7\ Frederick Foster's Opinion on the PRC Notice of Proposed 
Rulemaking Establishing Rules Pursuant to 39 U.S.C. 404a, July 19, 
2013 (Foster Comments).
    \8\ Initial Comments of the International Digital Enterprise 
Alliance, Inc. (IDEAlliance), July 29, 2013 (IDEAlliance Comments).
    \9\ Initial Comments of United Parcel Service in Response to 
Notice of Proposed Rulemaking Establishing Rules Pursuant to 39 
U.S.C. 404a, July 29, 2013 (UPS Comments).
    \10\ Comments of Pitney Bowes, Inc., July 29, 2013 (Pitney Bowes 
Comments).
    \11\ Valassis Direct Mail, Inc., July 29, 2013 (Valassis 
Comments).
    \12\ Comments of the National Association of Presort Mailers, 
July 29, 2013 (NAPM Comments).
    \13\ Comments of Grayhair Software, Inc., July 29, 2013 
(Grayhair Software Comments).
    \14\ Reply Comments of the Newspaper Association of America, 
August 28, 2013 (NAA Reply Comments).
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    Overall the rules relating to the substantive implementation of 
section 404a were significantly less controversial than those creating 
procedures applicable only for 404a complaints. The Commission finds it 
appropriate to bifurcate action on the proposed rules. Pursuant to 39 
U.S.C. 404a(b), this Order adopts substantive rules relating to the 
implementation of section 404a, but defers consideration of procedural 
rules to later proceedings. The Commission plans consideration of 
changes to the procedural rules governing all complaints before the 
Commission, and has determined that it is not appropriate at this time 
to create procedural rules only applicable to complaints alleging 
Postal Service violations of section 404a. As such, the Commission does 
not offer final rules for 39 CFR part 3032, subpart C, nor part 3033 
accelerated procedures for complaints alleging violations of 39 U.S.C. 
404a.
    The remainder of this Order is comprised of two sections. The first 
identifies each substantive rule to be implemented and discusses any 
issues or comments. The second provides a section-by-section analysis 
of the final rules with a description of any changes from the proposed 
rules. The full text of the final rules is set forth below.

II. Substantive Rules

    In this section, each substantive rule that will be finalized is 
identified, briefly outlined, and comments or issues relating to the 
rule are discussed and analyzed.

A. Rule 3032.1 Applicability

    Proposed rule 3032.1 identifies how the standards and rules that 
follow in part 3032 are applied. Specifically, it states that complaint 
proceedings filed under 39 U.S.C. 3662 for alleged Postal Service 
violations of 39 U.S.C. 404a are governed by the substantive standards 
set forth in part 3032.
    No comments address proposed rule 3032.1. However, the Commission 
implements several changes to the proposed rule because the proposed 
rule covers both the substantive standards appearing in subpart B of 
part 3032, as well as the procedural rules appearing in subpart C of 
part 3032 and all of part 3033. The final rule removes references to 
those procedural rules.

B. Rule 3032.5 Unfair Competition

    Proposed rule 3032.5 implements section 404a(a)(1). It lists the 
elements that a complainant must show to bring a complaint that the 
Postal Service has violated 39 U.S.C. 404a(a)(1). Specifically, a valid 
complaint requires that the Postal Service have a rule, regulation, or 
standard that precludes competition or establishes the terms of the 
competition. It further requires that the rule, regulation, or standard 
harms or harmed the person filing the complaint and competition. The 
rule offers an affirmative defense available to the Postal Service, 
namely that it may demonstrate the rule at issue does not create an 
unfair competitive advantage for itself or any entity it funds. 
Finally, the rule defines terms (rule, regulation, or standard) to 
include other actions or edicts issued by the Postal Service that have 
the effect of a rule, regulation, or standard. At the outset, the 
Public Representative notes that the title of the rule is not clear. 
Public Representative Comments at 5, n.5. Unfair Competition is a 
broader concept than the rule itself. Therefore, the Commission finds 
it appropriate to alter the title of the rule (from Unfair Competition 
to Postal Service Rules that Create an Unfair

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Competitive Advantage). Comments address five specific aspects of 
proposed rule 3032.5.
1. Harm Requirement in 3032.5(a)(2)
    Proposed 3032.5(a)(2) requires that the Postal Service's action 
harms or harmed the person filing the complaint and competition. United 
Parcel Service objects to the inclusion of this harm requirement 
because that requirement is not present in the statute. UPS Comments at 
5 (The rule would add elements to the complainant's burden that are not 
currently in the statute.). See also Public Representative Reply 
Comments at 9, Stamps.com and Endicia Reply Comments at 2, NAA Reply 
Comments at 5. Pitney Bowes contends that the proposed harm requirement 
shifts the burden improperly away from the Postal Service to 
demonstrate that the rule or regulation does not cause harm, and is 
therefore inconsistent with the plain language of the statute. Pitney 
Bowes Comments at 2.
    United Parcel Service also notes that reading a requirement of harm 
into the rule makes the rule analogous to other antitrust and unfair 
competition standards that the Postal Service is already subject to by 
virtue of 39 U.S.C. 409(e). UPS Comments at 5.
    The Postal Service supports the inclusion of the harm requirement 
as a reasonable interpretation of the statute and consistent with the 
legal concept of standing. Postal Service Reply Comments at 5-7. The 
Postal Service contends that the requirement to show harm would limit 
the number of claims that would waste time because no party has 
suffered, nor ever would suffer, any harm. Id. at 7. Time, Inc. 
contends that the harm requirement should be read as purely 
jurisdictional, and could be broadened to include associations or 
representative bodies of those harmed. Time Reply Comments at 8. Time, 
Inc. comments that the harm to competition requirement should be read 
to mean that complainant must show how the Postal Service's action 
precluded competition or established the terms of competition. Id. at 
8-9.
    The Commission agrees with the comments that point out the harm 
requirement is not present in the statute. The Commission removes the 
harm requirement as a jurisdictional element that complainants must 
demonstrate to proceed under the rules. Harm may remain a relevant part 
of a complaint alleging a violation of 39 U.S.C. 404a(a)(1), and could 
be used to show how the Postal Service has established the terms of 
competition or precluded competition. It could also be used in the 
Commission's consideration of an appropriate remedy should a complaint 
be sustained.
    The Commission finds that the benefits of keeping the harm 
requirement, as articulated by the Postal Service, are outweighed by 
the extra-statutory restrictions it would impose upon complainants. The 
final rule, therefore, does not contain a requirement that the 
complainant demonstrate harm to himself and competition.
2. Affirmative Defense in 3032.5(b)
    Proposed 3032.5(b) offers the Postal Service an affirmative defense 
that no violation has occurred when the Postal Service can demonstrate 
that the rule, regulation or standard does not create an unfair 
competitive advantage for itself or any entity funded, in whole or 
part, by it. The Public Representative proposes that the defense should 
be rebuttable rather than affirmative. Public Representative Comments 
at 5. This would mean that even if the Postal Service shows that there 
is a regulatory justification for the rule subject to a 404a complaint, 
it could nonetheless be found in violation of 404a if anticompetitive 
harm outweighs the regulatory justification. Id. at 7-8. The Public 
Representative contends that this burden-shifting framework is used in 
antitrust litigation under the Sherman Antitrust Act of 1890 when 
applying the rule-of-reason analysis. Id. at 6-7. Stamps.com and 
Endicia support the Public Representative's suggestion. Stamps.com and 
Endicia Reply Comments at 4-5.
    The Postal Service opposes the rebranding of its defense as 
rebuttable. The Postal Service characterizes this proposed change as 
importing principles of antitrust law that were not envisioned by 
Congress when section 404a was enacted. Postal Service Reply Comments 
at 22.
    The Commission is sympathetic to the arguments of the Public 
Representative and Stamps.com and Endicia, but the framework of section 
404a is clear in its construction. The statute unequivocally states 
that the Postal Service is prohibited from certain behavior unless a 
condition is present. Put another way, if that condition is present, 
the Postal Service is not prohibited from that certain behavior.
    The Commission finds it appropriate to maintain the rule as 
constructed, as it better reflects the language and intent of the 
statute. The principles used under other laws to evaluate unfair 
competition are instructive and useful as reasoned analysis, but cannot 
be relied upon to change the plain meaning of the controlling law. 
Congress enacted section 404a(a)(1) using substantially different 
language than the Sherman Act.\15\ If Congress intended for the 
Commission to use the entire rule-of-reason analysis to evaluate 
404a(a)(1) complaints, it likely would have used language similar to 
the Sherman Act language in formulating section 404a(a)(1).
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    \15\ 15 U.S.C. 1-38.
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3. Rule, Regulation or Standard Definition
    Proposed 3032.5(c) broadly defines rule, regulation, or standard to 
include other edicts by the Postal Service that may have the effect of 
a rule, but without a title identifying it as such. The Postal Service 
contends that the definition is too broad, ambiguous, and should rather 
refer to the Postal Service's own definition of its rules in the Code 
of Federal Regulations. Postal Service Comments at 5-6. The Postal 
Service comments that the proposed definition could be argued to have 
no boundaries and would expand the Postal Service's potential 
liability. Id. at 6.
    Stamps.com and Endicia, Pitney Bowes, the Public Representative, 
United Parcel Service, and Newspaper Association of America counter 
that the broad definition is necessary to avoid the Postal Service's 
ability to play semantics. Stamps.com and Endicia Comments at 3-4, 
Pitney Bowes Comments at 6, Public Representative Comments at 10, UPS 
Comments at 4, NAA Reply Comments at 7.
    The Commission does not find it appropriate to limit the 
jurisdiction of complaints brought under 404a(a)(1) to the Postal 
Service's definition of its rules, regulations, or standards. As 
several commenters point out, the Postal Service is able to take 
action, as a regulator, without formally announcing its intent as a 
rule, regulation, or standard. Stamps.com and Endicia Comments at 3-4, 
UPS Comments at 4, NAA Reply Comments at 6-7. The Postal Service could 
also amend its definition through its rulemaking authority.
    The Commission finds that the uncertainty introduced by leaving the 
definition of rule, regulation, or standard open to action that has the 
effect of regulation without the title is not limitless as 
characterized by the Postal Service. Rather, it allows the Commission 
to review the facts and circumstances when a complainant believes the 
Postal Service has acted in its capacity as a regulator and violated 
the statute.

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4. Passive Violations of 404a(a)(1)
    The Public Representative and Stamps.com and Endicia suggest that 
complainants be able to pursue a 404a(a)(1) violation for a passive 
violation, where the Postal Service, by competing in a market, has 
established the terms of competition. Public Representative Comments at 
10. Stamps.com and Endicia agree with the Public Representative and 
comment that the Postal Service entering a market that it also 
regulates could have the effect of precluding competition or 
establishing the terms of competition. Stamps.com and Endicia Reply 
Comments at 5.
    The Postal Service comments that allowing a complaint to proceed 
merely on the basis that the Postal Service has entered a market, and 
not more, would unlawfully expand the scope of section 404a(a)(1). 
Postal Service Reply Comments at 26. The Postal Service notes that 
other laws and regulations govern its activity in other spheres. Id.
    The Commission notes that both section 404a(a)(1) and proposed rule 
3032.5 have no requirement as to the timing of the Postal Service's 
rule versus its competing in a market. If the Postal Service enters a 
market, and existing rules coupled with that entry mean that the Postal 
Service has now precluded competition or established the terms of 
competition, the existing framework does not foreclose a complaint. If 
the Postal Service does not, however, have any rule, regulation or 
standard that applies, and enters a market, it is not possible for it 
to violate section 404a(a)(1). The Postal Service is correct that 
merely competing, without an applicable rule, regulation, or standard, 
cannot form the basis of a 404a(a)(1) complaint. The plain reading of 
the terms of 404a(a)(1) requires the Postal Service to preclude 
competition or establish the terms of competition with its 
establishment of a rule or regulation.
5. Per se Violations of 404a(a)(1)
    Grayhair Software and Pitney Bowes encourage the Commission to 
specifically identify, in its substantive rules, actions by the Postal 
Service that would, by their nature, be anticompetitive and in 
violation of rule 3032.5. Grayhair Software Comments at 17-18 (Grayhair 
advocates a new rulemaking to consider specific guidance on standards 
regarding competitive foreclosure.). Pitney Bowes Comments at 5. Pitney 
Bowes provides an example of a product or service with a non-zero cost 
being offered for free as what could be termed a per se violation of 
the rule. Id. Stamps.com and Endicia agree that the rules would be 
improved by offering guidance on Postal Service actions that would 
constitute per se violations. Stamps.com and Endicia Reply Comments at 
2.
    The Postal Service opposes the Commission defining per se 
violations of the rule. Postal Service Reply Comments at 2. It notes 
the general move away from per se analysis in the antitrust law 
context, and that the availability of greater economic and market 
expertise has made for more nuanced analysis and adjudication. Id. at 
2-4. The Public Representative also comments that per se declarations 
of prohibited conduct would be inappropriate. Public Representative 
Reply Comments at 11-12. The Public Representative notes the general 
disadvantages in offering declaratory judgments, where the facts of an 
individual case are not considered. Id. at 12.
    At this juncture, especially given that there have been no 
complaints adjudicated that have alleged a violation of 39 U.S.C. 404a, 
the Commission finds insufficient information exists in the record to 
determine what specific actions by the Postal Service would constitute 
a violation of section 404a(a)(1).

C. Rule 3032.6 Disclosure, Transfer, and Licensing of Intellectual 
Property

    Proposed rule 3032.6 implements section 404a(a)(2), which prohibits 
the Postal Service from compelling or attempting to compel the 
disclosure, transfer, or licensing of intellectual property from the 
complainant to a third party. No comments address proposed rule 3032.6, 
and there are no revisions to the proposed rule.

D. Rule 3032.7 Unlawfully Obtaining Information

    Proposed rule 3032.7 implements section 404a(a)(3), which prohibits 
the Postal Service from obtaining information from a party and later 
offer a product or service based on that information, unless the Postal 
Service has consent of the party or obtained (or could have obtained) 
the information from another source. Two aspects of proposed rule 
3032.7 were addressed in the comments.
1. Provided or Sought To Provide to the Postal Service
    Stamps.com and Endicia comment that a party need only to provide or 
seek to provide a product, and that it need not be directed at the 
Postal Service. Stamps.com and Endicia Comments at 5-6. Stamps.com and 
Endicia contend that a product could be offered to the public, and the 
Postal Service could obtain information from the complainant through 
other submissions, approvals, or concurrence. Id. at 6. Stamps.com and 
Endicia comment that this revision conforms more closely to the 
language of 404a(a)(3). Id. at 5.
    The Postal Service counters that the intent of the statute is to 
protect parties in negotiation with the Postal Service, and it need not 
be extended beyond that scope. Postal Service Reply Comments at 32-33. 
The Postal Service contends that section 404a(a)(3) aims to protect 
confidential information shared with the Postal Service pursuant to a 
business relationship, and therefore should not apply outside the 
context of that relationship. Id. at 32.
    The Commission finds that Stamps.com and Endicia's suggested 
revision is in keeping with the language of the statute, and amends the 
final rule.
    It may be difficult to envision a circumstance where the Postal 
Service would procure such confidential information outside the scope 
of an offering by the complainant, but that difficulty does not place 
the circumstance out of the realm of possibility. The Postal Service 
remains protected from a broad expanse of the rule by other 
requirements of the rule. Rule 3032.7(a)(2) requires the Postal Service 
to have obtained the information from the complainant, and 3032.7(b) 
and (c) give the Postal Service the ability to defend the acquisition 
by showing availability from other sources or provision by consent.
2. Informed Consent
    The Postal Service objects to the Commission's linking of the 
District of Columbia's Rules for Professional Conduct to the rule 
3032.7 definition of informed consent. Postal Service Comments at 20. 
The Postal Service comments that the professional conduct rule was 
designed to apply to the attorney-client relationship, which is 
inapplicable to transaction negotiations as envisioned under section 
404a. Id. at 20-21. Notwithstanding those specific objections, the 
Postal Service also opposes all the requirements concerning consent in 
proposed rule 3032.7 because the Postal Service believes the 
requirements are based on a faulty assumption--that there is inequality 
of bargaining power between the Postal Service and its business 
partners. Id. at 21. The Postal Service contends that these 
requirements concerning consent would interfere with the Postal 
Service's ability to conduct business.
    Stamps.com and Endicia reply that it is unclear what about the 
nature of informed consent would interfere with the Postal Service's 
ability to do

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business. Stamps.com and Endicia Reply Comments at 4.
    The Public Representative replies that if the Postal Service is to 
rely on consent to defeat an allegation that it unlawfully appropriated 
intellectual property, that consent should be informed and uncoerced. 
Public Representative Reply Comments at 10. However, the Public 
Representative also agrees with the Postal Service that it should not 
have to make an affirmative prior communication explaining the risks of 
providing consent because it would be tantamount to treating business 
partners as fiduciaries. Id.
    The Commission's intent with requiring informed consent in its 
proposed rules was to require the Postal Service to demonstrate more 
than a party's signature on a form presented as a requirement before 
the Postal Service will enter negotiations. See Order No. 1789 at 16. A 
long-held tenet of tort law is that where a party consents a claim of 
conversion will not lie.\16\ Similarly, if a party consents to the 
Postal Service's taking of its intellectual property, a claim the 
Postal Service violated section 404a(a)(3) cannot be sustained. Because 
the harm to an individual in losing rights to intellectual property can 
be great, the Commission sought to protect that interest.
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    \16\ See, e.g., Tousley v. Board of Education, 40 N.W. 509 
(Minn. 1888).
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    However, the Commission agrees with the Postal Service and the 
Public Representative that the heightened duty articulated in rule 
3032.7 is more than would be necessary to protect that interest. The 
Commission finds that the standard for consent, to justify the taking 
of intellectual property is not informed and uncoerced consent but 
rather the traditional common law notion of consent with a minor 
modification.\17\ To attempt to mitigate the potential harm to an 
individual losing his or her rights to intellectual property, the 
Commission will require consent to be written rather than implied for 
instances where the Postal Service claims consent as a defense pursuant 
to 3032.7.
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    \17\ See American Jurisprudence, section 104 Conversion. Consent 
is a complete defense to a claim of conversion. See, e.g., Bank of 
New York v. Fremont General Corp., 523 F.3d 902, 914 (C.A.9 (Cal.), 
2008). There can be no action for conversion where the dispossessed 
party consented to the taking of the property. The Commission notes 
that using the term uncoerced is duplicative as consent by its 
nature is voluntary.
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    The Commission will examine evidence that the complainant consented 
in writing to the taking of its intellectual property under rule 3032.7 
in light of the traditional common law notion of consent, and make a 
determination based on the preponderance of the evidence whether 
complainant consented to the taking.
    The final rule will not include a requirement that the Postal 
Service has communicated adequate information and explanation about the 
risks of providing such consent. The Commission agrees with the Postal 
Service and the Public Representative that such a requirement, as used 
in evaluating legal representation agreements, is not appropriate to 
use in evaluating informed consent between the Postal Service and a 
contracting partner. By omitting this language, the Commission does not 
require the Postal Service to act in an advisory capacity to its 
contracting partners when it obtains consent.
    A requirement that a party provide written consent to the Postal 
Service's taking of its intellectual property strikes an appropriate 
balance between the need to protect an individual's property rights and 
avoid undue burden to the Postal Service.

E. Rule 3032.8 Statutorily Authorized Affirmative Defense

    Proposed rule 3032.8 sets forth that the Postal Service may offer, 
as an affirmative defense to any alleged violation of section 404a, 
that it is specifically authorized by law to take such action (or 
inaction) that is alleged to be in violation of the section. Subsection 
(b) states that the Postal Service may not use its general or specific 
authority (enumerated in 39 U.S.C. 401 and 404) to form the basis of an 
affirmative defense.
    The Postal Service comments that the rule is not tenable, because 
it precludes the Postal Service from using its authority to act. Postal 
Service Comments at 15. The Postal Service gives an example of using 
its eminent domain authority over intellectual property. Id. at 16.
    Pitney Bowes, as well as Stamps.com and Endicia, comment that 
section 404a would be meaningless if the Postal Service could justify 
its actions based on its general and specific authority alone. Pitney 
Bowes Comments at 5, Stamps.com and Endicia Reply Comments at 3-4.
    Authority for all Postal Service action is derived from its general 
or specific authority that is set forth in 39 U.S.C. 401 and 404. The 
Commission does not read the proposed rule 3032.8 to foreclose the 
Postal Service's ability to execute its general or specific authority 
as authorized by those sections. Action by the Postal Service pursuant 
to either of those sections is limited by and subject to 39 U.S.C. 
404a, as both the Postal Service and other commenters point out. There 
appears to be a misunderstanding, however, in the construction of rule 
3032.8.
    The Postal Service, under the current iteration of the rule, is not 
precluded from offering its statutory authority in sections 401 or 404 
as a justification for any action it may take. It is only prohibited 
from offering, as the basis of an affirmative defense, its general or 
specific authority. The Postal Service uses the example of its specific 
authority to exercise eminent domain, and contends that it could use 
that authority over intellectual property. Rule 3032.8 does not 
preclude the Postal Service's use of its eminent domain authority. The 
rule makes clear that such authority is subject to the limitations 
imposed by section 404a. Rule 3032.8(c) clarifies that the Postal 
Service is not precluded from arguing that its use of its eminent 
domain authority does not have the requisite effect to violate section 
404a(a).
    The rule is only meant to convey that both sections 401 and 404 are 
subject to the limitations of 404a and therefore unavailable as the 
basis for an affirmative defense of an alleged violation of 404a. Based 
on that understanding and interpretation, the Commission does not find 
it necessary to amend rule 3032.8.

F. General Substantive Comments

    Several comments are more general, and though related to the 
substantive rules, are not tied to a specific proposed rule.
    Frederick Foster comments that the Commission should not administer 
404a complaints, but rather should investigate allegations and report 
such results to the United States District Court. Foster Comments at 1-
4. Title 39, section 404a(c), however, unequivocally confers the rights 
of any party to bring a complaint to the Commission on the basis of an 
alleged Postal Service violation of section 404a.
    Pitney Bowes comments that the Commission should take a broad view 
of its authority in enforcing anticompetitive practices, beyond 404a, 
and gives the example of workshare discounts that pass through less 
than 100 percent of costs avoided. Pitney Bowes Comments at 8. The 
Commission notes that the review of workshare discount pricing, as 
acknowledged by Pitney Bowes, appears to extend beyond the Commission's 
section 404a responsibilities. However, the Commission does not make a 
determination as to the scope of section 404a vis-[agrave]-vis 
workshare discount pricing to avoid prejudicing any

[[Page 62294]]

particular complaint where such issues may arise.
    The Newspaper Association of America cautions that the Commission 
should not import any principles of antitrust law or unfair 
competition, but rather should use 404a as a check on a government 
entity's monopoly power. The Commission's aim in developing rules 
implementing 404a is to follow Congressional intent as enacted. The 
Commission's reference to anticompetitive principles is meant as 
guidance for the Commission and parties as to relevant lines of 
inquiry, not as any replacement of the statutory intent of section 
404a.

III. Section-by-Section Analysis

    This section sets forth the title of each final rule adopted by 
this Order, and any changes, to the rule from the proposed rule. The 
discussion of the comments and basis for those changes appears in the 
preceding section.
    Rule 3032.1. This provision describes the type of proceedings that 
are covered by this part.
    Rule 30302.5. This provision describes the showing that a 
complainant must make in matters involving unfair competitive advantage 
and the type of affirmative defense the Postal Service may raise. It 
also addresses the scope of certain terms.
    Rule 3032.6. This provision describes the showing that the 
complainant must make with respect to matters involving intellectual 
property and addresses the scope of certain terms.
    Rule 3032.7. This provision describes the showing that the 
complainant must make with respect to unlawfully obtained information 
and the type of affirmative defense the Postal Service may raise.
    Rule 3032.8. This provision addresses affirmative defenses the 
Postal Service may raise that are based in law.

IV. Ordering Paragraphs

    It is ordered:
    1. Part 3032 of chapter III, title 39, Code of Federal Regulations, 
is adopted as set forth below the signature of this Order, effective 30 
days after publication in the Federal Register.
    2. The Secretary shall arrange for publication of this order in the 
Federal Register.

List of Subjects in 39 CFR Part 3032

    Administrative practice and procedure, Postal Service, Trademarks.

    For the reasons discussed in the preamble, the Commission amends 
chapter III of title 39 of the Code of Federal Regulations as follows:

0
1. Add part 3032 to read as follows:

PART 3032--SPECIAL RULES FOR COMPLAINTS ALLEGING VIOLATIONS OF 39 
U.S.C. 404a

Subpart A--General
Sec.
3032.1 Applicability.
3032.2-3032.4 [Reserved]
Subpart B--Requirements and Defenses
3032.5 Postal Service rules that create an unfair competitive 
advantage.
3032.6 Disclosure, transfer, and licensing of intellectual property.
3032.7 Unlawfully obtaining information.
3032.8 Statutorily authorized affirmative defense.

    Authority:  39 U.S.C. 404a; 3662.

Subpart A--General


Sec.  3032.1  Applicability.

    The rules in this part govern proceedings filed under 39 U.S.C. 
3662 alleging violations of 39 U.S.C. 404a that meet the requirements 
of Sec. Sec.  3030.2 and 3030.10 of this chapter.


Sec. Sec.  3032.2-3032.4  [Reserved]

Subpart B--Requirements and Defenses


Sec.  3032.5  Postal Service rules that create an unfair competitive 
advantage.

    (a) A complaint alleging a violation of 30 U.S.C. 404(a)(a)(1) must 
show that a Postal Service rule, regulation, or standard has the effect 
of:
    (1) Precluding competition; or
    (2) Establishing the terms of competition.
    (b) As an affirmative defense to a complaint under 39 U.S.C. 
404a(a)(1), the Postal Service may demonstrate that the rule, 
regulation, or standard at issue does not create an unfair competitive 
advantage for itself or any entity funded, in whole or in part, by the 
Postal Service.
    (c) As used in this section, the term rule, regulation, or standard 
includes, among other things, documents or policies issued by the 
Postal Service to exercise its regulatory authority or otherwise act as 
a governmental entity.


Sec.  3032.6  Disclosure, transfer, and licensing of intellectual 
property.

    (a) A complaint alleging a violation of 39 U.S.C. 404a(a)(2) must 
show that the Postal Service has compelled or attempted to compel the 
disclosure, transfer, or licensing of the intellectual property of the 
person filing the complaint to a third party.
    (b) As used in this section, the term intellectual property 
includes, among other things, patents, copyrights, trademarks, trade 
secrets, and proprietary information.
    (c) As used in this section, the term disclosure, transfer, or 
licensing of intellectual property includes, among other things, an 
action that has an adverse effect on the value of intellectual 
property.


Sec.  3032.7  Unlawfully obtaining information.

    (a) A complaint alleging a violation of 39 U.S.C. 404a(a)(3) must 
show that:
    (1) The person filing the complaint has provided or sought to 
provide a product;
    (2) The Postal Service obtained information about such product from 
the person filing the complaint; and
    (3) The Postal Service offers or offered a postal service that uses 
or is based, in whole or in part, on the information obtained from the 
person filing the complaint.
    (b) As an affirmative defense to a complaint under 39 U.S.C. 
404a(a)(3), the Postal Service may demonstrate that substantially the 
same information was obtained (or was obtainable) from an independent 
source or is otherwise obtained (or obtainable) through lawful means.
    (c) As an affirmative defense to a complaint under 39 U.S.C. 
404a(a)(3), the Postal Service may show that the information obtained 
was provided by written consent.


Sec.  3032.8  Statutorily authorized affirmative defense.

    (a) As an affirmative defense to an allegation of a violation of 39 
U.S.C. 404a(a), the Postal Service may demonstrate that it is 
specifically authorized by law to take the action or inaction alleged 
to be a violation of that section.
    (b) Authority under 39 U.S.C. 401 or 39 U.S.C. 404 may not form the 
basis of an affirmative defense under paragraph (a) of this section.
    (c) Paragraph (b) of this section does not preclude the Postal 
Service from arguing that a particular Postal Service regulation or 
other action (or inaction) does not have the requisite effect to 
violate 39 U.S.C. 404a(a).

    By the Commission.

Ruth Ann Abrams,
Acting Secretary.
[FR Doc. 2014-24376 Filed 10-15-14; 8:45 am]
BILLING CODE 7710-FW-P