[Federal Register: May 24, 1999 (Volume 64, Number 99)]
[Notices]
[Page 28015-28022]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24my99-117]

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POSTAL RATE COMMISSION

[Docket No. C99-1; Order No. 1239]


Complaint Case

AGENCY: Postal Rate Commission.

ACTION: Notice of new complaint docket.

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SUMMARY: This order announces a formal complaint docket related to a
pilot program entailing electronic delivery service. It also addresses
related procedural matters. These actions allow issues raised by the
Service's participation in this program to be addressed.

DATES: See SUPPLEMENTARY INFORMATION section for dates.

[[Page 28016]]

ADDRESSES: Address all communications regarding this notice to the
attention of Margaret P. Crenshaw, Secretary of the Commission, 1333 H
Street NW., Suite 300, Washington, DC 20268-0001.

FOR FURTHER INFORMATION CONTACT: Stephen L. Sharfman, General Counsel,
1333 H Street NW., Suite 300, Washington, DC 20268-0001.

SUPPLEMENTARY INFORMATION: On Oct. 5, 1998, United Parcel Service (UPS)
submitted a formal complaint against the United States Postal Service
(Postal Service or Service) pursuant to 39 U.S.C. 3662, claiming that
the Service's introduction of a service offering called Post Electronic
Courier Service (Post ECS) violates various procedural and substantive
requirements of the Postal Reorganization Act. In response, the Postal
Service challenged the merits of each of complainant's claims and moved
to dismiss the complaint.<SUP>1</SUP> For the reasons presented herein,
the Commission denies the Service's motion and initiates formal
proceedings to consider the complaint.
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    \1\ Motion of the United States Postal Service to Dismiss, Nov.
5, 1998. As provided in order no. 1221, complainant filed the answer
of United Parcel Service in opposition to motion of United States
Postal Service motion to dismiss complaint on Dec. 16, 1998.
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Factual Background

    The facts recited in the following summary are not in dispute. They
are derived either from assertions in the complaint that the Service
has not contested, or from the Service's own filings in this docket to
date.<SUP>2</SUP>
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    \2\ In addition to its answer to the UPS complaint filed on Nov.
5, 1998, the Postal Service has filed responses to most of a series
of questions directed to it by the Commission in order no. 1229,
issued Feb. 17, 1999. Partial Response of United States Postal
Service to Commission Order No. 1229, March 3, 1999. In response to
a Postal Service motion for reconsideration of order no. 1229, the
Commission has deferred action on documents and other information
responsive to question 4(a) in that order, in view of commercially
sensitive information the Service claims would be contained in a
response. Order No. 1230, Order Denying Motion of United States
Postal Service for Reconsideration of Order No. 1229 and Directing
Immediate Provision of Responses to Questions 1, 2, 3 and 4(b),
March 2, 1999.
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    In May 1998, the Service began its participation in a pilot program
to introduce a service under arrangements made with Canada Post
Corporation (Canada Post), France's LaPoste (LaPoste), the
International Postal Corporation (IPC), and a software supplier. The
service offered in the pilot program is called Post ECS and its
availability is limited to 3,500 licensees. To date, the Service has
licensed between 25 and 100 U.S. companies to use Post ECS; 40 of these
companies are dispersed through 15 states.
    Post ECS is an all-electronic service designed to transmit
documents securely from a sender to an intended recipient. Licensees
access the service from a computer terminal by contacting a Postal
Service electronic commerce server through the Internet, entering an
assigned password, specifying the intended recipient of the document,
and transmitting it electronically to the server. The Postal Service
notifies the addressee by e-mail that the document is available at a
specified URL address, and states that it can be retrieved using the
Internet within a specified amount of time. The addressee--who may be
located in the United States or elsewhere--uses a computer terminal to
access the Internet site specified in the Postal Service's e-mail
message, enters an assigned password, and downloads the document. At
present, the Postal Service is providing Post ECS service free of
charge to its licensees.
    Post ECS, which is currently being provided in the status of an
operations test, has never been the subject of a formal request of the
Postal Service lodged with the Commission under 39 U.S.C. 3623 or 3622,
nor of a Postal Service proposal to the Commission to make a
substantially nationwide change in the nature of postal services under
39 U.S.C. 3661. According to the Postal Service, Post ECS is scheduled
to continue at least through mid-June 1999, and there are no current
plans to request approval from the Board of Governors for an extension,
nor does the Service contemplate that any such request would be
necessary or appropriate at this juncture.

Substance of the Complaint

    The complaint of UPS is grounded in three separate claims. One
claim alleges a substantive deficiency in the free rate associated with
Post ECS service. The other two claims involve the lack of a regulatory
pedigree for Post ECS under the provisions of 39 U.S.C. chapter 36.
    The initial claim is premised on an allegation that Post ECS is a
class of mail or type of mail service which may be established by the
Governors of the Postal Service only in accordance with the provisions
of chapter 36 of the Reorganization Act. Inasmuch as the Postal Service
has not requested the Commission to recommend establishment of Post ECS
as a classification of mail pursuant to 39 U.S.C. 3623, nor to
recommend an associated rate or fee for the service pursuant to section
3622, UPS claims that there has been no showing that provision of Post
ECS is in accordance with the policies of the Reorganization Act and
the factors prescribed in sections 3622 and 3623. Accordingly, UPS
argues, the Service's provision of Post ECS violates the Postal
Reorganization Act. Complaint at 2.
    A separate claim likewise involves the service's lack of regulatory
pedigree, and also is premised on an assertion that Post ECS is a
postal service. Because Post ECS allegedly is being used by a
substantial number of companies to send documents nationwide, UPS
claims, providing the service could impact on mailers' use of other
mail services such as registered and certified mail. Consequently, UPS
argues, the Postal Service's institution and continuing provision of
Post ECS constitutes a change in the nature of postal services which
will generally affect service on a nationwide or substantially
nationwide basis. In light of the Postal Service's failure to submit a
proposal to the Commission within a reasonable time prior to making
such a change, as 39 U.S.C. 3661 requires, UPS claims that the
Service's provision of Post ECS violates section 3661. Id. at
3-4.
    The complaint's substantive challenge to Post ECS service relies on
the requirement in 39 U.S.C. 3622(b)(3) that each class or type of mail
service bear the costs attributable to it plus a reasonably assignable
portion of other costs, together with the impact consideration in
3622(b)(4). By providing Post ECS at no charge, UPS alleges, the Postal
Service violates the prohibition in section 3622(b)(3) against
providing a class or type of mail service at no charge, and introduces
a cross-subsidy of users of that service by other mail users. Inasmuch
as Post ECS competes with a similar service UPS offers, it also argues
that the Postal Service's provision of Post ECS at no charge
constitutes unfair competition in violation of section 3622(b)(4) of
the Act, and may deprive UPS of customers for its similar service, with
a consequent loss of revenue. Id. at 3.

Postal Service Answer

    The Postal Service filed its answer to the UPS complaint on Nov. 5,
1998.<SUP>3</SUP> With respect to the factual allegations made in the
complaint, the Service generally does not contest them, with two
exceptions. The Service denies that Post ECS is a ``document delivery
service,'' in the sense of there being any hard-copy delivery of
documents or letters. Additionally, the Service denies that
``substantial numbers'' of

[[Page 28017]]

companies are using Post ECS, or that its usage can be characterized as
``nationwide.'' Id. at 2, 4.
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    \3\ Answer of the United States Postal Service, Nov. 5, 1998.
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    The Postal Service's affirmative allegations include a
characterization of Post ECS as a limited test of a totally electronic
secure document delivery system under the auspices of IPC. The Service
represents that Post ECS does not use the Postal Service's physical
retail, mail processing, or delivery networks, and thus is not a
``postal service'' under the statutory provisions invoked by UPS.
Therefore, the Service alleges, it was not required to submit a request
for a recommended decision or advisory opinion from the Commission
prior to offering Post ECS service. Id. at 6-7.
    The Postal Service's answer also claims that the Commission has no
subject matter jurisdiction over the complaint. Finally, citing the
Governors' decision in docket no. C96-1, the Service asserts that the
section 3662 complaint procedure does not provide a means for
interested persons to challenge the status of products as ``postal'' or
``nonpostal'' services. Id. at 7.

Postal Service Motion To Dismiss

    On the same date it filed its answer, the Postal Service submitted
a motion to dismiss the complaint.<SUP>4</SUP> As the first ground for
dismissal, the Service claims that the Commission lacks statutory
authority to resolve a complainant's challenge of a Postal Service
determination not to seek a recommended decision before introducing a
new service alleged to be ``postal'' in character. According to the
Service, complaint proceedings before the Commission were not intended
to be, and are not, appropriate for resolving issues as to whether the
Postal Service has acted beyond its lawful authority by offering a
service. Rather, the Service argues, a United States district court is
the appropriate forum for considering any such claims, as has been done
in prior controversies. Id. at 1-6.
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    \4\ Motion of the United States Postal Service to Dismiss, Nov.
5, 1998.
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    Even assuming that the Commission has authority to address the
question of whether Post ECS is a ``postal'' or ``nonpostal'' service,
the Service further argues, the complaint should still be dismissed
because that service is both nonpostal and non-domestic. Courts, the
Commission and the Governors have assessed the ``postal'' character of
services by investigating their relationship to the Postal Service's
hardcopy delivery network. Inasmuch as Post ECS is a totally electronic
service, with no relationship to traditional functions such as
collection, acceptance, processing, handling, transportation and
delivery afforded hardcopy mail, the Service argues that it is not a
``postal'' service as the term has been defined to date. Moreover,
because Post ECS is a global service being tested jointly with the
Canadian and French postal administrations, and international
electronic document transfers are expected to constitute a significant
component of Post ECS transactions, the service is not a domestic
postal service within the purview of the Commission's jurisdiction. Id.
at 7-16.

Responses of Complainant and Intervenor Coalition Against Unfair
USPS Competition (CAUUC)

    Both UPS and CAUUC <SUP>5</SUP> filed responses in opposition to
the Postal Service's motion to dismiss.<SUP>6</SUP> On the subject of
the Commission's jurisdiction to consider the complaint, UPS cites the
judicially-established principle that regulatory agencies have
authority initially to determine the scope of their jurisdiction.
Applying the principle to this controversy, UPS asserts that the
Commission clearly has authority to determine whether Post ECS is, or
is not, a ``postal'' service that falls within its jurisdiction to
render a recommended decision. Furthermore, UPS observes, the
Commission has consistently exercised this authority to determine
whether a given service offering falls within its jurisdiction in past
complaint and other proceedings, most recently in docket no. C96-1.
Finally, UPS argues that nothing in the Reorganization Act, nor in a
complaining party's ability to seek redress in a federal district
court, precludes the Commission from making a determination of its
authority over a challenged new service under the section 3662
complaint procedure. UPS Answer at 2-6.
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    \5\ Two parties, CAUUC and the Association of Online
Professionals, have filed motions to intervene in this case. As the
Commission has determined to hear the UPS complaint, the motions
will be granted.
    \6\ Answer of United Parcel Service in Opposition to Motion of
the United States Postal Service to Dismiss Complaint, Dec. 15,
1998. Answer of Intervenor CAUUC in Opposition to Motion of U.S.
Postal Service to Dismiss Complaint, Dec. 15, 1998.
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    CAUUC also asserts that the Commission has authority to determine
whether Post ECS is a ``postal'' service, arguing that a plain reading
of section 3662 clearly demonstrates that the Act specifically
contemplates complaints regarding the improper offering of a postal
service and its associated rates. CAUUC cites the Commission's
determination in order no. 1145 of the same issue with respect to the
Pack & Send service in the C96-1 complaint proceeding, and argues that
the congressional intent to enable citizens to initiate such complaint
procedures before the Commission makes its exercise of statutory
authority a duty in this and similar cases. CAUUC Answer at 2-5.
    Regarding the potentially ``postal'' character of Post ECS, UPS
asserts that the service clearly meets the tests previously established
by courts and the Commission for reaching an affirmative determination.
Because Post ECS serves exactly the same function as traditional,
hardcopy mail, UPS argues that the service is not only closely related
to delivery of mail, it is the delivery of mail. Citing two decisions
of U.S. district courts which have equated e-mail services such as Post
ECS with traditional forms of mail, UPS asserts that prior judicial and
Commission decisions do not suggest that hard copy delivery is
necessary for a service to be classified as ``mail,'' or ``postal'' in
nature. UPS Answer at 6-9.
    Even assuming the relevance of a linkage to hard copy mail in
defining postal services, UPS further argues, Post ECS has an extremely
strong structural relationship to such traditional forms of mail
because it is both the functional equivalent of written mail and a
potential substitute for it. UPS notes that the Postal Service has
described Post ECS as an extension of its traditional paper mail
services, and equated electronic mail with traditional forms of mail in
statements made by Postal Service officials and a witness in docket no.
MC98-1. Id. at 9-12.
    UPS also asserts that there are strong policy reasons for
concluding that Post ECS is a postal service. Given Congress' paramount
concern in adopting the ratemaking provisions of the Reorganization Act
that the revenues paid by one class of users--especially First Class
letter monopoly mailers--not be used to cross-subsidize other Postal
Service customers, and the Postal Service's record of losses in
connection with its electronic service offerings to date, UPS argues
that excluding Post ECS from the Commission's jurisdictional purview
would create a large loophole and defeat the congressional intention
that all Postal Service customers be treated fairly. Id. at 11-13.
    CAUUC also asserts that Post ECS is a postal service subject to the
Commission's jurisdiction, arguing that it is not fundamentally
different from the mailing online service currently

[[Page 28018]]

being considered before the Commission in docket no. MC98-1. CAUUC
Answer at 5-6. The Coalition also cites statements made by the
Postmaster General and others to the effect that the Postal Service
views its entry into electronic services as an extension of its core
business, the delivery of traditional mail. Id. at 7-9.
    Finally, UPS challenges the Postal Service's argument that Post ECS
is outside the Commission's purview because it is an international
service. UPS notes the Service's implicit admission that Post ECS is
not entirely an international service, only a ``significant component''
of total Post ECS transactions. To the extent the Postal Service is
delivering electronic messages from domestic senders to domestic
recipients, UPS argues, the Commission has jurisdiction over those
transactions. UPS Answer at 13.

Statutory Authority To Consider Complaint

    The challenge of the Commission's authority to consider the UPS
complaint made in the Postal Service's motion to dismiss requires
consideration of the appropriate ambit and application of the statutory
complaint provision, 39 U.S.C. 3662. Following a general exploration of
the provision's scope, it will be possible to assess its applicability
to the instant complaint.
    By its terms, the complaint procedure provided in section 3662 is
available to two categories of persons: (1) Interested parties who
believe the Postal Service is charging rates not in conformity with the
policies set out in title 39; and (2) interested parties who believe
that they are not receiving postal service in conformity with the
policies in title 39. The second category is restrictive, in that an
interested party's complaint must be directed to a service or services
it is receiving (or allegedly should be receiving), rather than some
generalized complaint about postal service. However, the first category
contains no such restriction; the only implicit qualification is that a
party challenging a rate or rates have an ``interest'' in the subject
of the complaint.
    Once a qualifying complaint has been lodged, section 3662 commits
to the Commission's discretion a choice whether to hold hearings on the
complaint, or not. Generally, the Commission has exercised this
discretion on a case-by-case basis. However, early in its institutional
history the Commission adopted a rule to guide the discretionary
exercise, which states:

    The Commission shall entertain only those complaints which
clearly raise an issue concerning whether or not rates or services
contravene the policies of the [Postal Reorganization] Act; thus,
complaints raising a question as to whether the Postal Service has
properly applied its existing rates and fees or mail classification
schedule to a particular mail user or with regard to an individual,
localized or temporary service issue not on a substantially
nationwide basis shall generally not be considered as properly
raising a matter of policy to be considered by the Commission.

39 C.F.R. 3001.82. While the Commission has not used this regulation to
bar absolutely any consideration of individual or localized rate and
service complaints--especially where the Postal Service allegedly acted
in an arbitrary, discriminatory, capricious or unreasonable manner--it
has served as a basis for declining to conduct hearings on
controversies that did not raise questions of general postal
policy.<SUP>7</SUP>
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    \7\ See, e.g., docket no. C98-1, order no. 1227 (dismissing
complaint) at 7-9.
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    If the Commission exercises its discretion to hold hearings on a
complaint, section 3662 directs the Commission to proceed down one of
two specified paths. If the subject raised by the complaint is ``a
matter covered by subchapter II of this chapter''--i.e., the provisions
of 39 U.S.C. 3621 through 3628 governing permanent rates and classes of
mail--the Commission is directed to conduct formal hearings in
conformity with section 3624, as it does in rate and mail
classification dockets. If the Commission determines the complaint to
be justified, section 3662 instructs it to issue a recommended decision
to be acted upon by the Governors of the Postal Service.
    However, if the matter is not covered by subchapter II, section
3662 directs the Commission to hold a hearing of an unspecified degree
of formality. If after this hearing the Commission finds the complaint
to be justified, section 3662 directs it to render a public report to
the Postal Service, which shall take such action as it deems
appropriate.
    It is clear from this review of the mechanisms prescribed for
complaint proceedings in section 3662 that the statute--in addition to
investing the Commission with discretionary authority to consider a
wide range of rate and service complaints--also obliges the Commission
to interpret the Reorganization Act and its applicability as part of
the complaint process. The Commission is called upon to identify the
rate or service issues presented by a given complaint; to determine its
relationship to the policies of title 39 generally; and to determine
whether the complaint's linkage to the policies of the Reorganization
Act is sufficiently strong to warrant further investigation in the form
of hearings.
    Section 3662 also obliges the Commission to interpret whether the
substance of a given complaint is ``a matter covered by subchapter
II''--a topic governed by the ratemaking and mail classification
functions familiarly performed under sections 3622 and 3623--or outside
these regulatory mechanisms. Where the subject of a complaint is a new
and unreviewed service offering of the Postal Service and its
associated rates, as is the case here, it is impossible to conceive how
the Commission can perform this required interpretation without
considering the ``postal'' character of the service--which would render
it a subchapter II matter--or its ``nonpostal'' quality, which would
put it outside the subchapter's regulatory regime.
    Where the rate being charged for a new service is the focus of a
complaint, as it is here, the Postal Service would have the Commission
shirk this interpretive function, under its view that: ``Rate
complaints were intended to allow interested parties to challenge the
rates being charged, presumably in accord with previous action by the
Commission and the Governors, for existing postal services.'' Motion to
Dismiss at 2. But there is nothing in the language of section 3662 or
its legislative history to suggest that Congress intended any such
restriction to rates for services already established under subchapter
II. On the contrary, the House Report on H.R. 17070, in which the
concept of a rate board independent of the Postal Service (ultimately
to become the Postal Rate Commission) originated, included its
description of the bill's complaint provision corresponding to section
3662 in a section headed Procedures for changes in postal service[,]
and contemplated that one possible outcome of finding a complaint to be
meritorious would be that ``the Board may recommend litigation of an
appropriate change[.]'' H.R. Rep. No. 1104, 91st Cong., 2d Sess. 19, 20
(1970).
    The Postal Service characterizes the Commission's review of the
``postal'' or ``nonpostal'' character of services challenged in
complaint proceedings as an exercise of ``authority to declare
independent actions of the Postal Service to be either lawful or
unlawful[,]'' which it argues Congress did not intend to grant the
Commission. Motion to dismiss at 3. But this characterization
misconstrues the Commission's function in considering a complaint of
this type. In determining whether a previously unreviewed

[[Page 28019]]

service challenged by the complaint of an interested party is
appropriate for consideration under the regulatory procedures specified
in subchapter II, the Commission is engaged essentially in exercising
its mail classification authority, under which it is assigned primary
responsibility for interpreting the status of services either proposed
or offered by the Postal Service.<SUP>8</SUP> This assessment was
required by the district court's decision that at least some of the
special services offered by the Postal Service were subject to the
Commission's ratemaking authority. See Associated Third Class Mail
Users v. U.S. Postal Service, 405 F. Supp. 1109 (D.D.C. 1975),
affirmed, 569 F.2d 570 (D.C. Cir. 1976), vacated on other grounds, 434
U.S. 884 (1977). The statutory function performed by the Commission in
this setting is essentially identical to the analyses of the various
special services offered by the Service in appendix F to the
Commission's opinion and recommended decision in docket no. R76-
1.<SUP>9</SUP> The lawfulness of the independent actions by which the
Postal Service implemented a service is simply not an issue before the
Commission, particularly because the Commission has no equitable powers
to enjoin or reverse those actions.
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    \8\ See United Parcel Service v. U.S. Postal Service, 604 F.2d
1370, 1381 (3d Cir. 1979), cert. denied, 446 U.S. 957 (1980).
    \9\ PRC Op. R76-1, Vol. 2, Appendix F, at 1-5. This assessment
was required by the district court's decision that at least some of
the special services offered by the Postal Service were subject to
the Commission's ratemaking authority. See Associated Third Class
Mail Users v. U.S. Postal Service, 405 F. Supp. 1109 (D.D.C. 1975),
affirmed, 569 F.2d 570 (D.C. Cir. 1976), vacated on other grounds,
434 U.S. 884 (1977).
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    Nor is a potentially aggrieved party's opportunity to pursue an
action against the Postal Service in a U.S. district court a basis for
concluding that the Commission lacks authority to consider such claims,
or should decline to consider them pending judicial action. As UPS
points out, while a party may seek redress in federal court in such
instances, nothing in the Reorganization Act restricts its right to
invoke the Commission's jurisdiction under section 3662.<SUP>10</SUP>
Especially in view of the Commission's judicially-recognized authority
on issues of mail classification, it would be unjustifiable to force
aggrieved parties to elect a judicial remedy by declining to consider
such complaints.
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    \10\ The Commission agrees with UPS' inference that 39 U.S.C.
409--which confers ``original but not exclusive jurisdiction over
all actions brought by or against the Postal Service'' on the
federal district courts in postal matters--suggests that the
Commission and the courts share concurrent jurisdiction over some
matters, including potential subjects of complaints under section
3662.
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    As noted earlier, the complaint filed by UPS directs three charges
against the Postal Service's provision of Post ECS service: (1) That it
has not been scrutinized under sections 3623 and 3622; (2) that its
zero rate contravenes subsections 3622(b)(3) and (4); and (3) that it
has not been scrutinized as a service change under section 3661. For
the reasons discussed above, the Commission concludes that it has
authority to consider the first claim, as it did in docket no. C96-1
with respect to the complaint of CAUUC regarding the Pack & Send
service.
    The claim charging that the rate associated with Post ECS service
is uncompensatory and a potential cause of competitive harm is also of
a type familiar in complaint proceedings, including Docket No. C96-1.
There is no question that the Commission is authorized to consider such
claims in connection with a service that falls within its ratemaking
authority under 39 U.S.C. 3622.
    The last claim, citing the Postal Service's failure to request an
advisory opinion on Post E.C.S. pursuant to 39 U.S.C. 3661, may be
viewed as an alternative theory to be considered if the first claim
fails. Under this claim, even if it is not established that Post ECS is
a ``postal'' service,<SUP>11</SUP> UPS alleges that introducing and
rendering Post ECS could have sufficient impact on mailers' use of
hardcopy-related postal services that doing so constitutes ``a change
in the nature of postal services which will generally affect service on
a nationwide or substantially nationwide basis,'' triggering the
requirement of a Postal Service filing of a proposal pursuant to
section 3661(b). Because the Service has not submitted a proposal, UPS
contends that providing Post ECS violates section 3661. While this
claim is novel in the context of a complaint proceeding, there is no
apparent reason to conclude that considering it would exceed the scope
of the Commission's authority under section 3662. On the contrary, to
the extent that the section 3662 complaint mechanism has been viewed as
a remedial supplement to the review of substantially nationwide service
changes required under section 3661,<SUP>12</SUP> consideration of a
Postal Service action purportedly in violation of section 3661 in a
complaint proceeding appears compatible with the statutory scheme of
the Reorganization Act.
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    \11\ Complainant's first allegation in support of its third
claim is that ``Post ECS is a postal service.'' Complaint at 3,
para. 19. However, it is not apparent that this allegation is
necessary to support a claim based on 39 U.S.C. 3661. If Post ECS is
found to be a ``postal'' service, its introduction would signify a
change in mail classification, to which the requirements of section
3623 would apply, rather than a change in the nature of postal
services subject to the requirements of section 3661.
    \12\ See Buchanan v. United States Postal Service, 508 F.2d 259,
264 (5th Cir. 1975): ``Section 3662 complements section 3661, and
together they form a harmonious scheme * * *. Although section 3662
is a more limited remedy, it insures that an unexpansive
interpretation of section 3661 will not leave remediless the postal
user dissatisfied by changes that do not rise to the level of those
covered by section 3661.''
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    For the reasons presented above, the Commission concludes that
consideration of the complaint of United Parcel Service is authorized
under 39 U.S.C. 3662.

Other Grounds for Dismissal

    In addition to its claim that the Commission lacks authority to
consider the instant complaint, the Postal Service advances two other
arguments intended to demonstrate that particular characteristics of
the Post ECS service render it inappropriate for consideration in a
section 3662 complaint proceeding. One of these arguments challenges
the status of Post ECS as a domestic service. The other portrays Post
ECS as a ``nonpostal'' service beyond the purview of the Commission's
rate and mail classification scrutiny.

Multinational Sponsorship and Operation of Post ECS

    The Postal Service seeks to infuse Post ECS with an international
character--and thereby support its claim that the service is not
domestic--by citing the multinational origins of the service and noting
that international electronic document transfers are expected to
constitute a significant component of Post ECS transactions.
Notwithstanding these aspects of the service, available information
does not support a conclusion at this time that Post ECS constitutes a
wholly non-domestic service outside the purview of the Commission's
mail classification and rate jurisdiction.
    First, the status of Post ECS as a putative international postal
service has not been clearly established in the responsive materials
provided by the Postal Service to date. Question (1)(b) in order no.
1229 asked the Service to describe the status of Post ECS and specify
the authority under which it is being provided. In its partial response
of March 3, the Service states that Post ECS is being provided, in
operations test status, under arrangements between and among itself,
LaPoste, Canada Post, the IPC, and a software supplier. However, the
Service cites 39 U.S.C. 404(a)(6)--

[[Page 28020]]

which authorizes the Postal Service ``to provide, establish, change, or
abolish special nonpostal or similar services''--rather than 39 U.S.C.
407(a), which authorizes the Service to negotiate and conclude
international postal treaties and conventions, and to establish rates
of postal and other charges applicable to mail conveyed between the
U.S. and other countries.
    Similarly, question (4)(a) asked the Service to provide a copy of
each convention, memorandum of understanding, or other instrument
governing the joint provision of Post ECS under the international
arrangement cited by the Service. For reasons presented in it motion
for reconsideration of order no. 1229, the Service did not submit
documents responsive to that part of the question. However, it did
summarily describe documents it had identified as being responsive to
the request; that description did not include any treaty or convention
materials that would appear to constitute a governing instrument
executed by the Postal Service pursuant to 39 U.S.C. 407.
    Furthermore, even assuming that the status of Post ECS as an
international service were firmly established, there apparently exists
a subset of Post ECS transactions that both originate and terminate
within the United States, thereby constituting a domestic segment of
Post ECS arguably subject to the ratemaking and mail classification
provisions of chapter 36. Question (2)(b) in order no. 1229 asked the
Service to separate and report the percentages of Post ECS document
transmissions originated by U.S. licensees directed to recipients in
the U.S., and those directed to recipients in other countries. The
Postal Service response did not provide proportions of each kind of
transmission, stating that it has no reliable means of determining with
certainty where Post ECS transactions originate or destinate
geographically. However, the response also stated, on the basis of
``customer feedback and informal interviews with end users, [that] it
is known that transactions are originated and directed to recipients
within the U.S.'' Postal Service Partial Response of March 3, 1999 at
3. This domestic segment of Post ECS transactions apparently would not
be within the bounds of the Postal Service's authority to establish and
adjust rates for international mail services, and accordingly would be
within the purview of the Commission's regulatory authority under
chapter 36.<SUP>13</SUP> Consequently, the international origins and
operations of Post ECS do not provide a basis for dismissing the entire
complaint.
---------------------------------------------------------------------------

    \13\ See Air Courier Conference v. U.S. Postal Service, 959 F.2d
1213, 1221 (3d Cir. 1992): ``In giving the Postal Service the
authority to `establish' international mail rates, section 407(a) is
just as specific about international rates as chapter thirty-six is
about domestic rates. Section 407(a) tells us how international
postage rates are to be set and who sets them. Chapter thirty-six
tell us how domestic postage rates are to be set and who sets
them.''
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Lack of Connection to Hardcopy Postal Network

    The Postal Service's primary argument for dismissal of the
complaint on the merits is that Post ECS necessarily is a ``nonpostal''
service because it lacks a physical relationship to the network with
which the Service transmits hardcopy mail from senders to recipients.
The Service observes that the Commission, the Governors, and reviewing
courts have evaluated the ``postal'' character of services by reference
to functions performed in the hardcopy postal network--i. e.,
collection, acceptance, processing, handling, transportation and
delivery of tangible mail pieces. As an ``unbundled completely
electronic service,'' the Service argues, Post ECS lacks a relationship
to any of these physical functions. Therefore, the Postal Service
concludes, ``Post ECS does not fall within the definition of ``postal
services'' as defined by the courts, the Commission, and the
Governors.'' Motion to Dismiss at 15.
    The premise of the Postal Service's argument is largely correct,
but the conclusion it urges does not necessarily follow. It is true, as
the Service claims, that ``[a]bsolutely none of these [judicial and
other] authorities has concluded that completely electronic services
are ``postal'' in nature[.]'' Id. at 8. However, analogous claims could
be made with respect to the legal status of First-Class Mail
transported by air prior to 1955,<SUP>14</SUP> or messages received in
post offices by telegraph prior to 1970.<SUP>15</SUP> As the decisions
described in the footnotes illustrate, the Postal Service's adoption of
new technologies into its operations can generate controversies that
the body of pre-existing legal authority cannot resolve. This is the
current state of the controversy with respect to any end-to-end
electronic service offered by the Postal Service, such as Post
ECS.<SUP>16</SUP>
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    \14\ Congress created air mail in the Air Mail Act of 1925, 43
Stat. 805 (1925). In Atchison, Topeka & Santa Fe Railway Co. v.
Summerfield, 229 F.2d 777 (D.C. Cir. 1955), several railroads
challenged an experimental program wherein the Post Office
Department tendered ordinary First-Class Mail to air carriers for
transportation. The court held that the Postmaster General had
authority to conduct the experimental carriage of First-Class Mail
by air without charging the higher airmail rate.
    \15\ Western Union Telegraph Company, in cooperation with the
Post Office Department, began to offer Mailgram service on an
experimental basis on January 1, 1970. In United Telegraph Workers
v. F.C.C., 436 F.2d 920 (D.C. Cir. 1970), the union representing
Western Union's employees challenged, among other aspects, the Post
Office Department's participation in the experiment, wherein postal
employees (rather than Western Union employees) scanned and
enveloped messages received by teleprinter in post offices. The
court, citing the earlier decision in Atchison, Topeka & Santa Fe,
supra, found the postmaster general had authority to assign postal
employees to participate in the experiment.
    \16\ Complainant notes that recent federal court decisions have
equated e-mail services such as Post ECS with traditional forms of
mail. UPS answer in opposition to motion to dismiss at 8. However,
the decisions cited by UPS did not involve any Postal Service e-mail
service offering, nor its status in the context of title 39. In
Governors of the U.S. Postal Service v. Postal Rate Commission, 654
F. 2d 108, 110 (D.C. Cir. 1981), the court reviewed one aspect of
the Commission's decision in docket no. MC78-3 with respect to a
proposed Electronic Computer Originated Mail (E-COM) service. Early
in that decision, the court referred to the E-COM request as ``a
postal service proposal to enter the field of electronic mail[.]''
However, the electronic components of the E-COM service did not
extend to the delivery function, and thus it was a hybrid
electronic/hardcopy service. Nor was the ``postal'' or ``non-
postal'' character of the E-COM service in controversy in that case.
---------------------------------------------------------------------------

    Furthermore, applying the criteria that were used in assessing
controversial services in the past does not necessarily compel a
conclusion that the all-electronic Post ECS service is ``nonpostal.''
In addressing a similar Postal Service claim with respect to the Pack &
Send service in docket no. C96-1, the Commission found:

    Determining whether the Pack & Send service is `postal' or `non-
postal' in character requires the application of legal standards to
the available facts. While it has been stated in a variety of ways,
the primary standard that has been applied in analyzing different
services is: * * * the relationship of the service to the carriage
of mail. Those which can fairly be said to be ancillary to the
collection, transmission, or delivery of mail are postal services
within the meaning of Sec. 3622. PRC Op. R76-1, Vol. 2, Appendix F
at 3. Application of this standard looks not only at the intrinsic
features and terms of the service, but also considers the extent to
which use of the service culminates in use of the mails.
    PRC Op. R76-1, Vol. 2, Appendix F at 3. Application of this
standard looks not only at the intrinsic features and terms of the
service, but also considers the extent to which use of the service
culminates in use of the mails.

Order No. 1128, July 30, 1996, at 10. (Footnotes omitted.)
Significantly, while the guiding standard focuses on ``the carriage of
mail'' and its functional components, it is not restrictive as to the
technological means used to perform any of those functions. Thus, the
fact that a given service accomplishes one or

[[Page 28021]]

more functional components of ``the carriage of mail'' by means that do
not involve a physical object does not necessarily support a conclusion
that the service is ``non-postal.'' The Governors'' submission of
requests for decisions recommending establishment of the mailing online
service in docket no. MC98-1, and earlier for the electronic computer
originated mail (E-COM) service in docket no. MC78-3, is consistent
with this observation.
    Despite the Post ECS service's lack of dependence on the hardcopy
postal network, complainant has made a colorable claim that it not only
is very closely related to the carriage of mail, it is the delivery of
mail because it accomplishes by electronic means all the functions that
would otherwise be performed by conveying a physical message or
document. UPS Response in Opposition to Motion to Dismiss at 8-10.
    Furthermore, a number of Postal Service statements concerning Post
ECS in particular, and describing its electronic mail initiatives in
general, are consistent with this claim. In announcing the operations
test of Post ECS, deputy postmaster general Coughlin described the
service as ``a logical evolution of our original charter to provide
seamless communications to our customers.'' U.S. Postal Service Press
Release No. 98044, May 28, 1998 (attached to answer of UPS in
opposition to motion to dismiss as exhibit C). The Postal Service
promotional material included as exhibit A to the complaint
characterizes Post ECS as ``the 21st-century document-delivery system
that is superior to current delivery options[,]'' and states that it
``combines the advantages of couriers, fax and the Internet with the
protection of the United States Postal Service `` .'' With general
regard to the electronic commerce services it is developing, the
Service has stated that it is doing so ``through an extension of its
traditional paper mail services'' to ``enable and enhance the
development of commerce by electronic means.'' It also stated that such
services ``will provide security and integrity to electronic
correspondence and transactions, giving them attributes usually
associated with First-Class Mail.'' [Citation omitted.] Similarly, the
recent General Accounting Office report on new postal products states
that the Postal Service ``views its entry into the electronic commerce
market as an extension of its core business--the delivery of
traditional mail. According to service officials, electronic mail has
the same attributes as traditional mail.'' Report on New Postal
Products, GAO/GGD-99-15 (Nov. 25, 1998) at 36-37.
    These and similar statements the Postal Service has made in other
proceedings call into question its position that Post ECS necessarily
constitutes a ``non-postal'' service simply because of its all-
electronic configuration.<SUP>17</SUP> In light of these
characterizations of Post ECS, together with the theoretical
considerations previously discussed, in the Commission's opinion
dismissing the complaint on the basis of the Postal Service's claim of
its ``non-postal'' character would not be justified. However, the
Commission is not prepared at this time to declare that Post ECS is, or
is not, postal in character, or to what extent Post ECS transactions
are subject to the Commission's mail classification and ratemaking
authority under subchapter II of title 39, chapter 36. This
determination is made without prejudice to the Postal Service's
position that Post ECS is a ``nonpostal'' service, and is not intended
to preclude an ample opportunity for all parties to present additional
evidence and argument on this issue during the proceedings in this
docket.
---------------------------------------------------------------------------

    \17\ In docket no. MC98-1, when Postal Service witness Garvey
was asked whether a portion of his testimony meant that he regarded
the bits of electronic data that would ultimately become printed
messages as pieces of mail, he replied: ``In my mind I think of them
as mail pieces.'' Tr.
7/1718.
---------------------------------------------------------------------------

Proceedings To Consider Complaint

    In addition to the somewhat abstract questions the instant
complaint poses concerning the postal character of Post ECS, it also
raises more concrete questions regarding the potential effects of the
service--together with its currently free rate--on the rest of the
postal system. The Commission undertook to obtain some general
information bearing on these questions in order No. 1229, which asked
in question 3 whether Post ECS is being offered as a substitute for
Express Mail or any other service currently provided by the Postal
Service, and to what extent U.S. companies licensed to use Post ECS
have substituted use of the service for Express Mail or other service
they previously used.
    The Postal Service response stated that, ``Post ECS lacks certain
characteristics to make it a direct substitute of Express Mail or any
other hardcopy postal service[,]'' and gave examples of purported
deficiencies. It also said the Service has no quantified data regarding
substitution. Postal Service Partial Response to Order No. 1229 at 5.
The Commission finds this response to be, on the whole, inconclusive,
and believes that further inquiry is warranted into the extent to which
the provision of an electronic service such as Post ECS could affect
Postal Service revenues generally and the volumes of higher-priority
subclasses such as Express Mail and Priority Mail in particular.
    For all the above reasons, the Commission has determined under
section 86 of the rules of practice that a formal proceeding pursuant
to 39 U.S.C. 3624, with an opportunity for hearing, should be held in
this docket. This process will enable the complainant and other
interested parties to adduce additional facts through discovery and to
make evidentiary presentations, as well as providing the Postal Service
an opportunity to present its response.
    As noted earlier, the Postal Service has asked the Commission to
reconsider whether information responsive to question 4(a) posed in
order no. 1229--some of which allegedly is commercially sensitive--
should be provided at all, or only in redacted form. The Commission
took no action with respect to these materials in order No. 1230.
Complainant subsequently filed a motion for leave to conduct discovery
on the issues raised by the Postal Service's motion to dismiss the
complaint, but only ``as a protective matter,'' should the Commission
not agree with UPS that available information militates against
dismissal. UPS motion for leave to conduct discovery, March 17, 1999.
Inasmuch as the ultimate relevance of potentially sensitive documents
responsive to question 4(a) to issues to be resolved in this proceeding
cannot be assessed at this point, the Commission will not direct
production of these materials now. However, this determination is not
intended to foreclose any legitimate discovery requests directed toward
these materials or related information.
    In order to develop a procedural schedule for this docket,
complainant is directed to provide a statement, due 10 days from the
issuance of this order, estimating the amount of time it will require
to develop and file a case-in-chief. The Commission will thereafter
issue a procedural schedule and special rules of practice, if any.

It is ordered:

    1. The Postal Service's motion to dismiss, filed Nov. 5, 1998, is
denied.
    2. Proceedings in conformity with 39 U.S.C. 3624 shall be held in
this matter.
    3. The Commission will sit en banc in this proceeding.

[[Page 28022]]

    4. The motion for intervention by CAUUC, filed on Oct. 27, 1998,
and the motion of the Association of Online Professionals to intervene
as a limited participator, filed Dec. 21, 1998, are granted.
    5. Ted P. Gerarden, director of the Commission's office of the
consumer advocate, is designated to represent the interests of the
general public in docket no. C99-1.
    6. Complainant shall provide a statement, due May 13, 1999,
estimating the amount of time it will require to develop and file a
direct case in this proceeding.
    7. The Secretary of the Commission shall arrange for publication of
this notice and order in the Federal Register in a manner consistent
with applicable requirements.

    Authority: 39 U.S.C. 3662.

    Dated: May 19, 1999.
Cyril J. Pittack,
Acting Secretary.
[FR Doc. 99-13042 Filed 5-21-99; 8:45 am]
BILLING CODE 7710-FW-P