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[NOT YET SCHEDULED FOR ORAL ARGUMENT] No. 11-1179

IN THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT _________________________________ GAMEFLY, INC., Petitioner, v. POSTAL REGULATORY COMMISSION, Respondent, and UNITED STATES POSTAL SERVICE, Intervenor. ______________________________ BRIEF FOR RESPONDENT POSTAL REGULATORY COMMISSION ______________________________ TONY WEST Assistant Attorney General MICHAEL S. RAAB (202) 514-4053 JEFFREY CLAIR (202) 514-4028 jeffrey.clair@usdoj.gov Attorneys, Civil Division Room 7243, Department of Justice 950 Pennsylvania Ave., N.W. Washington, D.C. 20530

Of Counsel: STEPHEN L. SHARFMAN General Counsel R. BRIAN CORCORAN Deputy General Counsel RICHARD A. OLIVER Attorney Postal Regulatory Commission Washington, DC 20268

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CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES A. Parties and Amici. All parties and amici appearing in this Court and before the Postal Regulatory Commission are listed in the Brief for the Petitioner. B. Rulings under Review. References to the ruling at issue appear in the Brief for the Petitioner. C. Related Cases. This case has not previously been before this Court. Counsel for the respondent are unaware of any related cases.

/s/ Jeffrey Clair Room 7243, Civil Division Department of Justice 950 Pennsylvania Ave., NW Washington, D.C. 20530 jeffrey.clair@usdoj.gov (202) 514-4028

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TABLE OF CONTENTS Page CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i GLOSSARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . viii STATEMENT OF JURISDICTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 STATEMENT OF THE ISSUE PRESENTED FOR REVIEW. . . . . . . . . . . . . . . . 2 STATEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 A. Nature of the Case and Course of Proceedings Below. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Statutory Background. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1. 2. The Postal Reorganization Act of 1970. . . . . . . . . . . . . . . . . . . 3 The Postal Accountability and Enhancement Act of 2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

B.

C.

Statement of Facts: GameFly’s Discrimination Complaint. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Commission Decision. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

D.

SUMMARY OF THE ARGUMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 ARGUMENT.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

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I.

The Commission Has Broad Discretion To Fashion Remedial Orders That Avoid Undue Interference With Postal Service Operations, That Avoid Imposing Significant New Costs, And That Take Account Of Limitations On The Commission’s Enforcement Resources. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 A. The Court Must Accord Substantial Deference To The Commission’s Exercise Of Its Discretion To Determine An Appropriate Remedy For Unreasonable Discrimination Among Users of the Mail. . . . . . . . . . . . . . . . 19 The Commission Reasonably Rejected GameFly’s Proposed Operational Remedy. . . . . . . . . . . . . . . 24 1. The Commission Has Authority To Consider, and Reasonably Took Account Of, The Proposed Remedy’s Potential Interference With The Postal Service’s Managerial Discretion. . . . . . . . . . . . . . . . . . . . . . . . . . 26 The Commission Reasonably Considered Practical Limitations On Its Ability to Enforce An Operational Remedy.. . . . . . . . . . . . . . . . . . . . . . . . . . . 33

B.

2.

C.

The Commission Reasonably Rejected GameFly’s Proposed, Rate-Based Remedy. . . . . . . . . . . . . . . 39 The Commission’s Mandated Reductions In Postal Rates and Surcharges On DVD Mail Are A Reasonable And Appropriate Remedy For The Postal Service’s Discriminatory Conduct. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

D.

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CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 FRAP 32(a)(7) CERTIFICATE OF COMPLIANCE CERTIFICATE OF SERVICE TABLE OF AUTHORITIES Cases: American Federation of Labor and Congress of Indus. Organizations v. Chao, 409 F.3d 377 (D.C. Cir. 2005). . . . . . . . . . . . . . . . 22 * Butz v. Glover Livestock Comm'n Co., Inc., 411 U.S. 182 (1973). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Consolidated Edison Co. of N.Y. v. FERC, 510 F.3d 333 (D.C. Cir. 2007).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Consumer Federation of America v. Consumer Product Safety Comm'n, 990 F.2d 1298 (D.C. Cir. 1993). . . . . . . . . . . . . . . . . . . . . 34 Director, Office of Workers Compensation Programs, Dep't of Labor v. Greenwhich Collieries, 512 U.S. 267 (1994). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Dunlop v. Bachowski, 421 U.S. 560 (1975). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 * Heckler v. Chaney, 470 U.S. 821 (1985). . . . . . . . . . . . . . . . . . . . . . . . . . . . 20, 33 Kreis v. Sec'y of the Air Force, 866 F.2d 1508 (D.C. Cir. 1989).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 ____________________ * Authorities chiefly relied upon are marked with an asterisk.

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* Mail Order Ass'n of America v. USPS, 2 F.3d 408 (D.C. Cir. 1993). . . . . . . . . . . . . . . . . . . . . . . . . . . . 26, 27, 48, 49 Milk Train, Inc. v. Veneman, 310 F.3d 747 (D.C. Cir. 2002). . . . . . . . . . . . . . . . 42 Nat. Ass'n of Greeting Card Publishers v. USPS, 462 U.S. 810 (1983). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 41 Time, Inc. v. USPS, 710 F.2d 34 (2d Cir. 1983). . . . . . . . . . . . . . . . . . . . . . . . . . 49 Towns of Concord, Norwood, & Wellesley, Mass. v. FERC, 955 F.2d 67 (D.C. Cir. 1992). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 UPS Worldwide Forwarding, Inc. v. USPS, 66 F.3d 621 (3d Cir. 1995). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 U.S. Postal Service v. Postal Regulatory Comm'n, 640 F.3d 1263 (D.C. Cir. 2011). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Village of Bensenville v. FAA, 376 F.3d 1114 (D.C. Cir. 2004).. . . . . . . . . . . . . 42 West Virginia v. EPA, 362 F.3d 861 (D.C. Cir. 2004). . . . . . . . . . . . . . . . . . . . 42 Statutes: Postal Accountability and Enhancement Act of 2006, Pub. L. No. 109-435, 120 Stat. 3198 (2006). . . . . . . . . . . . . . . . . . . . . . . . . 5 5 U.S.C. § 556(d). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38, 43 39 U.S.C. § 201. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 39 U.S.C. § 403. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 39 U.S.C. § 403(a).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 39 U.S.C. § 403(c).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 4, 10 39 U.S.C. § 404. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 39 U.S.C. §§ 404(a)(1) & (2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 39 U.S.C. § 501. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 -vi-

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39 U.S.C. § 504(g). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 39 U.S.C. § 3601 (2000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 39 U.S.C. §§ 3621-29 .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 39 U.S.C. § 3622 (2000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 39 U.S.C. § 3622(a).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5, 1041 39 U.S.C. § 3622(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 39 U.S.C. § 3622(b)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 39 U.S.C. § 3622(b)(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 39 U.S.C. § 3622(b)(6). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 39 U.S.C. § 3622(b)(7). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 39 U.S.C. § 3622(b)(8). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 48 39 U.S.C. § 3622(c).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 39 U.S.C. § 3622(c)(6). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5, 48 39 U.S.C. § 3622(c)(7). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5, 48 39 U.S.C. § 3622(d). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 39 U.S.C. § 3623 (2000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 39 U.S.C. § 3624 (2000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 39 U.S.C. §§ 3631-34 .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5, 6 39 U.S.C. § 3652(a).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 39 U.S.C. § 3662 (2000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 4, 23, 41 39 U.S.C. § 3662(a).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 39 U.S.C. § 3662(c).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 7, 21, 43 39 U.S.C. § 3663. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Regulations: 39 C.F.R. Part 3007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Legislative Materials: H. R Rep. No. 109-66 Pt. 1, 109th Cong., 1st Sess. 52 (2005). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Pub. L. No. 91-375, 84 Stat. 719 (1970). . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 4, 23

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Miscellaneous: Domestic Mail Manual Part 101, §§ 1.1, 2.1 <available at http://pe.usps.com/text/dmm300/101.htm> . . . . . . . . . . . . . . . . . . . . 8, 46, 47 Domestic Mail Manual, Part 333, § 3.1.1 <available at http://pe.usps.com/text/dmm300/333.htm>. . . . . . . . . . . . . . . . . . . . . . . . . 46 Domestic Mail Manual Part 343, § 3.2 <available at http://pe.usps.com/text/dmm300/343.htm> . . . . . . . . . . . . . . . . . . . . . . . . . 47 Domestic Mail Manual -Notice 123 – Price List <available at http://pe.usps.com/ text/dmm300/Notice123.htm#1011092> .. . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Red Tag Proceeding, No. MC79-3 (Postal Rate Commission May 18, 1980). . . . . . . . . . . . . . . . . . . . . . . . . . . 28

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GLOSSARY App. Commission CRA Rate Commission Supp. App. Appendix Postal Regulatory Commission Cost and Revenue Analysis Postal Rate Commission Supplemental Appendix

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IN THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT _________________________________ No. 11-1179 _________________________________ GAMEFLY, INC., Petitioner, v. POSTAL REGULATORY COMMISSION,

Respondent, and UNITED STATES POSTAL SERVICE, Intervenor. ______________________________ BRIEF FOR RESPONDENT POSTAL REGULATORY COMMISSION ______________________________ STATEMENT OF JURISDICTION The Postal Regulatory Commission issued a final order resolving petitioner GameFly’s administrative complaint on April 20, 2011. App. 265. GameFly filed a timely petition for judicial review of the Commission’s order on May 20, 2011. This Court has appellate jurisdiction pursuant to 39 U.S.C. § 3663.

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STATEMENT OF THE ISSUE PRESENTED FOR REVIEW Whether the Postal Regulatory Commission abused its statutory discretion under 39 U.S.C. § 3662(c) to “take such action as the Commission considers appropriate” in determining a remedy for unreasonable discrimination among users of the mails. STATEMENT A. Nature of the Case and Course of Proceedings Below. Petitioner GameFly is a company engaged in the online rental of video games. It distributes its rental games by mailing DVD’s to customers, who then return the DVD’s to GameFly in pre-addressed reply mailers. In 2009, it filed a complaint with the Commission under 39 U.S.C. § 3662, alleging that the Postal Service had unlawfully discriminated against GameFly by according preferential treatment to Netflix, another company that uses the mails to distribute rental DVD’s. After lengthy evidentiary hearings, the Commission sustained GameFly’s allegations. It found that the Postal Service had failed to establish reasonable and legitimate reasons for providing GameFly less favorable treatment than Netflix, and that the Postal Service had unduly discriminated against GameFly, in violation of 39 U.S.C. 403(c). -2-

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To remedy the discrimination, the Commission ordered the Postal Service to make certain changes in the rates and surcharges imposed on DVD mailers. The Commission, however, did not adopt the remedies sought by GameFly. GameFly now appeals, essentially contending that the remedies ordered by the Commission do not adequately redress the Postal Service’s discriminatory conduct and are therefore arbitrary and capricious. B. Statutory Background. 1. The Postal Reorganization Act of 1970. In 1970, Congress abolished the old Post Office Department of the Executive Branch and created in its place the United States Postal Service. Pub. L. No. 91-375, 84 Stat. 719 (1970). The statute establishes the Postal Service as a government-owned corporation, 39 U.S.C. § 201, and directs the Postal Service to “plan, develop, promote, and provide adequate and efficient postal services at fair and reasonable rates and fees.” 39 U.S.C. § 403(a). To that end, the Postal Service is specifically empowered “to provide for the collection, handling, transportation, delivery, forwarding, returning, and holding of mail * * *,” and “to prescribe, in accordance with this title, the amount of postage and the manner in which it is to be paid.” 39 U.S.C. §§ 404(a)(1) & (2); see generally Nat. Ass’n of Greeting Card Publishers v. USPS, 462 U.S. 810 (1983). -3-

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Congress further provided that the Postal Service may not unreasonably discriminate among users of the mail. The statute thus provides that: In providing services and in establishing classifications, rates, and fees under this title, the Postal Service shall not, except as specifically authorized in this title, make any undue or unreasonable discrimination among users of the mails, nor shall it grant any undue or unreasonable preferences to any such user. 39 U.S.C. 403(c). The 1970 statute also established the Postal Rate Commission – the forerunner of the respondent here, the Postal Regulatory Commission. The Rate Commission was created as an independent establishment and directed to make recommendations to the Governors of the Postal Service with respect to rate, fee, and mail classification matters. 39 U.S.C. §§ 3601, 3622, 3623, and 3624 (2000). The Rate Commission was also vested with authority to review and make findings on complaints of discrimination by the Postal Service. The 1970 statute, however, did not authorize the Rate Commission to impose specific remedies for discrimination. It instead provided that if “the Commission after hearing finds the complaint to be justified, it shall render a public report thereon to the Postal Service which shall take such action as it deems appropriate.” 84 Stat. 764 (1970), formerly codified at 39 U.S.C. § 3662 (2000).

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2. The Postal Accountability and Enhancement Act of 2006. The Postal Accountability and Enhancement Act of 2006, Pub. L. No. 109435, 120 Stat. 3198 (2006), established the Postal Regulatory Commission in lieu of the Postal Rate Commission, see 39 U.S.C. § 501, and substantially revised the Commission’s powers to review postal rates and complaints of discrimination. With respect to rates, the 2006 Act sets out separate processes for pricing “market-dominant products” like first-class mail, as to which the Postal Service enjoys a statutory or effective monopoly, and “competitive products” like priority mail, as to which the Postal Service faces direct competition from other carriers such as Federal Express. See 39 U.S.C. §§ 3621-29 (market-dominant); id. §§ 3631-34 (competitive). For market-dominant products (which are at issue here), the statute directs the Commission to establish “a modern system for regulating rates and classes.” Id. § 3622(a). The statute sets out nine objectives for the Commission to “appl[y] in conjunction with [each other]” as well as fourteen additional “[f]actors * * * [to] take into account.” id. 3622(b) & (c). These include creating “predictability and stability in rates (id. § 3622(b)(2)),” “allow[ing] the Postal Service pricing flexibility to increase mail volume and operational efficiency (id. § 3622(c)(7)),” promoting simplicity of the rate structure (id. § 3622(c)(6)), and affording the -5-

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Postal Service authority “to mak[e] changes of unequal magnitude within, between, or among classes of mail (id. § 3622(b)(8).” The statute further provides that annual rate increases must generally be limited to the increase in an index of inflation unless the Postal Service demonstrates that extraordinary or exceptional circumstances warrant a higher increase. Id. § 3622(d). And it provides that if the Postal Service requests a rate increase, it must provide advance public notice, afford the Commission an opportunity to review whether the proposed increase complies with statutory requirements, and describe the actions the Postal Service will take to remedy any noncompliance identified by the Commission. Ibid; see generally U.S. Postal Service v. Postal Regulatory Comm’n, 640 F.3d 1263, 126465 (D.C. Cir. 2011). Congress also revised the Commission’s powers to remedy unlawful discrimination among users of the mail. Under the prior law, the Commission was only authorized to issue a report of its findings to the Postal Service. The revised statute vests the Commission with the discretion to order the implementation of such remedies as the Commission deems appropriate. Thus, the statute now provides that if the Commission finds a complaint of unreasonable discrimination to be justified:

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it shall order that the Postal Service take such action as the Commission considers appropriate in order to achieve compliance with the applicable requirements and to remedy the effects of any noncompliance (such as ordering unlawful rates to be adjusted to lawful levels, ordering the cancellation of market tests, ordering the Postal Service to discontinue providing loss-making products, or requiring the Postal Service to make up for revenue shortfalls in competitive products). 39 U.S.C. § 3662(c). C. Statement of Facts: GameFly’s Discrimination Complaint. GameFly’s complaint of discrimination centers on the Postal Service’s methods for processing “round-trip” DVD’s sent through the mail. A movie or game DVD is small enough to be sent as a one-ounce letter if enclosed in a lightweight mailer. App. 8. Letter-shaped mailpieces, however, are generally processed on automated sorter equipment, which subjects the letters to a variety of physical stresses as they are bent around the machine’s rollers and forced through the machine’s gates and chutes at high speed. App. 270-71; Pet. Br. 4-5. This automatic processing can damage an enclosed DVD and is particularly problematic on the return trip, when DVD’s are mixed with First-Class mail of varying shapes. GameFly and other businesses that rely on distributing and collecting rental DVD’s through the mail have accordingly sought to have their return mail processed manually. Ibid. -7-

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GameFly alleges that the Postal Service has unreasonably discriminated among DVD mailers in making such manual processing available. It asserts, in particular, that DVD’s mailed as letters by two of the largest businesses in the field – Netflix and Blockbuster – routinely receive special manual handling. On the return trip, their DVD letters are frequently removed from the automated processing stream. This manual processing, however, has been denied GameFly and other, similarly situated DVD mailers. App. 269, ¶ 1002. GameFly further alleges that, although an additional surcharge is ordinarily imposed on letters that are not amenable to machine processing, the Postal Service has selectively refrained from imposing the surcharge on Netflix. Ibid. In the absence of a commitment from the Postal Service to process its returning DVD’s manually, Gamefly took several alternative measures to ensure that its DVD mail would avoid the automated letter processing stream. First, it mailed its DVD’s in “flat-shaped” envelopes. App. 6, ¶ 15. Flats are larger than letter shaped envelopes, and they are subject to higher postage rates as well.1 Like letter-shaped mail, flats are processed automatically. But the machines for

See Domestic Mail Manual Part 101, §§ 1.1, 2.1 <available at http://pe.usps.com/text/dmm300/101.htm; Id., Notice 123 – Price List <available at http://pe.usps.com/text/dmm300/Notice123.htm#1011092>. -8-

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processing flats subject the envelope to less severe physical stresses and are therefore less apt to damage an enclosed DVD. App. 12, ¶ 50; Pet. Br. 8. Second, GameFly inserted a cardboard protective insert in its DVD mailers. App. 11, ¶ 48. The insert provides some additional cushioning against shock. More to the point here, it helps ensure that the flat is not mistakenly routed to the automated letter processing stream. Pet. Br. 8-9. The process for determining whether to route mail to the letter processing stream or flat processing stream is also automated. The selection process, however, does not reliably distinguish between a letter-shaped envelope and a relatively thin, flat-shaped envelope. Envelopes entered into the mail as thin flats may therefore be inadvertently diverted to the automated letter processing stream – even though the mailer has paid the additional postage applicable to flats and employed a “flat-shaped” mailpiece. App. 381-82, ¶ 5023. This problem can be avoided if the mailpiece is made thicker, because flats of a certain thickness can be automatically culled with greater reliability and routed through the flat processing stream rather than the letter processing stream. Ibid. GameFly’s cardboard inserts thicken its mailpieces and serve this purpose. The inserts, however, also increase the weight of each mailer above one ounce. And because postal rates for flats are determined by weight in addition to shape, -9-

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the cardboard inserts necessary to ensure that the flats are properly routed through the flat processing stream cause GameFly to incur additional postage costs. GameFly alleges that these circumstances amount to unreasonable discrimination among users of the mail, in part because the Postal Service has denied it the manual processing of DVD’s mailed as letters accorded Netflix, and in part because the lack of manual processing compels GameFly to use more expensive “flat” mail in order to achieve the same result – avoidance of the automated letter processing stream. It accordingly filed a complaint with the Commission under 39 U.S.C. § 3662(a), alleging that the Postal Service violated 39 U.S.C. § 403(c) by unreasonably discriminating among users of the mail. D. Commission Decision. The Commission sustained Gamefly’s allegations and concluded that the Postal Service had unduly discriminated against GameFly, in violation of 39 U.S.C. 403(c). App. 376, ¶ 5005. It found that GameFly and Netflix were similarly situated, and that the Postal Service had afforded GameFly less favorable rates and terms and conditions of service than Netflix. App. 376, ¶¶ 5502, 5003. The Commission further found that the Postal Service had failed to establish reasonable and legitimate reasons for these differences in treatment. The Postal Service had argued that Netflix mails high volumes of DVD’s in readily-10-

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identifiable mailers, that the Netflix mail stream tends to concentrate in particular postal processing facilities, and that, because Netflix mailers have a tendency to jam processing machines, this combination of factors make it both practical and more efficient to cull the Netflix DVD’s by hand. The Commission, however, found the Postal Service’s justification for the difference in treatment unpersuasive. App. 376, ¶ 5004. It reasoned that “[w]ithout the decision by Postal Service Headquarters to refrain from imposing the non-machinable surcharge, the Postal Service could conceivably have made a case that differences in processing of DVD return mail [were] purely an operational decision driven solely by pragmatic considerations involved in the efficient and effective processing of mail.” App. 335, ¶ 4136. The Commission concluded, however, that the Postal Service’s determination to refrain from imposing the surcharge for manual processing on Netflix, while continuing to impose it on similarly situated mailers of other non-machinable letters, reflected an unreasonable difference in rates and terms and conditions of service for which the Postal Service is clearly responsible. Ibid. The Commission nonetheless declined to impose the remedies requested by GameFly. GameFly had asked the Commission for an order directing the Postal Service to provide every DVD rental company a measurable and enforceable level -11-

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of manual processing of DVD mailers sent as First-Class letters at levels at least equal to that now accorded Netflix. GameFly requested that these operational changes be ordered through a directive of national scope and effectiveness, and that the Postal Service be directed to report to the Commission data sufficient to measure and ensure compliance with these mandated levels of manual processing. App. 378-79, ¶ 5012; App. 247-48. The Commission concluded, however, that this “operational” remedy is inappropriate. It reasoned that GameFly’s proposed remedy would require the Postal Service to achieve very high percentages of manual processing for a variety of DVD mailers in addition to Netflix, and that enforcement of such a remedy would require the Commission to exercise the kind of day-to-day oversight of postal operations that has heretofore been almost exclusively the prerogative of the Postal Service. App. 379, ¶ 5014. The Commission further reasoned that GameFly’s proposed operational remedy would require the collection and reporting of a significant amount of data pertaining to the processing of DVD mail, that it was unclear whether this was feasible, and that such reporting requirements would in any event impose significant administrative costs on both the Postal Service and the Commission itself. App. 379, ¶ 5015.

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GameFly further requested that the Commission, either in conjunction with or as an alternative to this proposed operational remedy, reduce the postal rates imposed on DVD’s mailed as flats. GameFly recognized that it costs more per piece to process flat mail than letter mail. But it argued that, in the case of roundtrip DVD mail, the difference in postal rates far exceeds the difference in processing costs. It accordingly proposed that the Postal Service reduce the postal rates on DVD mail to the point where the additional postage due on a DVD flat would be no greater than the additional cost of processing a DVD flat. App. 248. To support this request, GameFly offered expert testimony intended to establish the pertinent difference in processing costs. See App. 27-39. The Commission declined to impose this remedy as well. It reasoned that GameFly’s cost estimates were not sufficiently accurate to be used as a basis for determining new postal rates. App. 380, ¶ 5020. It further concluded that it would be inappropriate on this record to interfere with the Postal Service’s statutory authority to determine prices in the first instance, and to consider multiple policies, objectives, and factors other than cost when pricing mail products. App. 380-81, ¶ 5020. The Commission instead fashioned two complementary remedies in lieu of those proposed by GameFly. First, the Commission directed the Postal Service to -13-

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refrain from imposing a non-machinable surcharge on any qualifying round-trip DVD mailer that is sent as letter mail and that weighs one ounce or less.2 App. 382, ¶ 5026. It thereby ordered relief that would end the Postal Service’s selective enforcement of non-machinable surcharge on DVD mailers and the preferential treatment of Netflix with respect to these charges. Second, the Commission directed the Postal Service to offer a base rate for mailing a two ounce, round-trip DVD flat that would be equal to the rate previously imposed on a one ounce flat. App. 382, ¶ 5027. In practical effect, this means that the extra weight GameFly or other DVD mailers must add to a flat mailpiece in order to ensure that the flat is thicker and avoids the automatic letter processing stream will not result in additional postal charges. The Commission recognized that GameFly would still be required to pay higher rates for mailing a round-trip DVD flat than Netflix would be required to pay for mailing a round-trip DVD letter. But it concluded that the difference is “justified by cost differences and by general pricing differences between the First-Class Mail flat and letter products.” App. 383, ¶ 5029. GameFly now appeals. Qualifying mailers must contain a standard 12 centimeter or smaller disc, and return pieces must be picked up by the mailer at designated Postal Service facilities. App. 392. -142

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SUMMARY OF THE ARGUMENT The Commission’s choice of remedies strikes a reasonable balance between ensuring fair and equitable treatment of mailers, avoiding undue interference with the Postal Service’s day-to-day management of the mail, and managing practical constraints on the Commission’s limited enforcement resources. The statute makes plain that the Commission has wide latitude to take all these considerations into account when determining what measures are an “appropriate” remedy for unreasonable discrimination among users of the mail. Firmly established principles of judicial review hold that the Commission’s exercise of this broad remedial discretion must be accorded substantial deference and sustained unless demonstrably irrational. The Commission’s remedial order readily satisfies this highly deferential standard of review. First, the record affords ample basis for the Commission’s rejection of the “operational” remedy proposed by GameFly. GameFly, though itself arguing that manual processing of DVD mail is inefficient and more costly than automated processing, demanded that the Commission order the Postal Service to maintain high levels of manual processing for all DVD letter mail. It further demanded that the Commission take on an indefinitely continuing responsibility to monitor and enforce these processing requirements. The -15-

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Commission, however, reasonably concluded that such measures would substantially intrude on the discretion of local Postal Service’s to determine how best to process the mail, potentially impose significant additional costs on the Postal Service, and overburden the Commission’s limited enforcement resources. Those are rational choices that are fully within the Commission’s broad remedial discretion. Second, the Commission reasonably rejected GameFly’s alternative ratebased remedy. GameFly had requested that the Commission equalize the postal rates applicable to DVD letter mail and DVD flat mail by reducing the rate differential to the point where the additional postage charged for mailing a flat would be no greater than the additional cost of processing a flat. The Commission reasonably rejected this proposal as well. Though GameFly’s rate-based remedy depends on establishing the difference in relative processing costs, the Commission concluded that GameFly’s cost estimates did not afford a sufficiently reliable basis for ordering a change in applicable rates. GameFly takes issue with the Commission’s technical analysis of the cost data in the record. Ratemaking questions, however, are at the heart of the Commission’s statutory authority and expertise, and its expert evaluation of the adequacy of cost data is therefore entitled to substantial deference on judicial -16-

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review. Here, the Commission concluded that GameFly’s cost estimates depended on dubious modeling assumptions and an inappropriate decision to use as a proxy for key cost determinants cost factors developed for modeling the costs of a fundamentally different type of mail product. That, standing alone, is a sufficient basis for the Commission’s rejection of GameFly’s rate-based remedy. The Commission, moreover, consistent with prior decisions recognizing that letter mail and flat mail are different products, reasonably concluded that the Postal Service may base rates on factors other than each mail product’s respective processing costs. The statute specifically provides that the Postal Service has pricing flexibility, and that rate regulation may properly take account of the need for a clear and readily understandable rate structure as well as the Postal Service’s authority to draw reasonable distinctions among and between mailers and classes of mail. The Commission concluded that mandating strict equality between DVD flat mail and DVD letter mail would be inappropriate in light of these statutory interests. That, too, is a reasonable exercise of the Commission’s broad remedial discretion. Finally, the remedies the Commission did impose reasonably address the multiple statutory interests at stake in remedying discrimination. GameFly’s argument is premised on the assumption that, having found discrimination, the -17-

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Commission is obligated to impose complete equality, without regard to the impact of a remedy on other statutory objectives and without regard to practical limitations on the Commission’s enforcement resources. The statute, however, directs the Commission to adopt only such remedies as it deems “appropriate,” and that affords the Commission broad authority to take the objectives of the statute as a whole into account. Here, the Commission’s remedial order eliminates patent discrimination in the Postal Service’s imposition of surcharges on manual processing of DVD letter mail. It directs a substantial, 16 percent reduction on the rates paid by GameFly to mail a DVD flat – a reduction that would translate into $2.4 million in annual postage savings at the rates and mail volumes prevailing when GameFly filed its complaint. And it mandates a measure of parity between DVD letter mailers and DVD flat mailers by providing that the Postal Service must dispense with the additional charges that either type of mailer would otherwise be obligated to pay to ensure that their mail avoids the automated letter processing stream. GameFly argues that this relief is incomplete and that the Commission acted unreasonably in not going further. But the Commission is not obligated to subordinate all other statutory interests to the interest in ensuring equality in the treatment of similarly situated mailers. Nor is it obligated to ignore practical -18-

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limitations on its own remedial powers. The Commission may instead appropriately consider the extent to which a remedy would intrude on the Postal Service’s managerial discretion, or the burden the remedy would place on the limited resources of the Postal Service as well as the Commission itself. The remedy imposed by the Commission strikes a reasonable balance among these competing factors and is an eminently rational exercise of the Commission’s broad remedial authority. The Commission’s order should therefore be affirmed. ARGUMENT I. The Commission Has Broad Discretion To Fashion Remedial Orders That Avoid Undue Interference With Postal Service Operations, That Avoid Imposing Significant New Costs, And That Take Account Of Limitations On The Commission’s Enforcement Resources. The Court Must Accord Substantial Deference To The Commission’s Exercise Of Its Discretion To Determine An Appropriate Remedy For Unreasonable Discrimination Among Users of the Mail.

A.

The statute and its legislative history reflect a clear congressional intent to vest the Commission with broad discretion to determine what measures should be imposed on the Postal Service to remedy discrimination among users of the mail.

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The Commission’s exercise of this remedial discretion is entitled to substantial deference. As a general matter, judicial review is particularly deferential when a challenge “relates to the fashioning of remedies,” where [a]gency discretion is often at its zenith * * *.” Towns of Concord, Norwood, & Wellesley, Mass. v. FERC, 955 F.2d 67, 76 (D.C. Cir. 1992) (citations omitted). “[W]here Congress has entrusted an administrative agency with the responsibility of selecting the means of achieving the statutory policy ‘the relation of remedy to policy is peculiarly a matter for administrative competence.’” Butz v. Glover Livestock Comm’n Co., Inc., 411 U.S. 182, 185 (1973), quoting American Power Co. v. SEC, 329 U.S. 80, 112 (1946). Consequently, the agency’s choice of remedies may not be overturned unless “unwarranted in law * * * or without justification in fact.” Butz, 411 U.S. at 185-86 (internal quotation and citations omitted); cf. Heckler v. Chaney, 470 U.S. 821 (1985) (agency's decision against undertaking an enforcement action is presumptively committed by law to agency discretion). Deference to the agency’s remedial choices is particularly warranted where as here, the governing statute expressly provides that the agency is to determine what remedies are appropriate in light of a whole constellation of factors defining the agency’s role with respect to a regulated entity. GameFly essentially argues -20-

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that, having found discriminatory conduct, the Commission must direct the Postal Service to undertake whatever measures are necessary to eradicate all distinctions among similarly situated mailers, without regard to any other congressional policy or objective, and without regard to practical limitations on the Commission’s enforcement resources. The statute, however, empowers the Commission to take account of the interests of the statute as a whole when determining an appropriate remedy. The plain language of the statute accordingly places the authority to fashion a remedy for discrimination among users of the mails squarely within the Commission’s discretion. It states, not that the Commission shall take whatever steps are necessary to eradicate discriminatory conduct, but rather that the Commission “shall order that the Postal Service take such action as the Commission considers appropriate in order to achieve compliance with the applicable requirements and to remedy the effects of any noncompliance * * *.” 39 U.S.C. § 3662(c) (emphasis added). This grant of authority vests the Commission with great latitude to balance the interest in rectifying discrimination against other statutory policies and interests. The Court has recognized that statutes which make remedial action hinge on an administrative official’s judgment are intended to vest the agency with -21-

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broad discretion. As then Judge (now Chief Justice) Roberts observed, “We have noted in the past the ‘distinction between the objective existence of certain conditions and the Secretary's determination that such conditions are present,’ stressing that a statute phrased in the latter terms ‘fairly exudes deference' to the Secretary.” American Federation of Labor and Congress of Indus. Organizations v. Chao, 409 F.3d 377, 393 (D.C. Cir. 2005) (Roberts, J., concurring in part and dissenting in part), quoting Kreis v. Sec'y of the Air Force, 866 F.2d 1508, 1513 (D.C. Cir. 1989). Here, the statute similarly makes the selection of a remedy a matter of the Commission’s informed judgment as to what is “appropriate” and thus, by its plain terms, similarly “exudes deference” to the Commission’s determination. The legislative history to the 2006 amendments confirms Congress’ intent to vest the Commission with extremely broad remedial discretion. The pertinent House committee report thus explains that, in expanding the Commission’s remedial power, Congress intended to afford the Commission authority to “take whatever steps the Commission considers appropriate” in remedying discrimination. H. R Rep. No. 109-66, Pt. 1, 109th Cong., 1st Sess. 52 (2005). GameFly reads this as a mandate to enforce nondiscriminatory treatment at any and all costs. But in context, it is clear that Congress meant only that the -22-

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Commission would now have the authority to impose a remedy, not that it is obligated to do so in every case. As noted above, the statutory scheme preceding the 2006 amendments gave the Commission no authority to impose on the Postal Service any remedy for discriminatory conduct. Rather, the Commission could only issue a report of its findings to the Postal Service, which was in turn authorized to undertake whatever action – or inaction – it deemed appropriate. See 84 Stat. 764 (1970), formerly codified at 39 U.S.C. § 3662 (2000). The legislative history makes clear that under the 2006 amendments the Commission would now have the authority to fashion and impose a remedy for discriminatory conduct. But it stops far short of mandating that a remedy be imposed without regard to the impact on Postal Service operations or the limited enforcement resources of the Commission. The Court, in addressing the Federal Energy Regulatory Commission’s remedial discretion – under what GameFly itself characterizes as a “cognate” regulatory scheme (see Pet. Br. at 37) – has reasoned that: Petitioners incorrectly imply that this court should enforce some absolute requirement of action on the part of FERC. FERC ordinarily has remedial discretion, even in the face of an undoubted statutory violation, unless the statute itself mandates a particular remedy. Under the [Federal Power Act], the court has authority to “affirm, modify, or set aside” a FERC order. However, where -23-

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FERC possesses but is not required to use certain powers, our review is limited to ensuring that in explaining its decisions, FERC examines the relevant data and articulates a rational connection between the facts found and the choice made. Consolidated Edison Co. of N.Y. v. FERC, 510 F.3d 333, 339 (D.C. Cir. 2007) (internal citations and quotations omitted). The same standard of review applies here, and it mandates substantial judicial deference to the Commission’s choice of appropriate remedies. B. The Commission Reasonably Rejected GameFly’s Proposed Operational Remedy.

The Commission reasonably rejected proposed remedies that would, in its judgment, unduly interfere with the Postal Service’s day-to-day managerial decisions over how to efficiently process the mail, potentially impose significant additional costs, burden the Commission’s limited enforcement resources, and be difficult to enforce in practice. Many of these practical impediments stem from GameFly’s determination to seek remedies that would perpetuate and enlarge manual processing of DVD’s rather than end it. GameFly did not seek remedies that would merely compel the Postal Service to cease extending manual processing to Netflix. Nor did it have a clear business reason to do so. Unlike GameFly, Netflix principally rents DVD

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movies, not DVD games. App. 271, ¶ 2002; App. 167-68. Netflix does not directly compete with GameFly for the rental game market, and GameFly has not argued that the preferential processing treatment accorded Netflix places GameFly at a head-to-head, competitive disadvantage. It accordingly did not seek remedies that would have required the Postal Service to end manual processing of Netflix mail or impose on Netflix additional charges for such treatment, for these remedies would do nothing to advance GameFly’s principal interest in the case: avoiding automated-processing damage to its own DVD’s. GameFly has instead argued that it, too, should have the benefit of manual processing and the attendant reduction in damage to DVD’s sent via letter mail. GameFly has accordingly sought an “affirmative” remedy that, rather than ending the special processing treatment accorded Netflix, would both perpetuate it and mandate its extension to all other DVD rental companies. See App. 247. The Commission concluded that this operational remedy is inappropriate because it would require the Commission to involve itself in day-to-day managerial decisions that have historically been the exclusive responsibility of the Postal Service, App. 379, ¶ 5014, potentially impose significant additional costs on the Postal Service, id., ¶ 5015, tax the Commission’s limited enforcement resources, App. 379-80, ¶¶ 5015, 5016, and be difficult to enforce in practice. -25-

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Ibid. Contrary to GameFly’s contentions, the Commission has ample discretion to consider all these factors when determining an appropriate remedy for discrimination, and reasonably took each of them into account. 1. The Commission Has Authority To Consider, and Reasonably Took Account Of, The Proposed Remedy’s Potential Interference With The Postal Service’s Managerial Discretion.

In Mail Order Ass’n of America v. USPS, 2 F.3d 408 (D.C. Cir. 1993), the Court, in the course of reviewing the Rate Commission’s authority under the prior statutory scheme to make recommended rate decisions, made clear that the Rate Commission was required to balance considerations of fairness and equity to mail users against its additional duty to avoid undue interference with the Postal Service’s managerial authority: Once the [Rate] Commission puts forward a proposal that it deems necessary for reasons of fairness and equity, however, it has the additional duty to consider whether this proposal interferes with the Postal Service’s management authority. * * * Since the Postal Service’s Board of Governors, and not the Commission, has the exclusive authority to manage the Postal Service, the [Commission] would be beyond its statutory authority in issuing a recommended decision that unduly interfered in the management and direction of the Postal Service. Id. at 424 (internal quotation and citation omitted).

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The statute has been amended in important respects since Mail Order Ass’n was decided, and the Commission now has substantially greater remedial powers than its Rate Commission predecessor. The authority to determine how to efficiently and effectively manage the mail, however, remains vested in the Postal Service. The statute continues to charge the Postal Service with the duty to “plan, develop, promote, and provide adequate and efficient postal services,” 39 U.S.C. 403, and it specifically empowers the Postal Service to “provide for the collection, handling, transportation, delivery, forwarding, returning, and holding of mail.” 39 U.S.C. 404. While the Commission now has substantial regulatory authority to remedy unreasonable discrimination by the Postal Service among users of the mail, the management of day-to-day postal operations remains the Postal Service’s responsibility. Thus, it is still the case that in remedying inequities in Postal Service operations, “the Commission does not have carte blanche to intrude as far as it wishes into Post Office management.” Mail Order Ass’n, 2 F.3d at 424. This does not mean that the Commission lacks any authority to direct operational changes in response to unreasonable discrimination. Indeed, contrary to petitioner’s contentions (see Pet. Br. at 36-37), the Commission took care to note that its rejection of GameFly’s proposed operational remedy on the record

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here “is not to suggest that an operational remedy may never be warranted.”3 App. 379, ¶ 5014. The Commission, however, did consider the extent to which a proposed remedy would interfere with the Postal Service’s managerial discretion in making its decision here. And given the continuing statutory division of powers between the Postal Service and the Commission, that remains a relevant factor that the Commission may properly consider when determining an appropriate remedy. Here, the Commission had ample basis for concluding that GameFly’s proposal to extend Netflix-levels of manual processing to all DVD’s mailers would unreasonably interfere with the Postal Service’s management of the mails. First, the operational remedy advocated by GameFly would compel the Postal Service to maintain and enlarge the scope of manual processing – despite the Commission’s express determinations that manual processing of Netflix mail increases Postal Service costs without demonstrably improving efficiency. App. 354, ¶ 4192; App. 344, ¶¶ 4164-4166. The Postal Service disagreed with these conclusions with respect to Netflix mail, principally because it maintained that the higher volumes, densities, and Moreover, as GameFly notes (Pet. Br. 37), the predecessor Rate Commission imposed operational remedies to remedy discriminatory rates where the record warranted it, even though its remedial powers were more limited than those now vested in the Commission. See Red Tag Proceeding, No. MC79-3 (Postal Rate Commission May 18, 1980). -283

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other unique characteristics of Netflix mail enabled manual processing to create efficiencies and costs savings with respect to Netflix that could not be realized with respect to smaller volume mailers like GameFly. App. 341, ¶ 4156, App. 347. ¶ 4172. The Commission found these putative advantages to be illusory, even in the case of a high volume mailer like Netflix. GameFly’s own expert, moreover, reached the same conclusion, noting that manual culling and related special handling of DVD return mailers are substantially more costly than automated letter processing. App. 137. GameFly’s proposed operational remedy would nonetheless compel the Postal Service to adopt such processing for all DVD round-trip mailers, even in those cases where the Postal Service itself does not believe such efficiencies can be realized, and in the teeth of the Commission’s finding that such efficiencies will not in fact be realized in most cases. GameFly thus seeks a remedial order that would not only trump the Postal Service’s managerial choices in this regard, but foist upon it the universal adoption of a processing method that the Commission has found to be costly and inefficient in the great majority of cases. Second, GameFly’s proposed operational remedy would interfere with the Postal Service’s discretion to selectively employ manual processing in those limited instances where manual processing would be beneficial. Though the -29-

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Commission concluded that manual processing is usually of little benefit, it “accept[ed] the general proposition advanced by Postal Service witnesses that in some unusual situations manual processing could further processing efficiency * * *.” App. 343, ¶ 4160. The Commission, for example, noted that some DVD mailpieces tended to jam Postal Service processing equipment, and that the Postal Service had maintained that manual processing in those circumstances could enhance efficiency by enabling it to divert problematic mailpieces from the automated processing stream. App. 342-44, ¶¶ 4162-63. GameFly’s proposed remedy, however, would mandate manual processing at the level now accorded Netflix in all circumstances, thereby eliminating the Postal Service’s discretion to tailor the level of manual processing to local operational need. The record demonstrates that such a remedy would substantially, and in many instances irrationally, intrude on the Postal Service’s day-to-day processing decisions. One study in the record estimates that approximately 77.3 percent of Netflix return mail is processed manually. Christensen Study, Supp. App. 475. GameFly’s proposal would thus require all DVD return mail to be manually processed at a comparable level, and it would do so without regard to whether any operational consideration actually warranted that level of manual processing. -30-

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This would impose arbitrary and nonsensical limitations on the Postal Service’s discretion to adjust processing operations to specific operational circumstances. For example, Blockbuster also rents DVD’s to its customers through round-trip letter mail. The record indicates, however, that its mailpieces are better designed than those used by Netflix, that they are more automation compatible, and that they are therefore less likely to jam automated processing machinery. App. 142-43. Blockbuster return mail has accordingly been subject to far lower rates of manual processing. Indeed, the Christensen study – the same study used by GameFly in its calculation of relative processing costs (see App. 3239) – found that only 36.4 percent of Blockbuster’s return DVD mail was processed manually – less than half the level accorded Netflix. Christensen Study, Supp. App. 475. Yet Gamefly’s proposed remedy would nonetheless require the Postal Service to more than double manual processing of Blockbuster’s mail – without any demonstrated operational need to do so, and despite the Commission’s determination (echoed by GameFly’s own expert) that manual processing is less efficient and substantially more costly. Finally, GameFly’s proposed remedy would interfere with the Postal Service’s ability to respond to changes in technology or market conditions. Many such changes could affect the feasibility or utility of providing manual processing -31-

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at the levels now accorded Netflix. Though GameFly maintains that Netflix has resisted improving the design of its mailpieces (App. 210), other DVD mailers might design a new mailpiece that, like Blockbuster’s mailer, is less prone to jam automated processing machines and that would therefore generate less operational need for manual processing. See Christensen Study, Supp. App. 475, recommending design changes in DVD mailers. By the same token, Postal Service witnesses testified that new processing equipment may, on the one hand make manual processing more difficult and, on the other hand, reduce the likelihood that DVD mail will jam the machines (Supp. App. 433, 455) – technological changes that would reduce the need for and practicality of manual processing. Overall volumes of round-trip DVD mail may fall as Netflix and similar businesses shift to electronic downloading (Supp. App. 433) – a change in market conditions that might further affect whether manual processing of DVD’s at the levels accorded Netflix makes operational sense. GameFly’s proposed remedy, however, would, in each of these circumstances, lock the Postal Service into a level of manual processing that would no longer be warranted by any operational need. The Commission concluded that these operational decisions are generally the prerogative of the Postal Service, and that mandating and enforcing a fixed and -32-

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specific level of manual processing would unreasonably intrude on the Postal Service’s authority to manage day-to-day processing operations. App. 379, ¶ 5014. Its remedial determination in this regard is based on a reasonable evaluation of relevant statutory factors, and it is entitled to substantial deference on judicial review. 2. The Commission Reasonably Considered Practical Limitations On Its Ability to Enforce An Operational Remedy.

An agency has broad discretion to take account of practical limitations on its ability to undertake a particular enforcement action. In making such decisions, “the agency must not only assess whether a violation has occurred, but whether agency resources are best spent on this violation or another, whether the agency is likely to succeed if it acts, whether the particular action requested best fits the agency’s overall policies, and indeed, whether the agency has enough resources to undertake the action at all.” Heckler v. Chaney, 470 U.S. 821, 831 (1985). Such considerations lie squarely within the agency’s discretion and must, at a minimum, be accorded great deference on judicial review.4 Id. at 831-33. We do not argue here that the Commission’s decision rests entirely and exclusively on matters that are committed to agency discretion by law, and that the Court, as in Chaney, consequently lacks jurisdiction. Rather, the Commission’s decision rests, not only on the presumptively unreviewable consideration of its limited enforcement resources, but on the above-discussed determination that -334

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The operational remedy demanded by GameFly would plainly impose substantial and continuing enforcement burdens of the Commission. GameFly sought a “measurable and enforceable qualitative outcome – i.e., at least 80 percent of the customer’s DVD volume must be diverted from automated processing * * *.” App. 247. It demanded that the mandated manual processing include eight highly specific elements pertaining to where and when DVD’s must be culled from the automated processing stream, the containers used to collect the DVD’s, the method for arranging DVD’s within these containers, and the methods for stacking full containers.5 Ibid. And it demanded that the Commission take an

GameFly’s proposed remedy would unduly intrude on the Postal Service’s managerial discretion. The latter ground is a substantive determination that is not committed to agency discretion by law, and that therefore remains subject to judicial review. Nonetheless, although the Commission’s decision is not shielded from judicial review entirely, its consideration of enforcement-related factors implicates matters that are reserved to the agency in the first instance. Its evaluation of such factors must consequently be accorded great deference, even if its ultimate decision remains subject to judicial review. Cf. Dunlop v. Bachowski, 421 U.S. 560, 568-72 (1975) (court must accord substantial deference to agency’s decision not take enforcement action, even where decision ultimately remains subject to judicial review); Consumer Federation of America v. Consumer Product Safety Comm’n, 990 F.2d 1298, 1305 (D.C. Cir. 1993) (same). In the proceedings below, the specific elements of its proposed remedy were treated as confidential proprietary information. We accordingly refer to them in only general terms here. Further detail is set forth in the sealed Appendix filed with the Court. See App. 247. -345

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active and indefinitely continuing role in assessing whether each of these requirements had been met, thus demanding “periodic reporting to the Commission to provide current and precise data on the extent to which the Postal Service is actually achieving the minimum required level of manual processing.” App. 248. This extraordinary remedy, with its highly particularized substantive standards and ongoing reporting and monitoring requirements, would place the Commission in a role akin to that of a district court administering a consent decree. The Commission found this to be singularly inappropriate, noting that it was unable to develop modifications to the proposed remedy that would “protect against the imposition of potentially large costs on the Postal Service, mailers, and the Commission itself.” App. 380, ¶ 5016. The Commission’s reservations about taxing its limited enforcement resources in this manner are eminently reasonable and entitled to substantial deference from the Court. The Commission also acted reasonably in expressing skepticism over whether, even apart from the likely administrative burden, GameFly’s remedy could reasonably be enforced. App. 379, ¶ 5015. This determination is well supported by the record. As an initial matter, though GameFly demanded specific numerical targets for manual processing, the record does not indicate that there is a -35-

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workable means of measuring such processing levels on a continuing basis and at a reasonable cost. The Christensen study cited by both parties used survey research, sampling techniques, and on-site visits to measure rates and methods of manual processing. Supp. App. 465-67, 470-74. GameFly, however, does not demonstrate or even assert that it would be reasonable to incur the costs that would be involved in undertaking a similar effort on an ongoing, nationwide basis. GameFly instead suggests that “barcode scan data can reveal how often a customer’s pieces have passed through automated processing equipment.” Pet. Br. at 39. It did not, however, advance this contention to the Commission. It does not explain how information on the number of times mailpieces pass through automated processing equipment sheds light on the proportion of mailpieces processed manually. And it does not explain how barcode scan data would show whether the Postal Service employed the eight specific processing steps GameFly demanded be included as the required elements of Commission-mandated remedy. See App. 247. Even if these measurement obstacles could be overcome, GameFly does not explain how the Commission could shape and structure orders that would ensure the Postal Service is providing the requisite type and level of manual processing. The Commission found that the Postal Service was aware of and accountable for -36-

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the preferential treatment accorded Netflix. App. 340-41, ¶¶ 4154-55. It nonetheless accepted “the Postal Service’s assertions that responsibility for processing decisions resides at the local, district, and area levels” as well as “the Postal Service’s assertions regarding many of the factors that limit local processing decisions.” App. 340, ¶ 4152. Thus, in order to implement GameFly’s remedy, the Commission would have to ensure that local processing facilities – each subject to a variety of constraints imposed by local conditions that may vary from hour to hour – produce an output of manual processing that collectively satisfies the levels demanded by GameFly. That would require the Commission to involve itself in day-to-day management decisions to an inordinate degree, without any indication that it has the resources or practical ability to successfully enforce the proposed remedy. For example, if manpower limitations, mail volumes, or other constraints made it infeasible for processing facilities in New York to maintain a specified level of manual processing of DVD mail during a given time period, then the Commission would somehow have to ensure that the “shortfall” is made up by processing facilities located elsewhere, all after taking account of the relative volume of DVD mail, the geographic distribution of facilities processing that mail, and any local constraints on those facilities’ ability to process mail manually. -37-

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The Commission does not have the resources or ability to take control of postal operations in this manner. It noted that “the Commission expressly accepts the fact that the efficient and effective processing of mail requires operational flexibility at the local level” and stated that it “will not interfere with that operational flexibility by dictating how mail is physically processed.” App. 334, ¶ 4135. That determination is well within the Commission’s discretion and affords ample basis for declining to mandate Gamefly’s proposed, operational remedy. Finally, GameFly errs in asserting (Pet. Br. 40) that the Commission violated procedural requirements of the Administrative Procedure Act by considering whether the proposed remedy would be feasible without affording express, advance notice that the feasibility of the remedy would be taken into account. Any agency vested with remedial discretion must evaluate whether a proposed remedy is workable. GameFly cannot reasonably claim to be unfairly surprised by the Commission’s consideration of that issue. Moreover, the APA makes clear that “[e]xcept as otherwise provided by statute, the proponent of a rule or order has the burden of proof.” 5 U.S.C. § 556(d). GameFly, as the proponent of a specific and particularized remedial order, thus had the burden in the first instance of demonstrating that the order would be an appropriate exercise of the -38-

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Commission’s discretion. The feasibility of its proposed remedy has a direct and obvious bearing on that question, and GameFly had a full and fair opportunity to address it during the lengthy evidentiary hearings and briefing afforded by the Commission. C. The Commission Reasonably Rejected GameFly’s Proposed, Rate-Based Remedy.

The Commission also acted reasonably in rejecting GameFly’s alternative proposal for parity between the rates charged DVD letter mail and DVD flat mail. GameFly had requested that flat mail rates be reduced to the point where the additional postage due for mailing a flat rather than a letter would be limited to the additional cost of processing a flat. In support of its request, it adduced expert testimony purporting to establish the difference in relative processing costs. GameFly concluded that, in 2009 when the complaint was filed, and before taking into account discounts offered for presorted mail, it was paying an extra charge of $1.22 per round trip to send its DVD’s as flat mail rather than letter mail. Pet. Br. 9. It asserted, however, that the extra cost of processing DVD flats is far lower.6 GameFly’s calculation of processing costs is based upon confidential information submitted to the Commission under provisions that require the Commission to safeguard it from unauthorized public disclosure. See 39 U.S.C. § 504(g); 39 C.F.R. Part 3007. We accordingly do not identify GameFly’s specific cost estimates in this publicly filed brief. The pertinent cost estimates, however, are set forth in the non-public version of the appendix filed with Court under seal. -396

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GameFly therefore demanded, as an alternative to an operational remedy, a ratebased remedy that would require a commensurate reduction in flat mail rates. The Commission rejected this rate-based remedy, reasoning that GameFly’s processing cost estimates were not sufficiently accurate for use in revising the rates for flat shaped DVD mail, that such a remedy would intrude on the Postal Service’s authority to take account of factors other than cost when setting different rates for letter mail and flat mail, and that a rate-based remedy did not respond to other consequences of the preferential treatment accorded Netflix. App. 380-81, ¶ 5020. Each of these grounds is a reasonable and adequate basis for the Commission’s rejection of GameFly’s rate-based remedy. As an initial matter, GameFly misstates the issue in asserting (Pet. Br. at 41) that the Commission acted arbitrarily in maintaining differences in the rates charged for letter mail and flat mail. These rates were proposed by the Postal Service in prior proceedings and subsequently reviewed and approved by the Commission. GameFly’s administrative complaint did not place the lawfulness of these previously established rates at issue. It instead alleged discriminatory treatment of similarly situated mailers. The question for the Commission thus was not whether it was lawful to maintain a difference in the rates for letter mail and See App. 28-29, 248. -40-

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flat mail, but rather whether an adjustment of existing, lawfully-established rates was an appropriate remedy for discrimination in the handling of roundtrip DVD mail. Any such rate adjustment necessarily depends on determining the actual costs incurred in processing GameFly’s DVD flat mail, and the Court must accord considerable deference to the Commission’s assessment of the adequacy of the costs estimates proffered by GameFly. The Commission is charged by statute with the duty to establish a system for regulating postal rates, to review complaints that existing postal rates do not conform to legal requirements, and to order that unlawful rates be adjusted to lawful levels. 39 U.S.C. §§ 3622(a), 3662. The question of whether estimates of postal costs are accurate enough to support a mandated change in postal rates raises matters that are squarely within the Commission’s technical expertise and at the heart of the Commission’s statutory duties. The Supreme Court, moreover, has cautioned that “[a]llocation of costs is not a matter for the slide-rule. It involves judgment on a myriad of facts. It has no claim to exact science.” National Ass’n of Greeting Card Publishers, 462 U.S. at 825 (internal quotation and citation omitted). Deference to the agency’s determinations in these circumstances is the norm and requires the reviewing court -41-

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to sustain the agency’s choices unless they are patently irrational. See, e.g., Village of Bensenville v. FAA, 376 F.3d 1114, 1122 (D.C. Cir. 2004); (“[W]e owe considerable deference to an agency's exercise of its judgment and expertise in estimating costs”); West Virginia v. EPA, 362 F.3d 861, 867 (D.C. Cir. 2004) (“Agency determinations based upon highly complex and technical matters are entitled to great deference”) (internal citation and quotation omitted). Milk Train, Inc. v. Veneman, 310 F.3d 747, 754 (D.C. Cir. 2002) (“An agency typically has wide latitude in determining the extent of data-gathering necessary to solve a problem”)(internal quotation and citation omitted). Here, the Commission stated that it had examined the models used by GameFly’s expert to estimate the difference in relative processing costs and concluded that they did not afford an adequate basis for restructuring DVD postal rates. App. 380, ¶ 5019. It noted in particular that GameFly modeled the cost of processing DVD flat mail by making adjustments to a model previously developed to estimate the cost of processing DVD letter mail, that some of these modifications were questionable, and that GameFly’s evidence “could likely only provide a second best point of departure for separate ratemaking purposes.” App. 358, ¶ 4204. The Commission cited, as “one example” of a questionable cost assumption, the use of factors developed to model the costs of processing Standard -42-

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Flat Mail as a proxy for the costs associated with processing First-Class Mail. App. 358, n. 51. GameFly’s various attacks on this reasoning are meritless. Its threshold contention (Pet. Br. at 43) that the Commission acted arbitrarily in refusing to reduce postal rates without reliable evidence of postal costs is untenable. The Commission reviews rates, it does not set them in the first instance. Where rates are disputed in a proceeding under 39 U.S.C. § 3662(c), the complainant and the Postal Service appear before the Commission as adversary parties. The Commission may order relief and impose a rate reduction on the Postal Service only if it “finds the complaint to be justified.” Ibid. Under 5 U.S.C. 556(d), as the complainant and proponent of an order directing a cost-based change in rates, GameFly had the burden of proof on this question. That means, not only that GameFly had the burden of going forward with pertinent evidence, but that it also had the burden of persuasion. See Director, Office of Workers Compensation Programs, Dep’t of Labor v. Greenwhich Collieries, 512 U.S. 267 (1994). GameFly’s novel suggestion that the Commission should nonetheless order a specific, cost-based change in postal rates without adequate proof of the relevant postal costs has no support in logic or precedent. As we will show below, there is no requirement that postal rates be tied exclusively to postal costs in the first -43-

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instance. Moreover, the Commission, for other reasons, did in fact order a significant reduction in the rate GameFly must pay for mailing a DVD flat – a rate reduction that would translate into $2.4 million per year in postage savings at the rates and mail volumes prevailing during the litigation. But even assuming that processing costs are the only relevant factor, the maxim, cited by GameFly, that “the perfect should not be the enemy of the good” does not authorize the Commission to impose a rate change in the absence of reliable cost information. GameFly’s critique of the Commission’s technical analysis of the cost data is also meritless. The Commission looked carefully at the assumptions underlying the cost model proposed by GameFly. Indeed, it specifically rejected as inconsequential many of the criticisms of the model advanced by the Postal Service. App. 358, ¶ 4204. It concluded, however, that GameFly’s cost data did not have sufficient rigor and reliability to be used in designing a new rate structure. Ibid. Contrary to GameFly’s contention, the Commission did not, in making this determination, hold that the use of a proxy for actual data in modeling postal costs is inappropriate per se. It instead reasoned that GameFly could not simply assume, without justification, that a factor developed for use in modeling the cost

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of one type of mail would be an adequate proxy for costs incurred in processing a different type of mail. As one example of this problem, the Commission noted that GameFly had taken a “CRA adjustment factor” developed for use in modeling the costs of Standard flat mail and used it as a proxy for the CRA adjustment factor for use in modeling the costs of GameFly’s First-Class flat mail. App. 358 n.51. A “CRA adjustment factor” is a weighting factor that is used to reconcile the costs predicted by a model of postal costs with actual cost data reported by the Postal Service. By statute, the Postal Service must file with the Commission annual reports analyzing costs, revenues, rates, and service. 39 U.S.C. 3652(a). The filings, known as Cost and Revenue Analysis or “CRA” reports – present information on the volumes, costs, and revenue associated with specific marketdominant products, such as First-Class Mail. Cost models break down a Postal Service product like First-Class flats into a series of discrete steps involved in making the postal service available. The model then attempts to assign the pertinent direct and indirect costs associated with each step of the process. Such information is useful in analyzing rate requests or assessing the impact of changes in policies, cost inputs, market conditions, and many other factors affecting postal service and revenue. A cost -45-

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model, however, is typically based on estimates or assumptions that may collectively understate or overstate the actual costs for the pertinent product as set forth in a CRA report. Models accordingly frequently derive and apply a “CRA adjustment factor” that, when plugged into the cost model, reconciles the costs predicted by the model with the actual costs reported by the Postal Service in a Cost and Revenue Analysis (“CRA”) report. The problem noted by the Commission is that GameFly’s expert took the CRA adjustment factor developed for a model of flats mailed as Standard Mail and used it as a proxy for the appropriate CRA adjustment factor for a model of flats mailed as First-Class Mail – instead of applying a CRA adjustment factor specific to First-Class Mail. First-Class flat mail and Standard flat mail, however, are different products in different classes, the principal difference being that FirstClass Mail is intended for much faster delivery. First-Class flat mail receives expeditious handling and transportation, and the Postal Service’s objective is to deliver it within one to three days. Domestic Mail Manual, Part 333, § 3.1.1 <available at <available at http://pe.usps.com/text/dmm300/333.htm>. It also includes forwarding service to a new address and return service if the mailpiece is undeliverable. Id. § 3.2. Standard Mail, in contrast, receives deferred handling. The Postal Service’s objective is to deliver it within two to nine days. Domestic -46-

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Mail Manual Part 343, § 3.1.1 <available at http://pe.usps.com/text/dmm300/343.htm>. And it does not include forwarding or return service. Id. § 3.2. Given these differences, and the attendant difference in processing costs, there is no basis for simply assuming that a model of Standard Mail flat processing overstates or understates actual costs to the same degree as a model of First-Class mail. There is accordingly no basis for simply assuming that both costs models share the same CRA adjustment factor. As the Commission recognized, it is not necessarily problematic for a model of the costs of one type of mail to “borrow” factors developed for modeling the costs of another type of mail. App. 355-56, ¶ 4197. But by the same token, the Commission may reasonably conclude that fundamental differences in the types of mail at issue make such proxies inappropriate for certain purposes. A proxy is, by definition, a substitute for a measure of the actual, pertinent cost factor. The Commission has broad discretion to determine whether a proxy is in fact a reasonable substitute for an actual cost adjustment factor, and to conclude that the use of questionable proxies renders the pertinent cost model too uncertain for use in a developing a new postal rate. Given the significant differences between Standard Mail and First-Class Mail, the Commission reasonably exercised that discretion here. -47-

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Finally, even if GameFly had succeeded in establishing the difference between the costs of processing DVD letter mail and DVD flat mail, that would not compel the Commission to adopt as a remedy for discrimination new rates based solely on cost factors. The Commission “has wide discretion to consider factors other than cost in ratemaking.” Mail Order Ass’n of America, 2 F.3d at 434; accord UPS Worldwide Forwarding, Inc. v. USPS, 66 F.3d 621,634-35 & n. 14 (3d Cir. 1995). That principle, moreover, applies with added force where a complainant seeks a rate change as a remedy for discrimination. The Commission’s mandate upon finding discrimination is to adopt such remedies as it deems “appropriate.” In making that determination, the Commission is free to consider the impact of a proposed remedy on other statutory interests. Those interests include assuring revenues sufficient to maintain the Postal Service’s financial stability (id. § 3622(b)(5)), preserving the Postal Service’s authority to draw reasonable distinctions “within, between, or among classes of mail” (Id. § 3622(b)(8)), preserving the simplicity of the rate structure (39 U.S.C. § 3622(c)(6)), and maintaining the Postal Service’s pricing flexibility (id. § 3622(c)(7)). Thus, the Commission is not obligated to impose, as a remedy for disparate treatment among DVD mailers, new rates that would blur the distinction between -48-

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letter mail and flat mail. It is not obligated to complicate the rate structure by establishing unique, cost-based rates for a small group of mailers who demonstrate that the current rates exceed the costs of handling their mail. Cf. Mail Order Ass’n of America, 2 F.3d at 437-38 (statute “allows the Commission to consider the simplicity of the rate structure, and a separate rate for every group of mailers with special costs savings, no matter how small the group, would produce a hopelessly complicated rate schedule”). And it has no duty to ensure that mailers within the same class make an equal contribution to Postal Service costs. Ibid.; Cf. Time, Inc. v. USPS, 710 F.2d 34, 41 n.8 (2d Cir. 1983) (disparities between contribution to the Postal Service’s fixed costs from each class of mail service “are not so great as amount to ‘undue or unreasonable discrimination among users of the mails’”). The Commission thus had reasonable basis for rejecting GameFly’s proposed rate-based remedy. GameFly failed, in the first instance, to establish the cost differential underlying its rate proposal. The Commission, moreover, reasonably concluded that even if GameFly had adduced more reliable cost data, it was not appropriate to impose a remedy in this case that would interfere with the Postal Service’s responsibility, in the first instance, to “[p]ric[e] products to fairly balance the multiple policies, objectives, and factors of title 39.” App. 380, -49-

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¶ 5020. That is a reasonable exercise of the Commission’s remedial discretion that should be affirmed on judicial review. D. The Commission’s Mandated Reductions In Postal Rates and Surcharges On DVD Mail Are A Reasonable And Appropriate Remedy For The Postal Service’s Discriminatory Conduct.

The remedies the Commission did impose are a reasonable exercise of its substantial discretion to take account of the interests of the statute as a whole when addressing unreasonable discrimination among users of the mail. First, the Commission has prohibited the Postal Service from selectively imposing a nonmachinable surcharge on DVD mailers other than Netflix. The Commission found that the Postal Service had granted Netflix a discriminatory preference by excusing it from paying the extra charge for letters that, though mailed as firstclass mail, cannot be processed automatically, while continuing to impose the surcharge on other DVD mailers. App. 334-35, ¶ 4136. The Commission concluded that this is unreasonable discrimination among users of the mail, and it accordingly ordered the Postal Service to cease the practice by excusing all roundtrip DVD mailers from paying the surcharge for non-machinable letters. App. 382, ¶ 5026. That is a full and complete remedy for the Postal Service’s rate

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discrimination among similarly situated First-Class mailers who enter nonmachinable letters into the mailstream. Second, the Commission ordered a substantial reduction in the postage paid by DVD mailers like GameFly who employ flat-shaped mailers, and who must add weight to the mailpiece to ensure that it is not routed to the machines that process letter-shaped mail automatically. The Commission reasoned that the Postal Service had declined to charge extra postage for DVD letter-shaped mail that is diverted from the automated letter processing stream and processed by hand. It concluded that, to ensure nondiscriminatory treatment, the Postal Service must similarly refrain from imposing a charge on the extra weight a DVD mailer must add to a flat-shaped mailpiece in order to ensure that it, too, is diverted from the automated letter processing stream. App. 382, ¶ ¶ 5025-5027. The Commission accordingly instructed the Postal Service to set the rate for a two ounce DVD flat equal to the rate for a DVD flat weighing one ounce or less – a remedy that essentially ensures that DVD mailers employing flat-shaped mailpieces are not charged for the extra ounce of weight they must add to the mailpiece in order to ensure that it avoids the automated letter processing stream. Ibid. Though GameFly downplays the significance of the Commission’s order in this regard, the remedy mandates a substantial reduction in the postage rates -51-

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incurred by DVD mailers using First-Class flat mail. At the time of the decision, GameFly paid postage $1.05 cents per piece for a one-way mailing of its flatshaped DVD mailpieces: 88 cents for the first ounce and an additional 17 cents for the additional ounce added to the mailpiece to make it thick enough to avoid the automated letter processing stream. App. 134, ¶¶ 61-62. The Commission’s order eliminates the additional 17 cents per piece GameFly was previously required to pay for adding weight to each mailpiece – an-across-the-board, 16 percent reduction in applicable postal rates. At the mail volumes reported by GameFly for June 2009 – more than 1.2 million one-way mailings per month (see App. 6, ¶ 21) – that translates, at the postal rates then in effect, into a reduction of more than $2.4 million in postal charges each year. GameFly argues that these twin remedies do not go far enough, complaining that the Commission should have either equalized processing treatment by mandating comparable levels of manual processing for all DVD mailers, or equalized the effective postal rates all DVD mailers pay (net of additional processing costs) in order to avoid the automated letter processing stream. The Commission, however, is not obligated to impose remedies that, in its considered view, unreasonably intrude on the Postal Service’s authority to manage the mails, impose unmanageable enforcement burdens on the Commission, or -52-

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interfere with the Postal Service’s authority to take the clarity of the rate scheme and a multiplicity of other factors into account when pricing different mail products. Nor is the Commission obligated to accord the statutory interest in nondiscriminatory treatment of mailers precedence over all other considerations bearing upon the efficient and effective administration of the mails. It instead has broad discretion to take account of the full range of congressional objectives and to impose whatever remedy the Commission deems “appropriate.” The Commission’s exercise of this broad remedial power here is reasonable, well supported by the record, and entitled to substantial deference on judicial review.

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CONCLUSION For the foregoing reasons, the Commission’s order should be affirmed. Respectfully submitted, TONY WEST Assistant Attorney General Of Counsel: STEPHEN L. SHARFMAN General Counsel R. BRIAN CORCORAN Deputy General Counsel RICHARD A. OLIVER Attorney Postal Regulatory Commission Washington, DC 20268 MICHAEL S. RAAB (202) 514-4053 /s/ JEFFREY CLAIR (202) 514-4028 jeffrey.clair@usdoj.gov Attorneys, Civil Division Room 7243, Department of Justice 950 Pennsylvania Ave., N.W. Washington, D.C. 20530

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FRAP 32(a)(7) CERTIFICATE OF COMPLIANCE I certify that this brief has been prepared using a 14-point, proportionally spaced font and that, based on word processing software, this brief contains 12, 384 words. /s/ Jeffrey Clair Room 7243, Civil Division Department of Justice 950 Pennsylvania Ave., NW Washington, D.C. 20530 jeffrey.clair@usdoj.gov (202) 514-4028 CERTIFICATE OF SERVICE I certify that on February 17, 2012, I served the foregoing Brief for the Respondent by electronically filing the brief with the Court. As counsel for the petitioner and intervenor are registered with the Court’s Electronic Case Filing System, the electronic filing of the Brief for Respondent constitutes service upon them under the Court’s Administrative Order Regarding Electronic Case Filing, ECF-7, (May 15, 2009). /s/ Jeffrey Clair Room 7243, Civil Division Department of Justice 950 Pennsylvania Ave., NW Washington, D.C. 20530 jeffrey.clair@usdoj.gov (202) 514-4028 -55-

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