VIA EXPRESS MAIL AND EMAIL

September 4, 2018

Manager, Product Classification

U.S. Postal Service

475 L’Enfant Plaza S.W., Room 4446

Washington DC  20260-5015

Re: USPS Marketing Mail Content Eligibility (advance notice of proposed rulemaking published at 84 Fed. Reg. 42624 (August 23, 2018)

Dear Sir or Madam:

The Alliance of Nonprofit Mailers (“ANM”) respectfully submits these comments on the Postal Service’s proposal to “limit all USPS Marketing mail, regular and nonprofit, letter-size and flat-size, to content that is only paper-based/printed matter.”  USPS Marketing Mail Content Standards, 83 Fed. Reg. 42624 (2018).   Under the proposal, “[n]o merchandise or goods … of any type … will be allowed” in Marketing Mail, “regardless of ‘value.’”  Id.  The proposal should be withdrawn.

Nonprofit mailers rely heavily on Marketing Mail that contains merchandise.  This merchandise includes (1) front-end and back-end premiums in marketing campaigns, and (2) periodical publications of nonprofit organizations that cannot feasibly satisfy the subscriber or requester requirements for Periodicals Mail rates.  For these kinds of mail matter, Marketing Mail is often the most economical channel of communication, and by a wide margin. Excluding merchandise or goods from Marketing Mail would needlessly deprive the Postal Service of profitable mail volumes, give mailers another incentive to find alternative marketing channels, and force more nonprofit publications to close.

These comments will not discuss these economic consequences, however.  The proposal suffers from a more immediate problem: the Postal Service has no legal authority to adopt it.  First, the proposal violates 39 U.S.C. §§ 3626(a) and (m), which entitle nonprofit mailers to mail certain kinds of goods at nonprofit Marketing Mail rates.  Neither the Postal Service nor the Commission may abrogate this statutory right.

Second, excluding merchandise from Marketing Mail would make both a classification change and a change in the market-dominant list of products.  The Postal Service may not propose such changes without the authorization of the Governors, and may not implement such changes without the approval of the Commission.  Because neither body has approved the proposal, the Postal Service could not adopt it even if it could somehow be reconciled with 39 U.S.C. §§ 3626(a) and (m).

Third, the proposed content restriction would also violate 39 U.S.C. § 403(c) by discriminating unduly against marketing mail that includes goods (particularly front-end or back-end premiums or periodical publications), and discriminating in favor of marketing mail that lacks these contents.  

• EXCLUDING PRODUCTS FROM NONPROFIT MARKETING MAIL WOULD VIOLATE 39 U.S.C. § 3626.

The Postal Service’s proposal would violate 39 U.S.C. §§ 3626(a) and (m), which entitle nonprofit mailers to mail products at nonprofit Marketing Mail rates.  Neither the Postal Service nor the Commission may abrogate this right.

Before the enactment of the Postal Reorganization Act in 1970, both nonprofit and commercial mailers were entitled to mail any kind of mailable merchandise at Third-class rates.  Title 39 imposed only three restrictions on the matter allowed in third-class mail:

1. A mailpiece could not be mailed as third-class mail if it was mailed as First-Class Mail or its contents included personalized information that required mailing as First-Class Mail.  Former 39 U.S.C. §§ 4451(a)(1), (b), 4453, 4455.
2. A mailpiece could not be mailed as third-class mail if mailed as “second class mail” (the precursor of Periodicals Mail).  Id., former § 4451(a)(2).  
3. A third-class mailpiece could not weigh 16 ounces or more.  Id., former § 4451(a)(3).  

The Postal Reorganization Act of 1970, while repealing these provisions as such, preserved the existing eligibility standards for nonprofit third-class mail by specifying that “any class of mail or kind of mail” that was eligible for reduced rates under “former [section] 4452” would continue to be eligible for reduced rates under the Postal Reorganization Act, except to the extent that Congress altered the scope of eligibility through legislation.  Postal Reorganization Act, Pub. L. No. 91-375, § 2 (Aug. 12, 1970), 84 Stat. 762-763 (codified at former 39 U.S.C. § 3626).  This grandfather clause remains in the statute today at 39 U.S.C. §§ 3626(a)(1) and 3626(a)(6). 

The legislative history of the Postal Reorganization Act confirms that Congress intended to reserve for itself the power to expand or limit the mail matter eligible for nonprofit rates and other preferred rates:

H.R. 17070 continues the existing categories of free and reduced-rate mail . . . and provides that the preferential rates accorded these categories of mail will not be changed except by Congress . . . . H.R. 17070 reserves to congressional initiative any changes in categories or rates applicable to mail formerly entitled to free or reduced rates. . . . [A]ny change in rates or categories for free or reduced-rate mail entails questions of policy that are less appropriate to the expertise of a ratemaking commission than to a congressional determination of the public interest.

H.R. Rep. No. 1104, 91st Cong., 2d Sess. 18 (May 19, 1970); H.R. Rep. No. 1363, 91st Cong., 2d Sess. 85 (Aug. 3, 1970).

Congress has repeatedly exercised its authority since 1970 by amending 39 U.S.C. § 3626 to broaden or narrow the kinds of mail matter that are eligible for nonprofit third-class or Standard (now nonprofit Marketing Mail) rates.  Of particular relevance here is the 1993 legislation that redefined the eligibility of products for mailing at nonprofit third-class rates. Sections 705(b) and (d) of the Revenue Foregone Reform Act, Pub. L. No. 103-323, 107 Stat. 1271-1272 (Oct. 28, 1993), provided that, beginning on January 1, 1994, “products” could be mailed at nonprofit third-class rates if the products: (1) “were received by the organization as gifts or contributions”; or (2) qualified as “low cost articles (as defined by section 513(h)(2) of the Internal Revenue Code of 1986)”; or (3) were periodical publications of qualified nonprofit organizations.   

The Postal Accountability and Enhancement Act of 2006 left this provision unchanged, and it remains in effect today at 39 U.S.C. § 3626(m).  The cost ceiling for a “low cost article,” adjusted for inflation, is now $10.90 per mailpiece.  IRS Rev. Proc. 2017-58 at 18 (https://www.irs.gov/pub/irs-drop/rp-17-58.pdf).   Hence, a qualified nonprofit organization is entitled as a matter of law to mail merchandise at nonprofit Marketing Mail rates if the merchandise was donated to the nonprofit, cost it less than $10.90, or is a periodical publication of the organization.

The Postal Service has repeatedly acknowledged that it has no authority to expand or narrow the statutory definition of what matter is eligible for nonprofit postal rates.  In 2017, for example, the Postal Service stated:

The authority for qualified nonprofit organizations to mail matter at nonprofit prices was established in law by the Congress and is carried forward today under provisions of law stated in the Postal Reorganization Act and subsequent amendments. The Postal Service has no authority, except as provided in Domestic Mail Manual (DMM) 703.1.6, to restrict the content or audience of matter mailed at the nonprofit prices by properly qualified and authorized nonprofit organizations, as long as the matter mailed is that of the authorized organization.

Customer Support Ruling PS-120, Materials Furnished to an Authorized Nonprofit Organization Mailable at the Nonprofit USPS Marketing Mail Prices (updated Jan. 2017); accord, Customer Support Ruling PS-310, Materials Mailed by Voting Registration Officials—Nonprofit USPS Marketing Mail (updated Jan. 2017); Answer of USPS in PRC Docket No. C93-1, Complaint of Citizens for a Sound Economy Legal Alliance (Dec. 7, 1992) at 4 n. 1.

The Commission has likewise agreed that the power to modify the types of mail eligible for nonprofit rates is reserved to Congress:

The Postal Rate Commission, which develops recommendations for expanding or contracting classes of mail, has no authority to recommend changes in the definitions which control eligibility for subsidized rates. Neither the Postal Service Governors nor the Postal Rate Commission, the two independent establishments which together consider and implement changes in postal rates and classifications, can adjust the existing categories of preferred rate mail to eliminate or add groups of mailers or types of mail.

Docket No. SS86-1, Report to the Congress: Preferred Rate Study (June 18, 1986) at 19-20; Order Declining to Hold Hearings, Docket No. C93-1 (April 20, 1993) at 10-11 (“establishing or changing the conditions of eligibility for preferred categories of publications are functions reserved for Congress”); PRC Op. C86-1, Complaint of the Enterprise, Inc. (July 31, 1986) at 9-10; PRC Op. C85-2, Complaint of Tri-Parish Journal, Inc. (Nov. 20, 1985) at 32-36.

Accordingly, neither the Postal Service nor the Commission may restrict the right of qualified nonprofit organizations to use nonprofit Marketing Mail rates to mail goods that satisfy 39 U.S.C. § 3626(m).

• EXCLUDING PRODUCTS FROM MARKETING MAIL WOULD VIOLATE 39 U.S.C. §§ 402 AND 3642 BY MODIFYING THE MAIL CLASSIFICATION SCHEDULE AND THE MARKET-DOMINANT PRODUCT LIST WITHOUT AUTHORIZATION BY THE GOVERNORS OR THE COMMISSION.

The proposed content restrictions would be unlawful even apart from 39 U.S.C. §§ 3626(a) and (m).  The proposals amount to classification changes, and changes in the definition of market-dominant products.  The Postal Service may not implement changes of this kind without the formal authorization of the Governors of the Postal Service and the Commission.  Neither body has approved the proposed content restrictions.

• The proposal would be a classification change. 

Excluding merchandise from Marketing Mail would amount to a classification change.  The current Mail Classification Schedule allows “any mailable matter weighing less than 16 ounces” to be mailed as Marketing Mail, “except matter that is required to be mailed as First-Class Mail service or copies of a publication that is authorized to be entered as Periodicals mail.”  MCS § 1200.1.a (updated July 15, 2018) (downloaded from https://www.prc.gov/mail-classification-schedule).  Matter must be mailed as First-Class Mail only if it contains “personal information, partially or wholly handwritten or typewritten matter, or bills or statements of account.”  Id., § 1100.1.b.  

The Postal Service’s current proposal, however, would effectively rewrite MCS § 1200.1.a to limit Marketing Mail to “any mailable matter weighing less than 16 ounces … except matter that is required to be mailed as First-Class Mail service or copies of a publication that is authorized to be entered as Periodicals mail or merchandise or goods of any type regardless of value.” (Italicized phrase added.)  See 83 Fed. Reg. at 42624 (col. 2) (“This proposed change would limit all USPS Marketing Mail, regular and nonprofit, letter-size and flat-size, to content that is only paper-based/printed matter; no merchandise or goods would be allowed regardless of ‘value.’”).  That would be a classification change. The Postal Service has acknowledged that changes to the content standards published in the Mail Classification Schedule are classification changes. USPS brief in USPS v. PRC, No. 13-1308 (D.C. Cir., filed May 27, 2014) at 22-23 (“Under both the statute and the Commission’s regulations, ‘classification’ changes subject to Commission oversight mean and have always meant changes in the Mail Classification Schedule”) (emphasis in original); USPS v. PRC, 785 F.3d 740, 748, 752 (D.C. Cir. 2015).  

Moreover, classification changes are still classification changes even if effected by publication in the Domestic Mail Manual or the Federal Register rather than the Mail Classification Schedule.  Changes in the DMM “that reclassify a mailpiece from one product or rate cell to another fall comfortably within the plain meaning of the phrase “classification changes.” UPS v. PRC, 785 F.3d at 753.  The Postal Service “cannot use its regulatory power under 39 U.S.C. § 401(2) or 39 C.F.R. § 111.1 to issue Domestic Mail Manual revisions that are inconsistent with (or that violate or undermine) the Mail Classification Schedule.”  USPS brief in USPS v. PRC, No. 13-1308 (D.C. Cir. May 27, 2014) at 37 (citing  Dow Jones & Co. v. U.S. Postal Serv., 656 F.2d 786, 789-90 (D.C. Cir. 1981); Nat’l Retired Teachers Ass’n v. USPS, 593 F.2d 1360, 1361 n.2, 1363 (D.C. Cir. 1979) (former Section 3623 created the “procedure for administrative determination of mail classifications,” which must be invoked where the Postal Service proposes a “change in a mail classification”); United Parcel Serv., Inc. v. USPS, 615 F.2d 102, 108-10 (3d Cir. 1980) (“classification changes” are made pursuant to former 39 U.S.C. § 3623); United Parcel Serv., Inc. v. USPS, 604 F.2d 1370, 1374-75 (3d Cir. 1979) (same)).    

• The Postal Service may not propose a classification change without the Governors’ authorization.

The classification change proposed here is also unlawful because no Governors have approved it.  Title 39 specifically vests the power to make classification changes in “the Governors,” not the “Board of Governors.”  39 U.S.C. §§ 404(b), 3632(b)(2), (3). Indeed, the Postal Service may not even propose a classification change without the Governors’ formal authorization.  39 C.F.R. § 3.4(d) through (g). The Postal Service, however, had no sitting Governors between December 2016 and August 28, 2018.  The Postal Service does not contend that the two recently-seated Governors approved the proposed classification change. The Federal Register notice of the proposal was published five days before they took office.  

This gap may not be filled by the Postmaster General, the Deputy Postmaster General, or their subordinates.  The PMG and the Deputy PMG, although members of the Board of Governors, are not themselves Governors. Compare 39 U.S.C. § 202(a)(1) (Governors) with id., §§ 202(c) and (d) (PMG and Deputy PMG).  No “powers, duties, or obligations specifically vested in the Governors, as distinguished from the Board of Governors,” may be delegated to the PMG or her subordinates.  39 U.S.C. § 402.

• The Postal Service may not implement a classification change without Commission approval.

The proposed classification change is also unlawful because the Commission has not approved it.  Classification changes require Commission approval. As the Postal Service has acknowledged:

Although the PAEA repealed former [39 U.S.C. §] 3623, it still requires Commission approval of changes to the Mail Classification Schedule — particularly where such changes involve adding or removing individual products to or from the lists of market-dominant or competitive products or transferring products between such lists. 39 U.S.C. §§ 3621(a), 3631(a), 3642. And, Congress continues to define such offerings by reference to the “mail classification schedule.” Id. §§ 3621(b), 3631(c).

USPS brief in USPS v. PRC, No. 13-1308 (D.C. Cir. May 27, 2014) at 37-38 n. 14.  

The content requirements for a mail product, whether market dominant or competitive, are part of the “general characteristics” of the product, and hence must be published in the Mail Classification Schedule.  39 U.S.C. § 3642; 39 C.F.R. §§ 3020.4(b)(2)(ii)(A) and 3020.4(b)(3)(ii)(A). Changes in the Mail Classification Schedule may not take effect without prior public notice, opportunity for comment, and Commission approval.  39 C.F.R. §§ 3020.1(d), 3020.30 through 3020.35, and 3020.80 through 3020.92; see also USPS v. PRC, 886 F.3d 1261, 1264 (D.C. Cir. 2018) (the Commission, in reviewing proposed “changes to the menu of products the Postal Service offers,” has “broad authority to act in the public interest and to prevent the Postal Service from abusing its unique and powerful market position.”).  This is true whether the changes to the “description of a market-dominant product” in the product list are “material changes” or just “minor corrections.” USPS brief in USPS v. PRC, Docket No. 16-1412 (D.C. Cir., filed March 14, 2017) at 7 (citing 39 C.F.R. §§ 3020.80 through 3020.92).  Moreover, as explained above, the Postal Service may not avoid Commission review of classification changes by publishing them in the Domestic Mail Manual or a Federal Register notice instead of the Mail Classification Schedule.

• EXCLUDING PRODUCTS FROM MARKETING MAIL WOULD VIOLATE 39 U.S.C. § 403(c) BY DISCRIMINATING UNREASONABLY AGAINST USERS OF THE MAIL WHO INCLUDE GOODS IN MARKETING MAIL.

Finally, the proposed eligibility restriction would also violate 39 U.S.C. § 403(c) by discriminating unduly against marketing mail that includes goods, and discriminating in favor of marketing mail that lacks goods.  Section 403(c) states:

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.

As the Commission explained in GameFly, a claim of undue discrimination under Section 403(c) has three elements:  (1) the Postal Service offers less favorable rates or terms and conditions to one group of mailers than to another; (2) the two groups of mailers are similarly situated; and (3) there is no rational or legitimate basis for the discrimination.  PRC Order No. 718 in Docket No. CM2009-1, Complaint of GameFly, Inc. (April 20, 2011) at 28 ¶ 4021, remanded on other grounds, GameFly, Inc. v. PRC, 704 F.3d 145 (D.C. Cir. 2013), aff’d on further review, USPS v. PRC, 747 F.3d 906 (D.C. Cir. 2014).

The Commission’s proposal indisputably would treat marketing mail containing goods less favorably than marketing mail without goods.  Marketing Mail (particularly nonprofit Marketing Mail rates) rates are often much lower than the Priority Mail or Parcel Select rates for the same mailpieces.  Marketing Mail is also less expensive for some nonprofit periodicals publications than is Periodicals Mail, and is also the most cost-effective option when limiting circulation to subscribers or requesters is infeasible.

The Postal Service’s assertion that the extra cost of these alternative mail products is justified because they better serve the “market expectations” of mailers by providing “end-to-end tracking and visibility” (83 Fed. Reg. at 42624 (col. 2 and 3) is at odds with mailers’ actual preferences.  Nonprofit mailers are well aware that Priority Mail and Parcel Select services include tracking and visibility features that Marketing Mail lacks. When mailers want these features, mailers use mail products that include them. For many mailings, however, these ancillary features are not worth the extra cost.  This particular so when the goods are front-end or back-end premiums or periodical publications.

The Postal Service’s second justification for its proposal—that it is “consistent with the transfer of fulfillment parcels out of Standard Mail … in Docket No. MC2010-36” (83 Fed. Reg. at 42624 (col. 2-3)—has it backwards.  The current proposal differs from the earlier one in several critical respects. First, the proposal in MC2010-36, unlike the proposal here, was supported by a decision of the Governors as required by law. USPS Request in Docket No. MC2010-36 (Aug. 16, 2010), Attachment A (Governors’ Resolution No. 10-4).  Second, the Postal Service submitted the proposed classification change in MC2010-36 for approval by the Commission, and accompanied the request for approval with documentation that purported to satisfy the requirements of 39 U.S.C. § 3642 and 39 C.F.R. § 3020.30 et seq.  The Postal Service has taken neither step here.  Third, in MC2010-36, unlike here, the Postal Service complied with 39 U.S.C. § 3626(m) by excluding nonprofit Standard Mail Fulfillment Parcels from the proposed product transfer.  USPS Request at 1 n. 1.

The Postal Service’s final justification for excluding all goods from Marketing Mail—that this mail matter causes “operational inefficiencies when machines are unable to process letter-size or flat-size shaped inflexible pieces” (83 Fed. Reg. at 42624 (col. 3))—is equally arbitrary.  First, many of the goods that the proposed rule would disqualify are themselves paper products (e.g., calendars, planners, grocery bags, address labels, pads of paper, greeting cards and post cards, postage stamps, and periodical publications).  The Postal Service offers no evidence that paper sheets printed with this kind of matter cause greater processing problems than do paper sheets printed with marketing communications.  

Second, many non-paper goods mailed as fundraising premiums are made of fabric or other materials that are as soft and flexible as paper.  These include socks, gloves, blankets, religious clothing (e.g., scapulars), flags, and lightweight tote bags.

Third, the Postal Service fails to explain why any operational issues potential created by harder and more rigid products (e.g., rosaries, mini statues, pens, ornaments, mini flashlights, and paper clips) cannot be managed with appropriate rules that regulate the dimensions, uniformity, and rigidity of the mailpieces directly.  The Postal Service already has rules in the Domestic Mail Manual concerning these mailpiece attributes. If the rules need change, they can be changed. That is a far more rational approach than excluding all goods regardless of their physical characteristics and operational effects.

Conclusion

For the above reasons, the proposed content restriction is unlawful and should be withdrawn.

Respectfully submitted,

David M. Levy

Eric S. Berman

Counsel for Alliance of Nonprofit Mailers

Venable, LLP