Netflix gets unfair postal advantage, court finds

WASHINGTON Fri Jan 11, 2013 5:16pm EST

The headquarters of Netflix is shown in Los Gatos, California September 20, 2011. REUTERS/Robert Galbraith

The headquarters of Netflix is shown in Los Gatos, California September 20, 2011.

Credit: Reuters/Robert Galbraith

WASHINGTON (Reuters) - A federal appeals court ruled on Friday that Netflix Inc received an unfair advantage from the U.S. Postal Service's special handling of its DVDs, and ordered postal regulators to remedy the discrimination or offer a good explanation.

The unanimous decision, by the U.S. Court of Appeals for the District of Columbia Circuit, is a victory for GameFly Inc, which said the postal service should treat the games it ships similarly to Netflix DVDs.

The court did not order a specific change in how the postal service handles digital disks, instead leaving it up to the Postal Regulatory Commission to determine an equitable solution.

"The commission must either remedy all discrimination or explain why any residual discrimination is due or reasonable," wrote Judge David Sentelle.

The case now heads back to the commission, which regulates the independent postal service.

"We trust that the commission will take the court's decision to heart, and require the postal service to be compliant with the law by offering the same price and quality of service to all DVD rental companies," GameFly Chief Executive Dave Hodess said in a statement.

A postal service spokesman said on Friday that its position has not changed. "The different treatment that we provided to our customers was fully justified and reasonable, and consistent with the law," spokesman David Partenheimer said in an email.

A Netflix spokesman declined to comment.

Movie rental service Netflix appears to be the postal service's biggest DVD mailer customer, the court said. The service processes Netflix DVDs by hand and with specially designated containers.

"Rather obviously, this is not without cost to the postal service. Nonetheless, the service provides it to Netflix free of charge," Sentelle wrote.

GameFly, which mails primarily video games for rent, asked for the same treatment, but the postal service refused, forcing GameFly to make adjustments that cost millions of dollars each year, the court said.

The Postal Regulatory Commission sided with GameFly in 2011 but failed to put the two companies on the same footing, the court said.

The case is GameFly Inc v. Postal Regulatory Commission, U.S. Court of Appeals for the D.C. Circuit, No. 11-1179.

(Reporting by David Ingram; Editing by Lisa Von Ahn, David Gregorio and Steve Orlofsky)

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Comments (2)
romikk32 wrote:
This judge was whack. The USPS doesn’t do much of anything different for Netflix that it wouldn’t do for anybody else. I know, I do it….and NOTHING is different.When carriers return they already separate netflix from the regular mail; but because of it’s size. They also do the same for blockbuster or ANY service’ dvd type mail that could be damaged in handling traditionally, and is too larfge for machine auto handling. Also separate large mail envelopes by stamp or meter..that’s ALL they do. Now say for instance if If other services provided some sort of different containers, they would do the same. Hey Judge any clue here?..ps…machines are pretty pickyune and can’t handle thing fat or oversize pices either

Jan 11, 2013 10:44pm EST  --  Report as abuse
murzak wrote:
@romikk32…

Really? Exactly what is it you do for the postal service? I’ve been with them for over 18 years and have been saying for the last five that their handling of Netflix will eventually get them sued for unfair business practices. We’ve never done the same for ANYBODY else.

We were supposed to start charging Netflix a $0.17/piece surcharge for their terrible mailers in Dec ’07. Instead, we give them an automation discount which they shouldn’t qualify for as they don’t meet USPS mail piece design standards. Outgoing Netflix being returned to their processing facility goes out on its own special piece of equipment. I’m sure this has nothing to do with the fact that former PMG Henderson started working for Netflix in ’06…

We get hampers full of raw mail to be dumped and the only things separated from it is what gets culled out after it gets to the plant. Nothing is culled out by the carriers and the only thing we’ve ever thrown off separately is Netflix. The lost surcharge alone = billions of dollars lost. Not sure about ‘whack’, but it sounds like you’re the one in serious need of a clue…

Jan 14, 2013 10:09pm EST  --  Report as abuse
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