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Congressional Testimony
July 25, 2000, Tuesday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 13640 words
COMMITTEE:
HOUSE GOVERNMENT REFORM
HEADLINE:
TESTIMONY POSTAL INSPECTION SERVICE
TESTIMONY-BY: JAMES
I. CAMPBELL JR. , ATTORNEY
AFFILIATION: PRIVATE
ATTORNEY
BODY:
Subcommittee on Postal Service
Committee on Government Reform United States House of Representatives Hearing on
Competition and the Role of Postal Inspectors July 25, 2000 STATEMENT OF JAMES
I. CAMPBELL JR.. The topic of the Subcommittee's hearing today, competition
policy questions raised by the role of the Postal Inspection Service, is both
timely and important. As the Subcommittee has recognized in developing H.R. 22,
the Postal Modernization Act of 1999, the Nation's delivery
services sector is evolving rapidly due to technological and commercial
innovation. This evolution has rendered imperative a fundamental review of the
legal privileges and burdens that bedevil Postal Service efforts to compete on
fair and equal terms with private companies. In this review, the role of the
Inspection Service presents an especially sensitive area, for the Inspection
Service is wielding the police power of the United States. Extra care is
appropriate to ensure that national police authority is not debased to the
status a commercial chip in the increasing competitive game in which the Postal
Service finds itself. By way of introduction, I should explain that I am an
attorney in private practice. I have worked on regulatory issues for the present
generation of private express companies-DHL, Federal Express, and TNT (now part
of TNT Post Group)--since mid 1970s. Based on this experience, I am familiar
with competition issues presented by the Postal Inspection Service. I am,
however, testifying today in my personal capacity at the invitation of the
Subcommittee. I have not consulted with any private express company in the
preparation of my comments and my comments should not be construed to represent
the views of anyone but me. ISSUES ADDRESS At the outset, I would like to
clarify the issues addressed in my testimony. First, it should be kept in mind
by all that enforcement of the postal monopoly has not been the primary function
of the Inspection Service. The basic mission of the Inspection Service has been
to protect the security of the mails. I have absolutely no doubt the United
States has benefitted from the work of the dedicated men and woman of the
Inspection Service to this end. Nothing in my testimony should be interpreted to
suggest any lack of appreciation on my part for this important public service.
Second, the Inspection Service operates at the direction of the Postmaster
General. As I explain below, I believe that competition issues Presented by the
activities of the Inspection Service are issues that arise primarily from the
organization and mandate of the Postal Service, not from administration of the
Inspection Service. Finally, the focus of my remarks is on the Postal Service's
express or implied use of governmental authority to investigate or compete with
private competitors, i.e., the authority to make searches of private property
under an express or implied threat of legal sanction and the authority to seize
private property. I see no reasonable objection to the Postal Service
investigating private competitors for possible violations of law in the same
manner as, for example, Federal Express might investigate whether a competitor
is contravening the antitrust law in a manner injurious to the interests of
Federal Express. LEGISLATIVE HISTORY From the earliest days of the Post Office
Department in the late 18th century, the Postmaster General has employed one or
more trusted persons to travel about the country and investigate the operations
of postal employees and contractors. Given the financial stakes and the
geographic extent of postal operations, it is hard to imagine any alternative to
a corps of trusted internal auditors. These persons were originally called
"surveyors." After 1801, they were called "special agents." The term "postal
inspector" was initiated in 1880. Before 1872, special agents apparently
exercised no special law enforcement authority in their investigations of
private express companies. In 1840s, private express companies such as Wells
Fargo and Adams Express posed a serious challenge to the Post Office Department
in many markets, yet reports from special agents appear to rely on personal
observation and market assessments of postmasters. 1 So far as I have been able
to determine, the postal act of 1872' represents the first occasion in which
Congress gave general authority to the Post Office Department to search private
property for violations of the postal monopoly and to seize illegally
transported letters. Congressional motives, however, are unclear. The postal act
of 1872 was the first codification of the postal laws since 1825. It was based
on a draft codification and revision of the postal laws proposed by the Post
Office Department in 1863. Rather than acting on the Post Office's proposal
immediately, Congress incorporated revision of the postal laws into a vaster
project, revision of the entire body of U.S. statutes. The postal act of 1872
was in fact an advance specimen title of the Revised Statutes adopted by
Congress in 1874. Although the act of 1872 was portrayed by sponsors as
primarily a codification of prior law, it introduced subtle but important
changes, including changes which conferred on the Post Office broad search and
seizure authority in respect to violations of the postal monopoly. In the 1872
act, 235-237 codified 5 of the postal act of 1852, a provision that authorized
special agents of the Post Office to search vessels for illegally transported
letters and seize them.' In the original bill, H.R. 2295, the corresponding
provisions appeared in normal typeface, indicating no change from prior law. In
fact, however, 236 provided a major enlargement in the authority of special
agents to seize illegally transported letters. Whereas the 1852 act seemingly
addressed only letters found on vessels, 236 of the 1872 act authorized special
agents to seize letters "on any post road."' Section 299 of the act of 1872
likewise introduced a substantial expansion in the search authority of special
agents. In this case, the corresponding provision in H.R. 2295 was printed in
italics, identifying it as a revision of prior law (probably suggested by the
Post Office). Although neither the House nor the Senate discussed this new
provision, it is clear from the text that this new search authority was
carefully limited. In this opaque manner, Congress, in 1872, first authorized
the Post Office to exercise broad police power to investigate private
competitors. In current law, sections 235, 236, and 237 of 1872 act appear,
illogically reordered, as sections 605, 604, and 606 of title 39, United States
Code. Even today, their origin in a maritime provision and the clumsy addition
of seizure authority on any post road in 604 are evident when one knows what to
look for. Section 299 of the 1872 act now appears as 39 USC 603. Its distinctly
different origin is likewise apparent. 603. Searches authorized The Postal
Service may authorize any officer or employee of the Postal Service to make
searches for mail matter transported in violation of law. When the authorized
officer has reason to believe that mailable matter transported contrary to law
may be found therein, he may open and search any- (1) vehicle passing, or having
lately passed, from a place at which there is a post office of the United
States; (2) Article being, or having lately been, in the vehicle; or (3) store
or office, other than a dwelling house, used or occupied by a common carrier or
transportation company, in which an article may be contained. 604. Seizing and
detaining letters An officer or employee of the Postal Service performing duties
related to the inspection of postal matters, a customs officer, or United States
marshal or his deputy, may seize at any time, letters and bags, packets, or
parcels containing letters which are being carried contrary to law on board any
vessel or on any post road. The officer or employee who makes the seizure shall
convey the articles seized to the nearest post office, or, by direction of the
Postal Service or the Secretary of the Treasury, he may detain them until 2
months after the final determination of all suits and proceedings which may be
brought within 6 months after the seizure against any person for sending or
carrying the letters. 605. Searching vessels for letters An officer or employee
of the Postal Service performing duties related to the inspection of postal
matters, when instructed by the Postal Service to make examinations and
seizures, and any customs officer without special instructions shall search
vessels for letters which may be on board, or which may have been conveyed
contrary to law. 606. Disposition of seized mail Every package or parcel seized
by an officer or employee of the Postal Service performing duties related to the
inspection of postal matters, a customs officer, or United States marshal or his
deputies, in which a letter is unlawfully concealed, shall be forfeited to the
United States. The same proceedings may be used to enforce forfeitures as are
authorized in respect of goods, wares, and merchandise forfeited for violation
of the revenue laws. Laws for the benefit and protection of customs officers
making seizures for violating revenue laws apply to officers and employees
making seizures for violating the postal laws. POSTAL INVESTIGATION OF PRIVATE
EXPRESS COMPANIES, 1872-1970 Over the years since 1872, the Post Office
Department's efforts to enforce the postal monopoly waxed and waned. As the
investigative force of the Post Office Department, postal inspectors
participated in these efforts. In 1879, Special Agent B.K. Sharretts undertook a
substantial investigation of the letter carriage of business of Wells Fargo in
the western United States.' Between 1872 and 1951, the Chief Postal Inspector
consulted the Solicitor of the Post Office Department on 36 occasions for formal
legal opinions on the scope of the postal monopoly. Investigation of private
express companies was not, however, confined to postal inspectors. Other senior
postal officials and postmasters sought advice on postal monopoly issues from
the Solicitor. In the 1890s, the Railway Mail Service, led by the Second
Assistant Postmaster General (in charge of contracts for transport of mail),
conducted a major campaign against the carriage of letters by railroads. In the
Depression years of the 193 Os, the Solicitor of the Post Office Department
began the practice of giving legal advice directly to mailers, by letter and by
pamphlet, to dissuade them from using private expresses. Although the Post
Office Department had its difficulties with private express carriers, it appears
that it only very rarely employed its limited search and seizure authority.
Special Agent Sharretts, for example, based his report on allegations of
postmasters and personal observations. Between 1872 and abolition of the Post
Office Department in 1970, there appear to be only two judicial opinions on the
scope of the search authority of postal inspectors. Neither involves a private
express company or customer.' In this period, there appears to be only one case
involving postal exercise of seizure authority in aid of the monopoly. In 1943,
a postal inspector seized certain checks while being transported by a private
messenger service operating in New York City. In summary, prior to 1970, it
appears that, speaking generally, Congress, the Post Office Department, and the
courts shared the view that postal inspectors should employ governmental
authority to investigate postal monopoly violations only in extraordinary
circumstances and that such authority should be employed only against private
express companies, not against their customers. POSTAL SERVICE'S 1974 MONOPOLY
REGULATIONS With establishment of the Postal Service in 1970, the Inspection
Service became far more active in defending the postal monopoly by intrusion
into the affairs of mailers and customers of private express companies. The
legal basis for this increase in the activities of the Inspection Service lies
in the comprehensive postal monopoly regulations adopted by the Postal Service
in 1974. The 1974 postal monopoly regulations were different in kind, as well as
degree, from anything promulgated by the Post Office Department. The practical
effect of the 1974 regulations was to circumvent normal legal process and place
the Inspection Service in the business of enforcing the postal monopoly by
intimidation of mailers. The 1974 regulations adopted a fundamentally new
approach to defining the scope of the postal monopoly and its enforcement. "
instead of determining the scope of the monopoly by interpreting the word
"letter," the 1974 regulations defined every tangible communication to be a
"letter" and fixed the scope of the monopoly by means of administrative
regulations which purported to "suspend" the postal monopoly for specific types
of communications or particular classes of mailers or services. The new
definition of "letter" was held to be "a message directed to a specific person
or address and recorded inoronatangible object." 39 CFR 310.1(a). This
definition of "letter" included all printed matter and commercial papers as well
as non-verbal media such as photographs and blueprints." To counter public
opposition, the new regulations announced "suspensions" of the postal monopoly
to allow for the private carriage of newspapers, magazines, checks (when sent
between banks), and data processing materials (under certain circumstances). 39
CFR 310.1 (a)(7) n. 1. 3 ) 20. By making the right to use private carriers a
matter of administrative grace, the regulations forced mailers and private
carriers to acquiesce in enhancement of the investigative powers by the
Inspection Service. The first and second notices of proposed rulemaking attached
reporting conditions for private express companies operating within the scope of
proposed suspensions for intra-company and data processing documents; they would
be required to register with the Postal Service and provide annual reports of
their operations. The second notice also provided for affidavits from major
customers of private carriers. The final notice of rulemaking abandoned most of
these reporting procedures as "unworkable" and unnecessary since a proposed
suspension for private carriage of intra, corporate documents was deleted. The
final rule, however, required private carriers operating within the scope of the
data processing suspension to register with the Postal Service, to allow postal
inspectors access to covers of shipments (which showed delivery times), and to
keep records. The final rule further stated that the Postal Service may
administratively withdraw the suspension with respect to a particular private
carrier if it failed to abide by the terms of the suspension." When, in 1979,
the Postal Service adopted a suspension of the postal monopoly to allow private
carriage of urgent letters-the suspension that most directly affects private
express companies- it strengthened the role of the Inspection Service still
further. In the urgent letter suspension, enforcement provisions applied to
customers as well as private express carriers. In addition, the suspension
required that all records, not merely covers of shipments, be made available to
postal inspectors. For good measure, the regulation provided that failure to
cooperate with postal inspectors created a presumption of guilt." Another
innovation of the 1974 postal monopoly regulations was the possibility of
"alternate payment of postage agreements." Section 310.2(b)(1)(ii) provides that
letters may be transmitted by private carriage if "the amount of postage which
would have been charged on the letter if it had been sent through the Postal
Service is paid by stamps, or postage meter stamps, on the cover or by other
methods approved by the Postal Service." Private carriage of letters on which
postage has been paid by affixing stamps or postage meter stamps is provided in
39 USC 601(a)(2). In the italicized language, however, the Postal Service
further authorized itself to negotiate individual deals with customers of
private express companies. These, in turn, created a need for continual
monitoring by the Inspection Service. In addition to adopting an inherently more
intrusive approach to defining the scope of the postal monopoly, the 1974
regulations added other provisions which added to the commercial risks of non-
cooperation with the Inspection Service. The regulations proclaimed that mailers
and private carriage contravening the postal monopoly were subject to a "back
postage" fine, i.e., a civil fine equal to the postage that would have been due
if privately carried letters had been posted instead. The first notice of
proposed rulemaking explained: Administrative machinery is provided under which
postage owing to the Postal Service because of private carriage in violation of
the Statutes can be determined and collected The process for determining postage
owed could include a hearing on the record in cases involving disputed issues of
fact. The proposal reflects an exercise of the Postal Service's authority to
prescribe the manner in which postage is to be paid and is intended to make the
administration of the Private Express Statutes more effective. The availability
of a right to collect postage is not intended, however, to affect in any way the
exercise of other options available under civil and criminal law for carrying
out the purposes of the Statutes. 38 FR at 17513a (emphasis added) In 39 CFR
310.5, the back postage fine was adopted essentially as proposed: Payment of
postage on violation. (a)Upon discovery of activity made unlawful by the Private
Express Statutes, the Postal Service may require any person or persons who
engage in, cause, or assist such activity to pay an amount or amounts not
exceeding the total postage to which it would have been entitled had it carried
the letters between their origin and destination. (c) Refusal to pay an
unappealed demand or a demand that becomes final after appeal will subject the
violator to civil suit by the Postal Service to collect the amount equal to
postage. (d)The payment of amounts equal to postage on violation shall in no way
limit other actions to enforce the Private Express Statutes by civil or criminal
proceedings. 39 FR at 33212b codified 39 CFR 310.5 (emphasis added) For a large
company, a back postage fine could amount to a substantial monetary penalty
depending on the length of time over which back postage was calculated. The 1974
regulations also introduced procedural rules for Postal Service adjudication of
postal demands for back postage or withdrawals of suspensions as to particular
individuals. The rules provided that the Judicial Officer of the Postal Service
or an administrative law would preside over such cases. 39 CFR 959.16. Where the
General Counsel is seeking withdrawal of a suspension as to an individual, facts
alleged by the General Counsel and not denied within 15 days may be considered
proven. 959.6(b)(3). Postmasters are designated as process servers. 959.8. The
accused has no right to trial by jury and no access to subpoena authority.
959.18. If the Judicial Officer does not serve as the presiding officer, the
losing party before the administrative law judge may appeal to the Judicial
Officer. 959.24. The Judicial Officer may, in turn, refer the case to the
Postmaster General for decision. 959.25. Mailers and customers of private
express companies might reasonably consider compromise with postal inspectors
preferable to adjudication under such circumstances. Since 1974, the regulatory
scheme has been amended but not substantially revised. Although the Postal
Service proposed significant revisions to the 1974 regulations in 1978, it
withdrew these proposals when the Department of Justice filed extensive comments
concluding that the law required an analysis of competitive impact and adoption
of least anti-competitive alternatives. The most significant amendments have
been in the area of suspensions. Since 1974, the Postal Service has added
regulations suspending the postal monopoly for intra university mail systems
(1979), international shipping documents (1979), urgent letters (1979),
advertisements included in packages (I 980), and international remail (1986).
For present purposes, the main point to note is that the 1974 postal monopoly
regulations substantially increased the authority of the Inspection Service to
intrude into business operations of private companies, the administrative need
for them to do so, and the penalties risked by businesses who failed to
cooperate with the Inspection Service. In addition, I am convinced that the 1974
postal monopoly regulations substantially exceed the legal authority of the
Postal Service. The cornerstone of these regulations is the claimed authority to
suspend the postal monopoly and attach conditions to such suspensions, yet it
appears clear that Congress never authorized the Postal Service to suspend the
postal monopoly." Nor does it seem plausible that the Postal Service can itself
create a new civil fine for violation of the postal monopoly" or establish
administrative courts for adjudication of postal monopoly violations. Indeed, it
is questionable whether the Postal Service may, at least without approval of the
Postal Rate Commission, establish alternate provisions for domestic postage
payable on items transmitted by private carrier. INSPECTION SERVICE EFFORTS TO
PREVENT DEVELOPMENT OF EXPRESS COMPANIES(1975-79) Modem express companies first
developed in the 1970s. The leading international express company, DHL, was
founded in 1969. The pioneer in the domestic express market, Federal Express,
began in 1972. The commercial raison d etre of these companies was their ability
to make use of improvements in air transportation and telecommunications
technologies to provide a faster and more reliable delivery service than
available from the Postal Service, albeit one that was also more expensive to
produce. In many ways, the 1970s were a replay of the 1840s. In the 1840s, the
first generation of express companies, including Adams Express and Wells Fargo
& Company, developed mainly because they adapted to the possibilities of
early railroads more quickly and efficiently than the Post Office Department. In
1973, the USPS Board of Governors expressed doubts about the equity of applying
the postal monopoly statutes against these new express companies: In addition to
the practical problems of detecting such violations and enforcing the Private
Express Statutes, there may be serious equitable considerations. Primary among
these is whether a Postal service is offered which is comparable to that of the
courier in terms of convenience, celerity, certainty and cost. The answer has
been negative in numerous investigations. " Despite the Board of Governors's
appreciation of the economic benefits of private express companies, the Postal
Service employed the Inspection Service to suppress their development. The 1974
postal monopoly regulations put mailers on notice that the Postal Service could,
in its discretion, impose large administrative fines against companies making
use of private express companies and deny a mailer the right to use private
express companies for transmitting vital business documents. The Law Department
supplemented these regulations with numerous letters to mailers holding illegal
the use of private express companies until particular circumstances. In many
cases, Law Department opinions were generated in response to, or in coordination
with, investigations conducted by the Inspection Service. In this environment of
legal intimidation, postal inspectors made numerous calls on customers of
private express companies to dissuade them from use of private express
companies. The following letter, dated June 7, 1979, from a Postal Inspector
N.H. Green to Otis Elevator, describes and exemplifies these efforts: This
letter is in reference to our meeting of March 13, 1979, regarding your firm's
use of private couriers.... At that time it was learned that inter-office
deliveries are being made to Hartford (Connecticut), San Bruno (California), and
Paris (France) on a daily basis by Purolator Courier Corporation and DHL. In
addition the latter courier is providing weekly service to your office in Saudi
Arabia. The items being carried include: (1) corporate reports; (2) internal
directives in bulk (for internal use) and (3) blueprints and drawings (to Saudi
Arabia only). As discussed, there presently exist a group of federal laws,
collectively known as the Private Express Statutes and Regulations, which have
legally monopolized the carriage of letter mail by the U.S. Postal Service. In
this regard, a 'letter' has been defined as "a message directed to a specific
person or address and recorded in or on a tangible object." With regard to
internal directives, blueprints, and drawings, these items constitute letter
mail. As such, their carriage outside the mailstream is not permitted unless
proper postage is affixed as described in 39 CFR 310.2(b)(l)-(6).... As further
discussed, the Postal Service has exercised its authority to suspend the
operation of the Private Express Statutes to allow for the transportation of
data processing materials outside the mailstream, provided that certain
requirements are met. It appeared that your corporate records Might qualify as
'output' for this suspension. As a means of correcting the impermissible
carriages described, the use of Express Mail Service to Harford, San Bruno, and
Paris was suggested in lieu of private courier usage. It is my understanding
that such Express Mail Service had been explored, with the assistance of the
Postal Customer Service Representative Phil Trille, and found unacceptable based
on a cost comparison. In line with that decision, it becomes necessary to
determine if your corporate reports qualify as 'output' for our data processing
suspension. To assist in making this determination, responses to the following
questions would be appreciated: 1) Please provide a brief description of the
reports and the manner in which they are produced? 2) Are the reports the direct
output of electro-mechanical or electronic processing? 3) Are the report
produced on a regular, periodic basis? 4) Are the reports returned to the
address' sic from where the data output used to generate them originated? 5) Are
the shipment of these reports completed within 12 hours or by noon of the office
of the address' sic next business day? 6) What percentage of the shipment (by
weight) do these reports represent? The information requested should be sent to
me at emphasis original This letter illustrates several aspects of the
activities of the Inspection Service. First, the Inspection Service's approach
to competitive issues was, perhaps necessarily for a law enforcement agency,
coercive not commercial. Customers of private express companies did not invite
investigations by postal inspectors of their own volition. Second, the
Inspection Service relied on the Postal Service's expansive regulatory
definition of the letter monopoly as though it was vested with the same legal
authority as statute. Unsuspecting mail room managers had no way to distinguish
between the law of Congress and advocacy by the Postal Service Law Department.
Third, the intricate details of "suspensions" of the postal monopoly served to
justify extensive Inspection Service investigation into the activities of
mailers. Fourth, the Inspection Service's enforcement activities were closely
related to the commercial activities of the Postal Service, especially the
effort to persuade mailers to use the Postal Service's Express Mail services."
As counsel for DHL at the time, I can attest to the fact that, in the late
1970s, the Inspection Service employed such tactics and arguments across the
country in an effort suppress the emergence of private express services. In
addition to calls on individual mailers, postal inspectors participated in large
public briefings for mailers. In fall 1976, postal inspectors induced the Custom
Service to conduct a large scale search of documents imported by couriers via
the port of San Francisco." In June 1979, the express industry got its first
glimpse of records of the Inspection Service relating to enforcement of the
postal monopoly as a result of discovery in a proceeding before the Postal Rate
Commission. In late 1978, the Postal Service filed with the Postal Rate
Commission a proposal to begin an intra-city express mail service called Express
Mail Metro Service." As part of this proceeding, Purolator Courier sought of a
complete accounting of efforts to use the Inspection Service and the postal
monopoly laws to suppress competition by private express companies. After
numerous pleadings, the Commission granted Purolator's request but limited it to
redacted records relating to three cities: Chicago, Gulfport (Mississippi), and
Columbus (Ohio)." Records of I 0 Inspection Service investigations were
produced. They indicated that, on at least some occasions, enforcement efforts
of the Inspection Service were closely coordinated with sales efforts. For
example, in a report dated March 9, 1979, Inspector R.P. Bednarski described
"numerous contacts" with an unnamed company in the Columbus area in 1978.
Inspector Bednarski continues: On February 2, 1979, contact was made with Mr. J.
Severe, USPS Customer Services Representative, located at the Columbus, OH, Post
Office. The situation regarding United States Postal Service and redacted was
related to Mr. Severe. Mr. Severe stated he would contact officials of redacted
in an attempt to sign redacted to an Express Mail contract. After these records
were produced, Purolator renewed its request for a complete set of Inspection
Service records. The Postal Service resisted, and in the end, Purolator settled
for a formal admission that Postal Service practices revealed in respect to the
three cities "accurately reflect prevailing Postal Service policies and
practices at the times they were prepared." In its final order in the Express
Mail Metro Service case, the Postal Rate Commission summarized its assessment of
the evidence on the use of the Inspection Service to suppress competition in the
following terms: Intervenors state that in carrying out its duty to enforce the
Private Express Statutes, Postal Service, after warning customers of private
couriers of putative Private Express Statute violations, improperly suggested
that they switch from private courier to Express Mail, to avoid being in
violation of the law. Postal Service counsel answered by saying that part of the
function of a postal inspector is to advise persons as to how the Private
Express Statutes can be complied with. The use of Express Mail is one form of
compliance. Thus it is perfectly legitimate for the inspection service to inform
people of Postal Service offerings they may not previously have been aware of.
We have carefully examined testimony of certain mailers visited by postal
inspectors . In addition, we have examined letters by postal inspectors to
customers of private couriers, postal inspector reports, and the Formal
Admission filed by the Postal Service, in which the Postal Service states that
the postal inspector reports accurately reflect Postal Service policies and
practices. Upon review of this evidence there appears to be some indication that
some postal inspectors have been over-zealous in their discussion of Express
Mail Service with alleged violators of the Private Express Statutes. On several
occasions the Postal Service inspectors too heavily emphasized the use of
Express Mail as a means of complying with the law. As a result it is likely that
customers of private couriers were intimidated into using Express Mail 'just to
satisfy the investigative point. " It seems that there have been instances in
which in any effort to encourage the use of Express Mail postal inspectors have
stressed Express Mail and have not adequately explained to customers other ways
to comply with the law, such as by affixing postage. We find, however, that no
such pattern of anticompetitive behavior in this regard would indicate a
predatory design on the Service's part. In response to Postal Service efforts to
suppress the growth of private express services, private express companies and
their customers petitioned Congress for relief. By mid 1979, it was clear that
Congress was prepared to adopt a legislative exemption from the postal monopoly
for urgent letters. To forestall legislation, the Postal Service adopted the
administrative suspension for urgent letters now codified at 39 CFR 320.6.
SENATOR SYMM'S QUESTIONNAIRE (I 982) In 1982, Senator Steven Symms of the Joint
Economic Committee posed a long list of questions to the Postal Service about
the operation of the postal monopoly laws. One question, G-29, dealt with the
activities of the Inspection Service in respect Although Senator Symms did not
pursue this inquiry, the question and answer provide the Postal Service's
summation of the controversies to private express companies. of the 1970s.
Question: Have postal inspectors, at any time in the last ten years, used the
possible threat of postal monopoly penalties to encourage persons to use the
Postal Service's Express Mail? Have customer representatives from the Postal
Service done so? Please submit all internal directives etc. Answer: It is
important to keep in mind that the purpose of the Private Express Statutes is to
enable the Postal Service to provide efficient, responsive, and convenient
universal services at reasonable rates. The Statutes accomplish their purpose by
protecting mail volume and postal revenues. It follows, then, that as a natural
consequence of achieving compliance with the Statutes some volume of letters
will be carried in the mails which had previously been carried privately. It
follows also that as persons whose activities do not comply with the Statutes
learn of this fact, some of them will wish to know how they may come into
compliance through use of postal services. One of the duties of the Postal
Inspection Service is to achieve compliance with the Private Express Statutes.
In the course of carrying out these duties, postal inspectors will necessarily
inform members of the public when their activities are considered to be in
violation of the Statutes. In some such instances inspectors have informed these
persons of the options of paying postage on letters carried by private courier
or of using postal services such as Express Mail service as possible methods of
fulfilling their delivery needs in a manner consistent with law. Because of
their knowledge of mailing patterns in a given community, postal customer
service representatives have on occasion been contacted by inspectors seeking
general information that might be helpful in identifying persons not in
compliance with the Private Express Statutes. Subsequently, these
representatives might, if the mailer desired, contact the mailer to discuss
service offerings such as Express Mail service. We know of no instances in which
either postal inspectors or customer service representatives can fairly be said
to "threatened" mailers or in which inspectors can fairly be said to have "sold"
Express Mail service. Even those instances in which inspectors have discussed
Express Mail service when the need for rapid delivery service was raised by the
mailer have ceased since new instructions were issued in 1979. These
instructions provide when a mailer has been identified as not being in
compliance with the Private Express Statutes, the inspector may advise that such
infractions are avoidable by using the Postal Service or by paying postage on
letters shipped by private courier. If the mailer indicates a need for a rapid
delivery or inquires about a specific service offering, such as Express Mail
service, the inspector is to refer the mailer to a customer service
representatives and is not to participate in the follow-up attention, if any,
given by the customer service representative. It should be noted that this
matter was the subject of Congressional hearings in 1979.... Notwithstanding
that no abuses were established, in response to Congressional concerns the
Postal Service amended its instructions to inspectors to ensure so far as it
could that no abuses would occur. emphasis added In brief, in 1982. the Postal
Service informed Congress that no fair minded person could question the
propriety of the Inspection Service's efforts in respect to the postal monopoly,
and that nonetheless, in response to (apparently baseless) concerns of Congress,
the Postal Service had instructed postal inspectors to be less engaged in the
sale of Express Mail services. DISCOVERY OF ADDITIONAL INSPECTION SERVICE
RECORDS In December 1988, a second set of Inspection Service records relating to
the postal monopoly came to light as a result of a discovery request by the Air
Courier Conference of America in the Postal Rate Commission's Express Mail
Rulemaking. In this docket, the Postal Service petitioned the Postal Rate
Commission for expedited procedures for changing Express Mail rates. In
discovery, interrogatory 2 of Air Courier Conference of America (ACCA) asked the
Postal Service for documents and records relating to enforcement of the postal
monopoly against private express companies or their customers. When the Postal
Service protested against the burden of complying with this request, the Postal
Rate Commission limited the interrogatory to "reports of the described activity
which have been submitted to, or prepared by, Headquarters within the last 5
years. In response, the Postal Service produced records of 24 Inspection Service
cases. On January 28, 1994, a private express company specializing in insurance
documents, Insurance Courier Services, filed an Freedom of Information Act with
the Inspection Service requesting records of Inspection Service investigations
under the postal monopoly laws during the previous five years. In December 1994,
the Inspection Service provided a list of 141 postal monopoly cases initiated
roughly from 1984 to 1990. This list includes all cases for which records were
provided in response to the AC CA discovery request. In addition, the Inspection
Service provided reports relating to 65 cases initiated between 1989 and 1994.
Some of these related to cases included in the 1984-1990 list. Many of the cases
are closely related to one another, so that the number of companies investigated
is in fact, significantly less than suggested by the total number of "cases."
Finally, the Inspection Service provided a list of 29 alternative postage
agreements signed between 1990 and 1994. This Postal Service's responses to
these discovery requests provide that most complete picture available of the
efforts of the Inspection Service in support of the postal monopoly. According
to these files, targets of Inspection Service postal monopoly investigations in
this period included the Federal Records Center, Patuxent Navel Air Station,
Naval Federal Credit Union; the state governments of Florida, Georgia,
Massachusetts, New Hampshire, and Oklahoma; commercial and charitable
organizations such as Bell South, Blue Cross Blue Shield, IBM, the Old Time
Gospel Hour, Kay Jewelers, and the Washington Redskins; various other banks,
drug stores, realtors, retailers, farm bureaus, school boards, teachers unions,
insurance companies, and a state prison; and a handful of private express
companies. Among other things, this file demonstrates the degree to which
Inspection Service's postal monopoly investigations served to pressure specific
mailers into "alternate postage payment agreements" as the price for Postal
Service's not carrying the mail (most prominently, Bell South Corporation, which
is a party to 17 agreements). INVESTIGATIONS OF FEDEx CUSTOMERS (I 992-1994)
Beginning in 1992, the Inspection Service seemed to focus on customers of
Federal Express, including a credit company, bank, insurance company, and paper
products company. In June 1992, the Inspection Service led a briefing of federal
agencies participating in a major contact between the General Services
Administration and Federal Express, warning them not to use Federal Express in
contravention of the postal monopoly laws and regulations. In response, Federal
Express petitioned Congress for relief from what it considered to be unfair and
unreasonable harassment of its customers by the Postal Service. This
confrontation produced several interesting products. On August 31, 1992, the
Postal Service responded to an inquiry from Senator Jim Sasser of Tennessee
concerning activities of the Inspection Service related to enforcement of the
postal monopoly. This letter offered the first detailed explanation of the
Postal Service's position on several issues. On the question of legal authority
for Inspection Service searches of mailers' premises, the Postal Service
referred not to the specific search authority in 39 USC 603 but to the general
authority set out in 39 USC 404(a)((7), authorizing it "to investigate postal
offenses and civil matters relating to the Postal Service. The Postal Service
also cited 18 USC 3061, a 1968 statute which does not mention searches. Most
importantly, the Postal Service maintained that all interviews of mailers are
voluntary and added an ambiguous reference to the limits on search authority set
out in 39 USC 603: Although the Postal Service has not, to our knowledge,
conducted unconsented "searches" of the private property of the customers of
private express companies or the private express courier, to the extent that 39
U.S.C. Sections 603-04 would not apply, general Federal law governing a search
and seizure would apply. The Postal Service also provided its first discussion
of the legal authority for establishing, in the 1974 postal monopoly
regulations, a civil fine equal to the postage that would have been charged by
the Postal Service on items sent by private express. The Postal Service offered,
in essence, no statutory justification for this penalty. Rather, it avoided an
answer by stating: "it has been the general practice of the Postal Service not
to seek recovery of the 'back postage."' In addition, the Postal Service's
letter to Senator Sasser listed 31 pending Inspection Service cases "generated
since January 1, 1991, pertaining to investigations of customers of private
express companies for possible violation of the private express statutes."" A
copy of the letter to Senator Sasser is placed in Appendix A to this statement.
In 1994, Senator Paul Coverdell of Georgia became interested in Inspection
Service visits to customers of private express companies. He proposed an
amendment to the postal law to decriminalize use of private express companies.
S. 1541, 103rd Cong., 1st Sess. If the Coverdell amendment were adopted, the
Inspection Service would be required to confine enforcement efforts to private
express companies, leaving undisturbed the relatively innocent and ignorant
customers. The Postal Service fought this amendment fiercely. To relieve
pressure for the Coverdell amendment, on March 24, 1994, in testimony before the
Senate Governmental Affairs Committee, Postmaster General Marvin Runyon promised
that the Inspection Service will no longer take the lead in conducting these
types of audits. Where called for, our marketing professionals will meet with
customers to explain any laws and regulations, and offer whatever help we can to
serve their mailing needs. In response, Senator Coverdell withdrew his
amendment. In addition, Senator Coverdell posed a number questions to the Postal
Service about use of the Inspection Service to enforce the postal monopoly laws.
These questions were similar to those propounded by Senator Sasser in 1992. This
time, the Postal Service answered still more circumspectly. On the question of
legal authority for searches of mailers' offices, the Postal Service referred
primarily its self- proclaimed authority to terminate the right of an
uncooperative mailer to make use of the postal monopoly "suspension" that allows
access to the services of a private express company: The Postal Inspection
Service does not search businesses or people without a warrant. No searchers
have been conducted to enforce the Extremely Urgent Suspension. Under the
express terms of that suspension, those who elect to use it are bound to show
the Postal Service, on request, that they are complying with it... If a company
is not willing to comply with these terms of the suspension, then postal service
may bring an action before the Judicial Officer to revoke the suspension at to
that company. emphasis added The Postal Service also explained its reasons for
believing that decriminalization of the use of private expresses would be
contrary to sound public policy, noting the difficulties that private express
companies would face in determining whether a given envelope contained a
letter." Many times ... only the sender may know whether the contents of an
envelope include letters, or whether they will lose their value if not delivered
on time. If enforcement against the sender in such a case were not permitted,
then the Postal Service could find it necessary to change some its rules,
including the Extremely Urgent Letter Suspension, to define eligibility more
narrowly in terms of delivery times, price, or similar matters fully disclosed
to or known by the carrier. When asked to state the amount of "back postage"
collected from enforcement of that provision in the 1974 postal monopoly
regulations, the Postal Service replied vaguely, "Since the real measure of the
success of any enforcement program is prevention ... the full answer to this
question is not available." The Postal Service's carefully phrased answers to
Senator Coverdell's questions are reproduced in Appendix B to this statement.
ENFORCEMENT OF THE POSTAL MONOPOLY AFTER 1994 Since 1994, the Postal Service's
Rates and Classification Division has taken over from the Inspection Service the
task of contacting mailers and private express companies to enjoin compliance
with the postal monopoly laws. I know of only a few such contacts along these
lines, so it appears likely that the incidence of enforcement efforts has
declined. On the other hand, the 1974 postal monopoly regulations continue to
threaten mailers with the prospect of back postage fines and withdrawal of the
privilege of using private express services. Many U.S. companies are no doubt
influenced by these regulations. COMPETITIVE ADVANTAGES OF T14E INSPECTION
SERVICE In the last few years, another type of competitive issue relating to the
Inspection Service has become evident. By means of the Inspection Service, the
Postal Service has the ability to offer products which are secured by the police
power of the U.S. government. For example, parcels transported by Express Mail
are protected by the Inspection Service, whereas parcels shipped via Federal
Express are not. Similarly, electronic mail services provided by the Postal
Service may be protected by the Inspection Service whereas similar services
provided by private companies would not be so secured. In a commercial market,
it is obvious that federal police protection may offer an important competitive
advantage. Federal Express, for example, would likely be delighted to advertise
that its parcels are protected by the Federal Bureau of Investigation while
parcels entrusted to a competitor are not. As a matter of principle, the
Inspection Service should not be employed to confer competitive advantage on the
Postal Service's competitive products. One can imagine more than one way to
translate this principle into statutory provisions. One approach would be to
limit the jurisdiction of the Inspection Service to non- competitive postal
products. A second approach would be to make the Inspection Service independent
of the Postal Service and extend the jurisdiction of the Inspection Service to
include some products of private delivery services. While I do not presume to
know the best answer, I believe this issue deserves serious consideration.
CONCLUSIONS The Postal Service has, since 1970, used the Inspection Service to
intrude into the business practices of mailers and customers of private express
companies to a degree that appears far greater than ever intended or sanctioned
by Congress. In many cases, these efforts have been directed towards suppression
of forms of competition which it is apparent, at least in retrospect, should
have been encouraged rather than discouraged as a matter of public policy. While
the role of the Inspection Service in postal monopoly cases has been reduced
since 1994, a shift in the organization chart of the Postal Service does not
address the public policy issues raised. On policy grounds, the Postal Service's
basic defense is that it has done no more than use the tools given by Congress
to defend its revenues and protect universal service as mandated by Congress.
There is at least some merit in this defense, certainly in regards to the
activities of the Inspection Service itself. The Postal Service's intrusive and
anticompetitive use of investigative authority over the last 30 years has
revealed not so much shortcomings in the Inspection Service as flaws in the
Postal Reorganization Act of 1970 and related statutes and regulations. In this
respect, I believe the 1974 postal monopoly regulations are especially culpable
because they increased the authority of the Inspection Service to intrude into
business operations of private companies, the administrative need for them to do
so, and the penalties risked by businesses who failed to cooperate with the
Inspection Service. A related, but somewhat different, problem is posed by the
potential for competitive advantage based on the Postal Service's exclusive
access to the services of the Inspection Service. Accordingly, I suggest that
the Subcommittee may wish to consider the following reforms relating to
competition issues posed by the activities of the Inspection Service: 1)
Simplify the definition of the postal monopoly. The postal monopoly should be
defined in a simple manner that does not depend for its effectiveness upon
extensive investigation of mailers or customers of private express companies or
upon exercise of administrative discretion. Appropriate simplification of the
postal monopoly law is relatively straightforward task in light of the numerous
foreign precedents. In essence, the postal monopoly should be described in terms
of the weight of items transmitted and the price of carriage. A reasonably low
price threshold obviates the need for extensive monitoring or investigation.
H.R. 22, the Postal Modernization Act of 1999, indeed, proposes
one such approach. Simplification of the definition of the
postal monopoly would also make feasible decriminalization of
the use of private express companies as proposed by Senator Coverdell in 1994. I
believe this would be a desirable reform. American businesses generally have
been unfairly and unfortunately targeted by the Postal Service because it is
reluctant to pursue enforcement of its inflated claim of monopoly against
private express companies who are fully informed about the intricacies of the
law and highly motivated to defend themselves. 2) Transfer responsibility for
enforcement of the postal monopoly to an impartial agency. Enforcement of the
postal monopoly should be shifted to the Department of Justice or, possibly,
another federal agency. The Postal Service itself should have no greater
authority than a private company to investigate its commercial competitors for
legal violations. A transfer of authority could be effected either by
transferring the entire Inspection Service or by divesting the Inspection
Service of this particular function. 3) Transfer responsibility for
administration of the postal monopoly to an impartial federal agency. As
important as impartial enforcement is impartial administration. The 1974 postal
monopoly regulations reflect a commingling of regulatory and commercial
functions that is inconsistent with due process of law and fundamental fairness.
A more simply defined postal monopoly will require much less in the way of
implementing regulations. Nonetheless, residual administrative functions should
be exercised impartially by, say, the Postal Rate Commission. 4) Limit the
ability of the Postal Service to use the Inspection Service for competitive
advantage. As noted, this reform will entail consideration of a range of policy
options from contraction of the Inspection Service's jurisdiction to non-
competitive postal products to expansion of its jurisdiction to transportation
of all documents and parcels. Thank you for this opportunity to present my views
on the competition policy questions raised by the role of the Postal Inspection
Service.
LOAD-DATE: August 10, 2000, Thursday
