Postal Service Cost Cutting Does Not Jeopardize Antitrust Exemption
By: RICHARD J. WEGENER
April 2004
Spring has marked two significant developments in the Postal Service’s continuing business evolution. The Postal Service announced it will end its sponsorship of the professional cycling team led by Lance Armstrong. At the same time, the Service successfully maintained its exemption from federal antitrust liability. While curtailing its marketing efforts may give competitors some cause to rejoice, the more significant development is the verification of the Service’s antitrust exemption.
Background
Today’s Postal Service is not your fathers’ Post Office Department. This Service sells money orders and electronic bill payment services, phone cards, office supplies and overnight delivery services - all of which compete with the private sector. Not at all shy about these new business efforts, it spends millions of dollars on advertising, event marketing and sponsorships, such as the professional cycling team led by Lance Armstrong ($38.6 million from 1996-2002) who displayed the Service’s name and logo on his jersey during each of his record-setting five consecutive Tour de France victories.
Truly “Big Business,” the Postal Service enjoys a number of special advantages that its competitors can only envy. It pays no federal, state or local taxes, is exempt from most forms of regulation and can borrow money at preferred rates directly from the U.S. Treasury. These advantages have not gone unnoticed. Some critics have called for the restriction of its activities to traditional mail delivery. Others have questioned whether the Service should enjoy the ultimate competitive advantage – antitrust immunity. That question went unanswsered until the Supreme Court issued a 9-0 decision in late February. United States Postal Service v. Flamingo Indus. (USA) Ltd., No. 02-1290, 2004 U.S. LEXIS 1625 (U.S. Feb. 25, 2004).
Postal Service Replaces One Supplier With Another – Should We Care?
Flamingo Industries, a U.S. based company, had been the primary manufacturer of the 21 million mail sacks purchased annually by the Postal Service. When the Postal Service terminated its contract with Flamingo, Flamingo brought suit claiming it was terminated so the Service could give no-bid contracts to cheaper foreign manufacturers without allowing U.S. companies to compete for the business. The contract was awarded to a Mexican firm, and Flamingo alleged that this foreign “outsourcing” violated the Sherman Act by seeking “to suppress competition and create a monopoly in mail sack production.”
The case was dismissed by the trial court, only to be reinstated by the 9th Circuit. The Postal Service had argued that it was an “independent establishment” of the executive branch of government, and therefore entitled to “status-based” sovereign immunity from the antitrust laws. The 9th Circuit disagreed, based on language in the 1971 Postal Reorganization Act that the Postal Service can “sue and be sued.” According to the Circuit, that language meant that any immunity the Service had was “conduct-based,” limited only to its narrow statutory monopoly in the market for letter carriage and delivery services. The lower court should have analyzed the specific conduct – the mail sack supply agreement – and determined if the Postal Service’s conduct fell within or outside of its letter carriage and delivery activities.
The 9th Circuit’s concept of conduct based immunity was not unexpected – it seemed to fit nicely with the Postal Service’s expanded product offerings designed to reach other more profitable revenue streams in order to offset losses from its mail service monopoly.
Postal Service Not Subject to Liability Under Federal Antitrust Law
Invoking the two-part analysis previously announced in FDIC v. Meyer, 510 U.S. 471, 484 (1994), the Court held that Congress waived sovereign immunity for actions against the Postal Service in the Postal Reorganization Act of 1971, 39 U.S.C. § 101, et seq., which gave the Service the power “to sue and be sued,” but the Sherman Act’s substantive provisions do not make the Postal Service a “person,” as defined by 15 U.S.C. § 7, subject to suit under federal antitrust law.
In doing so, the Court relied upon United States v. Cooper, 312 U.S. 600 (1941), which had held that the United States could not sue under the Sherman Act because it was not a “person” under 15 U.S.C. § 7. The Cooper Court reasoned that expanding the definition of “person” to include the United States would subject the government to antitrust liability, which was contrary to Congress’ intentions.
After Cooper, Congress responded by enacting 15 U.S.C. § 15a, which provides that “[w]henever the United States is hereafter injured in its business or property by reason of anything forbidden in the antitrust laws it may sue therefor.”
The Flamingo Court finds that, by providing the United States with the right to sue under the antitrust laws, § 15a implicitly ratified Cooper because it did not alter the definition of “person” in the antitrust statutes.
Refusing to end the opinion at that point, Justice Kennedy finds additional support for antitrust immunity in the Postal Service’s unique status as a State conferred mail delivery monopoly with a goal to evenly balance expenses and revenues, while lacking the power to set prices enjoyed by the Postal Rate Commission.
Did the Suppression of Competition in the Mail Sack Market Fall Within the Form and Function of the Postal Service?
Arguably, the alleged suppression of competition in mail sack production had closer ties to the form and function of the Postal Service than does the Service’s advertising and Armstrong sponsorship activities. However, since application of the antitrust laws turned on the definition of a “person” and not on immunity, the 9th Circuit’s characterization of the close relationship between mail sacks and the business of moving the mail was, in the end, of little importance.