Antitrust Law Daily Wrap Up, ANTITRUST—DColo: Oral Argument Ordered in Antitrust Dispute over Postal Service’s Exclusive Relationship with Blank Label Supplier, (Mar 19, 2013)

By Tobias J. Gillett, J.D., LLM.

The federal district court in Denver has ordered oral argument to help resolve “complex and difficult legal and procedural issues” in a federal antitrust lawsuit, alleging an illegal tying arrangement, brought by private entities operating retail systems supplied by the United States Postal Service (USPS) against the USPS and the exclusive supplier of blank labels for those systems (TOG, Inc. v. United States Postal Service, March 17, 2013, Kane, J.).

The United States Postal Service (USPS) has agreements with various private entities that operate Contract Postal Units (CPUs) providing postal services to the public. These entities use a Contract Access Retail System supplied by the USPS that weighs, rates, and meters mail, issues stamps, and prints postage labels. Under the agreements, the USPS supplies postage and maintains the machines, and the entities must purchase additional supplies from authorized vendors.

Prior to July 2011, Innovations Group Inc. (IGI) was the only authorized supplier and the only source for blank label rolls. The CPU Association of America (CPUAA) was then added as a second source, but IGI allegedly threatened and intimidated CPU operators that purchased from CPUAA until the USPS withdrew its approval of CPUAA.

A class of CPU operators filed suit against the USPS, IGI, and IGI’s principal, asserting that the exclusive relationship between the USPS and IGI represented an illegal tying arrangement in violation of the federal antitrust laws. The defendants moved to dismiss, arguing that they could not be held liable for the alleged conduct under the Supreme Court’s 2004 decision in United States Postal Service v. Flamingo Indus., Ltd., 540 U.S. 736, which concluded that the USPS was not subject to antitrust liability. However, the parties disputed whether the Postal Accountability and Enhancement Act of 2006 (PAEA) rendered the CPU operators’ claims more viable.

The court concluded that the dispute would benefit from oral argument, observing that it presented “complex and difficult legal and procedural issues.” The court questioned whether the dispute between the CPU operators and the USPS should be first heard before the Postal Service Board of Contract Appeals, or “by the Federal Trade Commission as allegations of unfair trades practices” under Section 5 of the FTC Act.

Moreover, the court noted that the dispute “is more akin to a franchisee class action for breach of contract/unfair dealing.” The CARS CPU units and blank label rolls did not “fit neatly within the ‘product’ rubric of” the PAEA, nor did the requirement that the CPU operators must purchase their blank label rolls from an authorized source “fit neatly within the ‘tying arrangement’ rubric of the Sherman and/or Clayton Acts.” Although the CPU operators’ allegations raised “plausible claims of bad conduct resulting in injury,” the case presented “significant analytical challenges,” and it was “not clear” that the federal antitrust laws were the “appropriate vehicle for seeking relief.”

The claims against IGI also raised “significant analytical challenges,” in the court’s view. The alleged tying arrangement involved retail systems that were not marketed or sold, and arguably could belong to the USPS “in its essential governmental, rather than competitor-in-the-marketplace status.”

Although IGI allegedly directed its conduct at CPUAA, the association was not a party to the action. The court also observed that the claims against IGI could be viewed as claims for “tortious interference with the SPU/USPS contract and relationship, and for unfair competition vis a vis individual CARS CPU operators and CPUAA, rather than as antitrust claims. The court therefore ordered the parties to confer and then schedule oral argument in April 2013.

The case is Civil Action No. 12-cv-01946-JLK.

Attorneys: Christine Kessler Lamb (Friesen Lamb, LLP) for TOG, Inc. Brian Robert Meiners (King & Spalding, LLP) for United States Postal Service. Christopher J. Brady (Husch Blackwell LLP) for Innovations Group, Inc.

Companies: TOG, Inc.; Wild Harvest LLC; United States Postal Service; Innovations Group, Inc.

Cases: Antitrust ColoradoNews