Court: Post office unfairly favors Netflix

The video-game rental company GameFly triumphed in court on Friday with a ruling that the Postal Service gives preferential treatment to Netflix.

GameFly — a company that rents video games by mail — says it’s unfair that the Postal Service hand-sorts Netflix mailers for free, but doesn’t offer that same service to any other company. 

Chief Judge David Sentelle agreed that the postal service is “obligated to remedy” the discrimination to GameFly under an “arbitrary and capricious” pricing structure. 

“The Commission must either remedy all discrimination or explain why any residual discrimination is due or reasonable,” Sentelle wrote.

The appellate court’s ruling notes that postal employees “have expressed concern about the cost, operational problems, unfairness, and potential legal exposure Netflix’s preferential treatment creates,” but the practice was still kept in place. 

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Hand-sorting is critical for Netflix’s business because the mail sorters used by the postal office can damage DVDs. The machines are also a problem for GameFly, which must use special packaging to protect the video-game disks that are sent to subscribers.

“Without special manual processing like that afforded to Netflix, switching to letter mail could subject GameFly to an epidemic of cracked and shattered DVDs,” Sentelle wrote.

GameFly first filed a discrimination complaint to the Postal Regulatory Commission in 2009. Regulators agreed in 2011 that the company was being discriminated against, but declined to offer free hand sorting to GameFly. Instead, the commission ordered that two fees for the larger GameFly mailers be waived. 

The district court said that solution is insufficient, and ordered the commission to find an “an adequate remedy” that ends the discriminatory pricing.