Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-10-01031/USCOURTS-caDC-10-01031-0/pdf.json

Parties Involved:
LePage's 2000, Inc.
Petitioner
LePage's Products, Inc.
Petitioner
Postal Regulatory Commission
Respondent

Document Text:

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 15, 2011 Decided June 7, 2011

No. 10-1031

LEPAGE'S 2000, INC. AND LEPAGE'S PRODUCTS, INC.,

PETITIONERS

v.

POSTAL REGULATORY COMMISSION,

RESPONDENT

Consolidated with 10-1033, 10-1279, 10-1294

On Petitions for Review of an Order

 of the Postal Regulatory Commission

David Himelfarb argued the cause for petitioners LePage’s

2000, Inc. and LePage’s Products, Inc. With him on the briefs

were Daniel J. Kelly and Bonnie A. Vanzler.

Miriam R. Nemetz argued the cause for petitioner United

States Postal Service. With her on the briefs was Kenneth S.

Geller.

Daniel Tenny, Attorney, U.S. Department of Justice, argued

the cause for respondent. With him on the brief were Tony

West, Assistant Attorney General, Michael S. Raab, Attorney,

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Stephen L. Sharfman, General Counsel, Postal Regulatory

Commission, R. Brian Corcoran, Deputy General Counsel, and

Kenneth E. Richardson, Attorney.

Before: SENTELLE, Chief Judge, GRIFFITH, Circuit Judge,

and SILBERMAN, Senior Circuit Judge.

Opinion for the Court by Senior Circuit Judge SILBERMAN.

SILBERMAN, Senior Circuit Judge: The United States

Postal Service, LePage’s 2000, Inc., and LePage’s Products, Inc.

(the latter two collectively “LePage’s”), seek review of a Postal

Regulatory Commission order classifying the Service’s licensing

of its intellectual property for use on third-party mailing and

shipping supplies as “nonpostal” under the Postal Accountability

and Enhancement Act, and requiring the Service to discontinue

that activity. The petitioners contend that the Commission

improperly departed from a previous order without explanation

and failed to support its findings with sufficient evidence. We

agree with petitioners’ first argument. We therefore grant the

parties’ petitions for review, vacate the Commission’s order, and

remand for further proceedings consistent with this opinion. 

I

As we explained last year in a companion to this case,

Congress created the modern government-owned corporation

known as the United States Postal Service in 1970, and imbued

it with the power not only to deliver the mail, but also to provide

special “nonpostal” services. See USPS v. Postal Regulatory

Comm’n, 599 F.3d 705, 706 (D.C. Cir. 2010). Accordingly, the

Service engaged in a number of ventures “unrelated or only

tangentially related to the delivery of mail,” to the point where

such activities became quite “substantial.” Id. Such activities

include the Service’s licensing of its intellectual property for use

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on commercially-available consumer products sold at third-party

retail locations. 

The commercial licensing program encompasses several

different categories of goods, including apparel, pet products,

and fashion accessories. At issue in this case is the Service’s

commercial licensing of third-party mailing and shipping

supplies, which includes products related to the Service’s core

business of delivering the mail. The Service had five license

agreements in this program – which, for simplicity’s sake, we

will refer to as the “Bubblewrap program” – although only one

remains in effect: an agreement with LePage’s. That agreement

permits LePage’s to sell mailing and shipping supplies (such as

boxes, padded envelopes, bubblewrap, tape, packing materials,

packing tap, and return mailing labels) branded with the United

States Postal Service corporate logo at non-Postal Service retail

outlets. Each product that LePage’s sells indicates that it is the

manufacturer and that the Service is the licensor.

* * *

Congress expressed skepticism throughout the 1990s about

the Service’s nonpostal activities, and considered legislation to

eliminate or limit its authority to engage in such activities. 

These efforts crescendoed after a 2003 presidential blue-ribbon

commission found the Service’s nonpostal activities “dubious”

and “far afield” of the Service’s “basic function.” Id. The

commission noted that the Service’s nonpostal activities largely

had not been profitable, created market distortion, and distracted

the Service from its basic function. It therefore recommended

that Congress “restrict the Service’s authority to include only

services directly related to the delivery of mail.” Id. at 707.

Congress responded with the Postal Accountability and

Enhancement Act (“the Act”), Pub. L. No. 109-435, 120 Stat.

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3198 (2006). The Act significantly limited the Service’s ability

to engage in nonpostal activities, which it defined as “any

service that is not a postal service.” A “postal service” included

“the delivery of letters, printed matter, or mailable packages,

including acceptance, collection, sorting, transportation, or other

functions ancillary thereto.” The Act precluded the Service

from offering new nonpostal services after its passage, while

permitting nonpostal services offered before January 1, 2006, to

continue pending review by a newly-created Postal Regulatory

Commission. The Commission was charged with reviewing

each nonpostal service offered by the Postal Service; it could

approve for continuation a nonpostal service if the Commission

concluded that there was a (1) public need for the service and (2)

the private sector could not meet the public need for the service. 

But the Commission was required to terminate any nonpostal

service that did not meet both statutory criteria. 

In December 2007, the Commission began its review of the

Service’s activities. During the first part of the proceedings –

termed “Phase I” – the Service argued that several of its

programs should be classified as “postal services” and therefore

permitted to continue without further review under the Act. 

These include the “ReadyPost” program, “a Postal Servicebranded line of shipping supplies designed for sale in post office

retail locations,” the customized postage program, a form of

postage prepayment in which private companies licensed by the

Service allow consumers to obtain custom postage, and the

greeting card program, in which third-party stationery is sold in

post office retail locations. Review of Nonpostal Services

Under the Act (“Phase I Order”) (Dec. 19, 2008), 32-35,

reprinted at J.A. 504.

The Commission agreed with the Service that the three

programs should be classified as “postal services.” It concluded

that the ReadyPost program was a “postal service” because its

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products were “postal related;” they would be mailed, were

designed to meet customers’ mailing needs, and, since they were

displayed at Service locations, “offer[ed] convenience to the

customer and ma[de] access to the mailstream easier.” The

customized postage program was a “postal service” because it

represented a “form of of postage prepayment, a core function

of the Postal Service.” And the greeting card program was a

“postal service” because the products fostered use of the mails. 

In the Phase I proceedings, the Service also sought to have

the Commission continue several activities that it conceded were

“nonpostal services.” Relevant here is the Officially Licensed

Retail Products program, through which the Service sells postalbranded and -themed products at Service retail locations. The

products include both items that assist customers in the use of

the mails – such as scales and stamp dispensers – and branded

miscellaneous items – such as teddy bears and key chains.

Applying the two-part statutory criteria laid out in the Act, the

Commission concluded that there was a “public need” for what

we will call the “Bears and Scales program” because it

“leverages the Postal Service’s brand, advertises and enhances

its image, and, through the revenues generated, helps support the

Postal Service’s core mission.” Id. at 49. The Commission

found that the private sector could not meet this need because no

other entity would be able to provide the Service’s intellectual

property (its brand) to manufacturers. The Commission

therefore permitted the Bears and Scales program to continue as

a nonpostal service.

The Commission lastly considered the Service’s

commercial licensing program for third-party products.1

 It first

1

 The Service took the position that commercial licensing was not

subject to review under the Act because it was authorized by a

separate statute. The Commission rejected this argument. 

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noted that the commercial licensing program was a “nonpostal

service” because “[w]hen the Postal Service acts as a licensor,

it is granting the right to use its intellectual property [, in other

words its brand,] on consumer goods.” Id. at 71. The

Commission therefore assessed whether the program should be

continued under the Act’s two-part criteria. It found the

Service’s commercial licensing program serves a public need

because it generates revenues, benefits mailers, and promotes

and gives recognition to the Service’s brand. And it concluded

that since only the Service could license its intellectual property,

the private sector could not meet the public need for the

program. Id. at 73. The Commission therefore stated that

commercial licensing, “as a general matter,” could continue. Id.

Nevertheless, the Commission noted that its conclusion was

“not unqualified.” It observed that commercial licensing that

related to the Service’s core business of delivery of the mail –

the Bubblewrap program – “raise[d] a host of issues” that were

not sufficiently developed in the record for the Commission to

assess. Id. at 74. The Commission therefore permitted such

licenses to continue pending their full consideration in a

subsequent proceeding. In a clarification order, the Commission

indicated that the Phase I order was appealable, except as to its

conclusions regarding the commercial licensing program, which

were deemed to be interlocutory. The Service appealed the

Phase I order, which we upheld. See Postal Regulatory

Comm’n, 599 F.3d at 706.

While the Service’s appeal was pending, the Commission

began the second phase of the Act’s mandated review. 

LePage’s, which had not been a party to the Phase I proceedings,

filed a motion to intervene that the Commission granted. The

Commission first confirmed that the Service’s commercial

licensing program for products other than mailing and shipping

supplies – such as apparel, pet products, and fashion accessories

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– met the two criteria of the Act and therefore could continue. 

It therefore turned to the question whether the Service may

continue the Bubblewrap program.

The Commission found that there was no public need for

the Bubblewrap program. It observed that the benefits it

identified for the Service’s commercial licensing program

generally “are not sufficient to support a finding of public need”

for the Bubblewrap program. Phase II Review of Nonpostal

Services Under the Act (“Phase II Order”) (Jan. 14, 2010), 14-

15, reprinted at J.A. 875. In the Commission’s view, the

benefits were “either without sufficient evidentiary support or

mitigated by factors that are not applicable” to other trademark

licensing. Id. at 15. Specifically, it identified two “mitigating”

factors that it believed outweighed any benefits of the

Bubblewrap program.

First, the Commission noted that USPS-branded products

sold by third parties could confuse consumers: consumers may

believe that the Service is selling, and standing behind, the

licensed mailing and shipping supplies. Second, it found that

the Bubblewrap program could disrupt markets. It based this

conclusion on two predictions: that because the Service’s

monopoly over the delivery of mail gave it “perceived

expertise” over mailing and shipping supplies, USPS-branded

supplies may have an advantage over other products in the

consumers’ minds, and “when the Postal Service competes in a

market where the Postal Service provides regulatory oversight

of a product or system, there is the potential for unfair

competition.” Id. at 19. 

The Commission also found that the Service had failed to

demonstrate that the private sector was unable to meet any

public need for the Bubblewrap program. It observed that the

“USPS-branded products are sold in large chain stores where

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similar alternative products are available in the absence of the

USPS brand.” Id. at 24. And therefore the Commission stated

that it could not “conclude that the USPS-branded mailing and

shipping products are sufficiently different from competitor

products that the private sector is not able to meet the public

need for these products.” Id. at 25. It ordered the Service to

terminate the Bubblewrap program.

After the Commission issued its Phase II order, both the

Service and LePage’s timely filed petitions for review in this

Court. The Service subsequently asked the Commission to stay

the termination of the Bubblewrap program on the ground that

the Service had sought review of the Commission’s Phase I

order. The Commission denied this request as moot when we

upheld that order. 

Following the publication of our opinion, however, and

apparently unaware of the Commission’s ruling finding moot the

Service’s motion to stay, LePage’s filed a notice with the

Commission indicating its support for the Service’s motion to

stay, and promising that a “comprehensive submission” would

follow “shortly.” Three months later, in June 2010, the Service

again requested a stay in order to permit the Commission to

address LePage’s as-yet-unfiled submission. In July 2010,

nearly three-and-one-half months after its original notice,

LePage’s asked the Commission to reconsider its Phase II order,

or, in the alternative, to stay the Commission’s ruling pending

resolution of the petition for review of the Phase II order. The

Service later submitted its own petition for reconsideration. The

Commission denied both petitions for reconsideration, holding

that they were untimely and raised no new arguments that could

not have been raised during the Phase II proceeding. The

Commission, however, stayed its Phase II order pending our

review. Both the Service and LePage’s sought review of the

Commission’s denial of their motions for reconsideration, which

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we consolidated with the previously-filed petitions to review the

Phase II order.

II

The Service contends that the Commission’s Phase II order

is unreasonable because the Commission’s decision to find that

the Bubblewrap program did not serve a public need departed

abruptly from its Phase I position that the Service’s commercial

licensing program did serve a public need. The Service also

argues that the Commission’s conclusion that there is no public

need for the Bubblewrap program is not supported by substantial

evidence.

Finally, the Service objects to the Commission’s finding

that the private sector could meet the public need for the

Bubblewrap program. According to the Service, in the Phase I

order, the Commission concluded that there was no privatesector alternative to the Service’s commercial licensing

activities because no other entity could grant a license for the

Service’s intellectual property (its brand). But in its Phase II

order, the Commission ignored this conclusion and instead

found that the public need for the Bubblewrap program could be

satisfied by similar products that do not bear the Service’s

trademark. The Service objects to this unexplained change of

position.2

LePage’s largely mirrors the Service’s challenges to the

merits of the Phase II order, but raises two additional arguments

2

 The Service also suggests that even if the Commission is correct

in concluding that there is no public need for the Bubblewrap

program, the Commission should not have terminated the program. 

Rather, it should have adopted a more measured regulatory response

to address the issues it highlighted.

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that the Service did not present. First, the Commission erred by

classifying the Bubblewrap program as a “nonpostal service.”3

LePage’s observes that the Commission decision regarding the

program is untenable in light of the Commission’s conclusion

that the ReadyPost program, the customized postage program,

and the greeting card program are “postal services.” Second, the

Commission improperly considered the economic effects of the

Bubblewrap program products as part of its “public need”

inquiry. LePage’s also argues that the Commission’s failure to

consider LePage’s’ motion for reconsideration on timeliness

grounds was arbitrary and capricious because neither the Act nor

the Commission’s rules imposed any deadline for filing such

motions.

The Commission contends that LePage’s is wrong that the

Commission should have classified the program as a “postal

service” because the activity at issue – licensing – does not meet

the definition of a “postal service” in 39 U.S.C. §102(5). The

programs the Commission classified as “postal services” all

involve sales directly made by the Service, which distinguishes

them from licensing. The Commission asserts, moreover, in

response to both the Service and LePage’s, that it rightly found

that the program did not serve a public need that could not be

met by the private sector by redeploying the arguments it offered

below. It also maintains that it reasonably denied LePage’s

motion for reconsideration on timeliness grounds, given that it

was filed approximately six months after the Commission issued

its Phase II order. In any event, the Commission notes that

because the motion failed to present new evidence that LePage’s

3

 LePage’s, somewhat confusingly, suggests that the Commission

did not classify as “postal” or “nonpostal” the Bubblewrap program as

it was required to do under the Act. But this is belied by the record. 

See Phase I Order at 71; Phase II Order at 8.

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could not have presented earlier, we do not have jurisdiction to

review it.4

* * *

The Commission’s order is rife with anomalies, any one of

which is sufficient to justify a remand, and all of which, when

considered together, demonstrate the Commission was

proceeding in a slapdash manner. We begin with LePage’s’

argument that the Commission erred by classifying as a

“nonpostal service” the Bubblewrap program. According to

LePage’s, its sale of licensed mailing and shipping supplies

meets the definition of a “postal service” because the sale of

such supplies is “ancillary to the carriage of mail.” 39 U.S.C. §

102(5). Indeed, it suggests that the products it is selling are akin

to the products sold as part of the programs that the Commission

found to be “postal services” in its Phase I order. For example,

the LePage’s products, like ReadyPost and greeting cards, are

designed to meet customers’ mailing needs, foster use of the

mails, and aid access to the mailstream. And LePage’s products,

like customized postage, includes Service-licensed intellectual

property. 

The Commission offers a simple response in its brief:

LePage’s wrongly focuses on its sale of mailing and shipping

supplies as the activity that determines whether a service is

“postal” or “nonpostal.” According to the Commission, the Act

requires it to review each activity “offered by” the Service to

4

 The Commission also asserts that the Service is incorrect in

suggesting that the Commission could have adopted regulatory

measures short of termination once it found that there was no public

need for the Bubblewrap program. We agree. Congress instructed

that the Commission “shall terminate” any service not authorized

under the Act. 39 U.S.C. § 404(e)(4). 

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determine if it is “postal” or “nonpostal.” See 39 U.S.C. §

404(e)(3) (emphasis added). With regard to the Bubblewrap

program, the only activity “offered by” the Service is licensing,

which the Commission has concluded does not meet the

definition of a “postal service.” By contrast, ReadyPost and the

greeting card program are “postal services” because in each case

the Service sells mailing and shipping supplies at its retail

locations and on its website. And the customized stamp

program is a “postal service” because it involves the sale of

postage to third parties. In other words, the Commission seems

to assert that so long as it is the Service itself that sells mailing

and shipping supplies, it is a “postal service.” 

The Commission may well be correct that the crucial

distinction is the seller’s identity. But whatever the merits of

this position, we cannot consider it because the Commission did

not set it forth below. It did not label ReadyPost, the greeting

card program, or the customized postage program “postal”

because they involved sales by the Service itself. And we, of

course, “cannot ‘accept appellate counsel’s post hoc

rationalizations for agency action’; for an agency's order must

be upheld, if at all, ‘on the same basis articulated in the order by

the agency itself.’” Fed. Power Comm’n v. Texaco Inc., 417

U.S. 380, 397 (1974) (quoting Burlington Truck Lines, Inc. v.

United States, 371 U.S. 156, 168-69 (1962)). Indeed, the

position the Commission presses now is inconsistent with the

position it took below, where it assessed whether the products

at issue – as opposed to the activity offered by the Service –

could “reasonably be viewed as ancillary to the carriage of

mail.” Phase I Order at 33. 

Distinguishing the Bubblewrap program from ReadyPost

and the greeting card program based on the rationale offered

below (to the extent the Commission still relies on it) is

untenable. The Commission found ReadyPost and the greeting

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card program to be “postal services” because these products

fostered use of the mail and enhanced consumers’ convenience. 

Yet, as LePage’s and the Service persuasively argue, these

articulated factors apply to the Bubblewrap program as well. 

The Bubblewrap program products – indistinguishable from the

ReadyPost products, compare Phase I Order at 32, with

Supplemental Statement of Gary Thuro (Jan. 30, 2009), 2,

reprinted at J.A. 634 – meet customers’ mailing needs, make

access to the mailstream easier, and, because they are available

in a many retail establishments, improve customer convenience.5

We remand the Phase II order to the Commission to explain its

departure from the Phase I order and to adopt a reasoned

rationale for classifying the Bubblewrap program a “nonpostal

service.”

 

III

We turn now to the petitioners’ alternative argument

challenging the Commission’s conclusion that there is no public

need for the Bubblewrap program. 

It will be recalled that the Commission found no public

need for the program because “[a]ny benefits are outweighed by

the disadvantages of selling USPS-branded products that can

confuse consumers and disrupt markets.” Phase II Order at 15. 

But the Commission’s assessment of the benefits of the

Bubblewrap program is flawed. In its Phase I order, the

Commission determined that commercial licensing, as a general

matter, served a public need because it generated revenue,

benefitted mailers, and gave recognition to the Service’s brand. 

5

 It is of no moment that, as the Commission observed, the

Bubblewrap program may generate less mail for the Service than sales

of the same supplies at Service retail locations. A mere comparison

of volume cannot save the Commission. 

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In its Phase II order, the Commission again recognized these

benefits, yet noted that they were “without sufficient evidentiary

support” for the Bubblewrap program. Id. at 14-15. But the

evidence the Commission relied on for the benefits of the

commercial licensing program – a statement from the Service’s

manager of licensing – did not distinguish between different

types of commercial licensing. The Commission does not

explain how it can read the same evidence differently when

applied to different aspects of the same program.

The Commission recognized, moreover, in finding a public

need for the Bears and Scales program, that the Service’s sales

of USPS-branded mailing and shipping products serve the same

public need as commercially-licensed products generally: they

“leverage[] the Postal Service’s brand” and “help[] support the

Postal Service’s core mission.” Phase I Order at 49. We do not

understand why these same benefits would not accrue to the

Bubbewrap program, which aside from the seller’s identity, is

substantially similar to the Bears and Scales program. At the

least, the Commission must explain this differential treatment of

seemingly like cases. See Westar Energy, Inc. v. FERC, 473

F.3d 1239, 1241 (D.C. Cir. 2007). 

LePage’s would have us go further and hold unreasonable

the supposed disadvantages of the Bubblewrap program that the

Commission identified. As we discussed, the Commission

concluded that the Bubblewrap program products will cause

customer confusion and will result in market distortion. 

According to LePage’s, the Act does not permit the Commission

to analyze “public need” based on the predicted economic

effects of a product. We find some merit in this position. The

Act requires the Commission to assess the “public need” for the

service “offered by” the Postal Service. 39 U.S.C. §

404(e)(3)(A). Yet the service offered by the Postal Service in

the Bubblewrap program is, of course, the licensing of

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intellectual property. The Commission’s focus on the economic

effect of the products that result from licensing, then, would

seem to depart from the Act’s plain language.

Nevertheless, we need not resolve this issue of statutory

interpretation (nor whether the Commission’s interpretation of

“public need” is entitled to deference) because the

Commission’s assessment of “public need” in its Phase II order

departs from the Phase I order. In the Phase I order, the

Commission noted that it would consider a variety of factors in

analyzing public need: “the demand for the service, its

availability, its usefulness, whether it is a customary business

practice, or serves the efficiency of operations.” Phase I Order

at 39. All of these factors focus on the public need for the

service, not the products resulting from that service, a point that

the Commission makes clear in its own analysis. In concluding

that commercial licensing served a public need, the Commission

observed that licensing “generat[ed] revenues and “benefitt[ed]

mailers.” Phase I Order at 73. It could not have been concerned

with the commercially-licensed products themselves because

they generate no revenue for the Service; they are manufactured

and sold by third parties. The Commission, however, subtly,

and without explanation, changed this approach in its Phase II

order, assessing the disadvantages of the Bubblewrap program

based only on the program’s products. 

Further, the Commission never indicated in its Phase I order

that it was going to consider economic impact as part of its

“public need” inquiry. In fact, the Commission’s only reference

to economic impact in its Phase I order occurs in its discussion

of how it intends to analyze whether the private sector can meet

a public need for a nonpostal service. Yet we perceive no

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explanation of how this concern migrated, in Phase II, to the

Commission’s “public need” inquiry.6

 

* * *

Although the Commission’s finding that there was no

public need for the Bubblewrap program required it to terminate

the program, see 39 U.S.C. § 404(e)(3) (service must both meet

a public need and be without a private sector alternative to

continue), it went on to hold that the private sector could meet

any public need for the program. Petitioners challenge this

conclusion, contending that the Commission departed without

explanation from its Phase I conclusion that the private sector

could not possibly meet the public need for commercial

licensing. We agree. In Phase I, the Commission held that

commercial licensing could not be met by the private sector

because no entity other than the Service could license its

intellectual property. In Phase II, however, the Commission

changed course, explaining that other entities were able to

provide substitutes for the licensed mailing and shipping

products. In other words, the Commission altered its analytic

frame from the activity the Service engaged in to the products

that resulted from that activity. 

The Commission offered no reason for this departure. And

we, of course, cannot uphold a decision “where an agency

departs from established precedent without a reasoned

explanation.” ANR Pipeline Co. v. FERC, 71 F.3d 897, 901

(D.C. Cir. 1995); accord Motor Vehicle Mfrs. Ass’n v. State

6

 Both the Service and LePage’s also contend that the

Commission failed to support its catalogue of disadvantages of the

Bubblewrap program. Because we do not know what the

Commission’s order after remand will look like, we cannot address

this argument here. 

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Farm Mut. Auto. Ins. Co., 463 U.S. 29, 57 (1983). Nor, in fact,

do we see how the Commission could adopt the position it does

in its Phase II order. As we discussed – and as the Commission

itself argues before us – under the Act, the Commission must

assess the activity the Service offers. In the case of commercial

licensing – whether for mailing and shipping supplies or for

other products – that activity is licensing. Therefore, for the

Commission to review the private sector factor by assessing

ability of the private sector to provide similar products would

bring the Commission into conflict not only with the Act, but

also with its (newly-minted) rationale for classifying

commercial licensing a “nonpostal service.”7

IV

For the foregoing reasons, we grant the petitions to review

the Phase II order, vacate the order, and remand for further

proceedings consistent with this opinion. The Commission has

much work to do on remand remedying the abundant

inconsistencies in its order.

So Ordered.

7

 Because we find that the Phase II order is arbitrary and

capricious, we need not address LePage’s’ additional argument that

the Commission erred in denying LePage’s’ motion for

reconsideration. 

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