[Federal Register Volume 62, Number 60 (Friday, March 28, 1997)]
[Proposed Rules]
[Pages 14833-14843]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-7861]


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POSTAL SERVICE

39 CFR Parts 111 and 502


Manufacture, Distribution, and Use of Postal Security Devices and 
Information Based Indicia

AGENCY: Postal Service.

ACTION: Proposed rule.

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SUMMARY: This proposal would add new sections to the Domestic Mail 
Manual (DMM) and title 39, Code of Federal Regulations (CFR), to 
reflect policies and regulations pertaining to the Information Based 
Indicia Program (IBIP). The proposal supports the IBIP technical 
specifications published on July 2, 1996, in the Federal Register (61 
FR 34460). The standards and regulations for the products/devices are 
in some ways similar to those for postage meters but are to be 
contained in separate parts of the DMM and the CFR. The DMM pertains to 
customer requirements and product/service provider support of those 
customers, whereas the CFR contains requirements such as authorization 
to manufacture and distribute, product testing and approval, security 
standards, and financial arrangements.

DATES: Comments must be received on or before April 28, 1997.

ADDRESSES: Written comments should be mailed or delivered to the 
Manager, Retail Systems and Equipment, Room 8430, 475 L'Enfant Plaza 
SW, Washington, DC 20260-6807. Copies of all written comments will be 
available at the above address for inspection and photocopying between 
9 a.m. and 4 p.m., Monday through Friday.

FOR FURTHER INFORMATION CONTACT:
Nicholas S. Stankosky, (202) 268-5311.

SUPPLEMENTARY INFORMATION: The Information Based Indicia Program (IBIP) 
involves the development of new technology to produce forms of postage 
evidencing through the use of two-dimensional barcodes and 
cryptographic services to produce postage from personal computers. This 
technology will support Postal Service efforts to reduce fraud and the 
potential for misuse associated with current mechanical postage meters. 
In addition, IBIP provides a convenient access to postage and an 
opportunity for customer defined ``value added'' services.
    There are five primary elements to IBIP. The indicia includes:
    <bullet> Town circle information.
    <bullet> Postage amount applied.
    <bullet> Device identifier.
    <bullet> 2 dimensional bar code.
    <bullet> Optional advertising art.
    The postal security device (PSD) performs core security functions 
such as digital signature generation and verification and the 
management of registers. The host system controls the customers 
infrastructure in device authorization, device audit, postage resetting 
and, together with the PSD, produces the indicia.
    The key management component employs a public-key certificate based 
digital signature that features a data integrity service and provides 
the means to validate the indicium. Finally, the product/service 
provider infrastructure provides support for all IBIP functions 
including licensing, PSD production and life cycle support, and 
provides an interface with both the customer and the Postal Service 
infrastructure. The Postal Service interface involves the issuance of 
licenses, updating licensee information, product/device inventory and 
tracking, resetting support and account reconciliation, lost and 
stolen/irregularity monitoring, and the assignment of digital 
certificates.
    In this proposal, the Postal Service has taken into consideration 
and evaluated applicable comments received as a result of the July 2 
Federal Register notice, the July 19 public meeting on technical 
specifications, and the September 25 public meeting on policy and 
regulations. The following is a summary of the Postal Service's 
position on the general interest IBIP policy issues:
    <bullet> Any proposed product or device must be submitted for 
approval under proposed draft IBIP interim product submission 
procedures (Jan 8, 1997 Federal Register). These procedures include 
specifics on letters of intent, nondisclosure agreements, the product/
service provider's concept of operations and infrastructure, 
documentation requirements, product submissions, and most testing 
activities.
    <bullet> In an attempt to use the existing Postal Service 
infrastructure as much as possible, customer licensing and product/
device tracking will be included in the Centralized Meter Licensing 
System currently under development. A license must be obtained prior to 
the initialization or use of a device. A customer already licensed to 
use postage meters will not have to apply again for an additional 
license. The Postal Service will simply update the customer's file.
    <bullet> The terms ``manufacturer'' and ``vendor'' are no longer 
referenced in IBIP. These have been replaced by the more appropriate 
term ``product/service provider'', also known simply as ``Provider.''
    <bullet> The PSD must be leased by the product/service provider but 
customers may purchase the software under two circumstances. The first 
is in an open system where the PSD operates independently of the 
software. The second is in a closed system where the meter is rendered 
nonfunctional for printing postage without the PSD. The Postal Service 
will not offer PSDs to customers.
    <bullet> Until the Postal Service has captured historical data on 
reliability and security, the total amount of postage in a descending 
register will be limited to $500. Ascending registers must show all 
postage printed over time.

[[Page 14834]]

    <bullet> Authorized product/service providers must keep records of 
the distribution, control, and maintenance of all products/devices 
throughout the complete lifecycle of the product. This includes 
tracking of newly manufactured PSDs, active leased PSDs and inactive 
unleased PSDs. Tracking of a PSD must begin as soon as the PSD is 
initialized with the key.
    <bullet> Indicia produced from the IBIP Open and Closed Systems may 
be used to indicate postage for First-Class, Express and Standard Mail 
classes. Indicia produced from the IBIP Closed System also may be used 
on International Mail. Mail bearing the indicia is entitled to all 
privileges and subject to all conditions applying to the various 
classes of mail.
    <bullet> Product/service providers are responsible for audit 
functions. The Postal Service will not take over this function but may 
at times participate in the audit process. PSDs must be audited at 
least once every 3 months in conjunction with remote settings and 
resetting of the watch-dog timer.
    <bullet> Product/service providers must perform an analysis of each 
submitted customer mailpiece as part of the Provider's Mailpiece 
Quality Assurance program to ensure the quality and readability of the 
indicia. The provider must notify the customer and the Postal Service 
of any deficiencies.
    <bullet> All postage downloads or settings will be made under the 
provisions of the Computerized Remote Meter Resetting System (CMRS). 
The Postal Service will conduct periodic audits of a product/service 
provider's resetting system to ensure that the system is operating 
correctly and that postal revenues are protected.
    <bullet> Physical inspections of PSDs will be made at the time of 
submission for approval and if there is suspicion of a security 
problem.
    <bullet> The Postal Service will provide refunds for any balance 
remaining on a PSD. The licensee will be required to submit a written 
refund request to the Provider, along with the affected PSD and 
supporting documentation such as an electronic daily activity report.
    <bullet> All approved systems must have the capability to update 
postage rates efficiently when such changes are announced.
    <bullet> There are provisions in the IBIP regulations for the 
correction of postage and dates. These are similar to those used for 
metered postage. For date correction, the facing identification mark 
(FIM) and barcode will be suppressed; for postage correction, the FIM 
will be suppressed.
    <bullet> Cautionary labels such as those affixed to postage meters 
will not be affixed to PSDs. However, providers should make their 
customers aware of this information through their supplied software.

List of Subjects in 39 CFR Part 111

    Administrative practice and procedure, Postal Service.

    Although exempt from the notice and comment requirements of the 
Administrative Procedure Act (5 U.S.C. 553 (b), (c)) regarding proposed 
rulemaking by 39 U.S.C. 410(a), the Postal Service invites public 
comments on the following proposed amendments to the Domestic Mail 
Manual, incorporated by reference in the Code of Federal Regulations. 
See 39 CFR part 111.

PART 111--[AMENDED]

    1. The authority citation for 39 CFR part 111 continues to read as 
follows:

    Authority: 5 U.S.C. 552(a); 39 U.S.C. 101, 401, 403, 404, 3001-
3011, 3201-3219, 3403-3406, 3621, 3626, 5001.

    2. Add the following sections to the Domestic Mail Manual as set 
forth below:

P050  Information Based Indicia

1.0  BASIC INFORMATION

1.1  Description of Product/Device

    The Product/Device prints an authorized USPS Information Based 
Indicia that shows evidence of postage. The indicia consists of a USPS-
approved two-dimensional barcode and certain human-readable information 
such as city and state, 5-digit ZIP Code of licensing post office, 
Device ID number, date, and amount of postage. The Product/Device 
includes as a primary component a postal security device (PSD) that 
provides critical functionality for accounting postage with a computer-
based (open system) or postage meter-based (closed system) host system. 
The PSD and host system interact to generate the indicia. The Product/
Device is remotely set and requires the customer to have funds on 
deposit with the USPS before initial setting or resetting.

1.2  Product/Service Device Providers

    The Product/Device is available only through a lease agreement from 
a USPS authorized Product/Service Provider (hereafter referred to as 
Provider). The open host system is envisioned to operate on personal 
computers. The licensee can purchase the software if the PSD component 
operates independently of the software. For a closed system, the 
customer can purchase the software if it is rendered nonfunctional for 
printing postage without the PSD. The USPS holds Providers responsible 
for the life cycle, control, operation, maintenance, and replacement of 
their Products/Devices.

1.3  Possession

    A customer must have a USPS-issued Product/Device Postage Meter 
License (Form 3601-B) to use the PSD component.

1.4  Classes of Mail

    Indicia produced from the IBIP Open and Closed System may be used 
to indicate postage for First-Class, Express and Standard Mail classes. 
Additionally, indicia produced from the IBIP Closed System may be used 
for International mail. Mail bearing the indicia is entitled to all 
privileges and subject to all conditions applying to the various 
classes of mail.

1.5  Amount of Postage

    The value of the Product/Device indicia affixed to each mailpiece 
must be the exact amount due for the piece when mailed.

1.6  Additional Postage

    An indicia showing additional postage may be placed on a shortpaid 
mailpiece under 4.9, Postage Correction.
2.0  LICENSE

2.1  Procedures

    The application and the license are processed through the 
Centralized Meter Licensing System (CMLS). An applicant wanting to 
lease and use a Product/Device must provide all applicable data on the 
Form 3601-A, Application for a License to Lease and Use Postage Meters, 
to the Provider. The application must state the post office where the 
applicant intends to deposit mail produced using their Product/Device. 
The Provider electronically transmits the information requested on Form 
3601-A to CMLS in the USPS-specified format. When a Provider transmits 
the application on behalf of the applicant, the USPS notifies the 
Provider when a license is issued. A single license covers all 
Products/Devices to the same applicant by the same post office, but a 
separate application must be submitted for each post office where the 
applicant wants to deposit Product/Device mail. There is no fee for the 
application and license. After approving an application, the USPS 
issues a Postage Meter License (Form 3601-B). Subsequently, for each 
Product/Device checked into service, a Form 3602-A, Record of Register 
Readings, or equivalent will be

[[Page 14835]]

provided. The licensee must maintain daily register readings by using a 
system-generated daily activity report or by completing Form 3602-A to 
support refund requests. A customer will not have to apply for a 
license to use a Product/Device if the customer already possesses a 
valid postage meter license.

2.2  Refusal to Issue Product/Device License

    The USPS may refuse to issue a Product/Device license for the 
following reasons: The applicant submitted false or fictitious 
information on the license application; the applicant violated any 
standard for the care or use of a Product/Device or postage meter that 
resulted in the revocation of that applicant's Product/Device license 
within 5 years preceding submission of the application; or there is 
sufficient reason to believe that the Product/Device is to be used in 
violation of the applicable standards. The USPS sends the licensee 
written notice when an application for a license to lease and use a 
Product/Device is refused. The USPS notifies the Provider if the 
license is refused. Any applicant refused a license may appeal the 
decision under 2.4.

2.3  Revocation of License

    The USPS sends written notice to the licensee and the licensee's 
Provider of any revocation. Revocation takes effect 10 days after 
receipt unless, within that time, the licensee appeals the decision 
under 2.4. A license is subject to revocation for any of the following 
reasons:
    a. A Product/Device is used for any illegal scheme or enterprise or 
there is probable cause to believe that the Product/Device is to be 
used in violation of the applicable standards.
    b. The Product/Device is not reset or audited within a 3-month 
period.
    c. Sufficient control of a Product/Device is not exercised or the 
standards for its care or use are not followed.
    d. The Product/Device is kept or used outside the boundaries of the 
United States or those U.S. territories and possessions without USPS 
approval.
    e. Product/Device mail is deposited at other than the licensing 
post office (except as permitted by 5.0 or D072).
    f. Failure to forward mailpieces to the Provider for quality 
assurance as required by 2.5h.

2.4  Appeals

    An applicant who is refused a license, or a licensee whose license 
is revoked, may file a written appeal with the manager of Retail 
Systems and Equipment (RSE), USPS Headquarters (see G043 for address) 
within 10 calendar days of receipt of the decision. A licensee 
appealing decisions on postage adjustments may file the appeal, with 
the same official, within 60 days of the date that the Provider 
submitted the postage adjustment recommendation to the USPS.

2.5  Licensee Responsibilities

    The licensee's responsibilities for the care and use of a Product/
Device (PSD) include the following:
    a. After a PSD is delivered to a licensee, it must remain in the 
licensee's custody until it is returned to the authorized Provider.
    b. Each day of operation, the licensee must record the readings of 
the ascending and descending registers on Form 3602-A. A licensee using 
a Product/Device system that records these readings electronically may 
use the system-generated report as a substitute for Form 3602-A.
    c. The licensee must, upon request, make the Product/Device in the 
licensee's custody and corresponding records on transactions 
immediately available for review and audit to the Provider or the USPS.
    d. The licensee must remote-set Products/Devices at least once 
every 3 months for examination.
    e. The licensee must immediately notify the Provider of any change 
in the licensee's name, address, telephone number, the location of the 
Products/Devices, or any other information on the Form 3601-A.
    f. The USPS issues a revised Product/Device license based on the 
transmission of updated information from the Provider. The licensee 
must verify and update license information on a periodic basis. If a 
licensee changes the post office where Product/Device mail is to be 
deposited, the Product/Device must be checked out of service by the 
authorized Provider. The customer must be relicensed at the new post 
office before the Provider can issue and reset a replacement device.
    g. The licensee must report a misregistering or otherwise defective 
Product/Device to the Provider under 2.7 and must ensure that the 
defective Product/Device is not used.
    h. The licensee must maintain address quality by updating the USPS 
CD-ROM disk at least once every 3 months.
    i. The licensee must forward a mailpiece produced by the host 
system to the Provider at least once every 3 months after 
initialization for quality assurance.
    j. The customer must enter into a signed lease agreement with the 
Provider that includes a financial agreement for resetting the device 
with postage.

2.6  Custody of Suspect Product/Device (PSD)

    Postal inspectors are authorized to conduct unannounced, on-site 
examinations of Products/Devices reasonably suspected of being 
manipulated or otherwise defective. An inspector may also immediately 
with-draw a suspect Product/Device from service for physical and/or 
laboratory examination. The inspector issues the licensee a receipt for 
the Product/Device, forwards a copy to the Provider, and, if necessary, 
assists in obtaining a replacement Product/Device. Where possible, the 
Inspection Service provides the Provider with advance notice that a 
Product/Device is to be inspected. Unless there is reason to believe 
that the Product/Device is fraudulently set with postage, existing 
postage in the Product/Device to be examined is transferred to the 
replacement Product/Device.

2.7  Defective product/Device (PSD)

    The licensee must immediately report any defective Product/Device 
to the Provider. The Provider must retrieve any defective Product/
Device within 3 business days of notification by the licensee and 
notify the USPS. A faulty Product/Device may not be used under any 
circumstance and must be returned to the Provider. The Provider 
provides the licensee with a replacement Product/Device.

2.8  Missing Product/Device (PSD)

    The licensee must immediately report to the Provider and licensing 
post office the loss or theft of any Product/Device or the recovery of 
any missing Product/Device. Reports must include the PSD identification 
number and serial number; the date, location, and details of the loss, 
theft, or recovery; and a copy of any police report.

2.9  Returning Product/Device (PSD)

    After a PSD is delivered to a licensee, the PSD must be kept in the 
licensee's custody until returned to the authorized Provider. A 
licensee with a faulty or misregistering PSD or who no longer wants to 
keep a PSD must return the PSD to the Provider to be checked out of 
service. PSDs must be shipped by Priority Mail Returned Receipt for 
Merchandise unless the Manager, RSE, USPS Headquarters, gives written 
permission to ship at another rate or special service.

[[Page 14836]]

3.0  SETTING PRODUCTS/DEVICES (PSD)

3.1  Initial Setting

    Before the licensee is issued a PSD, the PSD must be initialized 
and authorized by the Provider. The customer must enter into a lease 
agreement with the Provider that includes a financial agreement for 
resetting the device with postage. Settings are made according to the 
provisions of USPS Computerized Remote Postage Meter Resetting System 
(CMRS).

3.2  Payment for Postage

    Payment must be made for postage before the Product/Device is set. 
The customer is permitted to make payment in one of six ways: cash, 
debit card, credit card, wire transfer and (ACH) automated 
clearinghouse debit or credit. Acceptance by a provider of all payment 
forms, with the exception of debit and credit card, is mandatory. If a 
provider elects to offer debit and credit cards as a payment option, 
the USPS selected merchant card processor must be used as the 
processor. All merchant card processor discount fees must be borne by 
the provider.

3.3  Postage Transfers and Refunds

    Postage losses due to malfunctions are the responsibility of the 
Provider. The USPS provides refunds for any balance remaining on the 
PSD. The licensee must submit a written refund request with the 
affected PSD to the Provider along with supporting documentation such 
as a daily activity report. The USPS also provides refunds to a 
licensee for any balance remaining in a CMRS account.

3.4  Periodic Examinations

    A Products/Device must be reset at least once every 3 months. An 
update of the watchdog timer along with a device audit satisfies this 
requirement. The USPS reserves the right to examine the Product/Device 
by remote access or otherwise.

3.5  Resetting

    The following conditions must be met to reset a Product/Device:
    a. The licensee's account must have sufficient funds to cover the 
desired postage increment, or the Provider must agree to advance funds 
to the USPS on behalf of the licensee. The USPS encourages the 
Providers to recommend the use of the following payment forms by order 
of preference:

1. ACH Debit
2. ACH Credit
3. Wire Transfer
4. Debit Card Optional
5. Check Card Optional
6. Check

    b. As part of the resetting procedure, the licensee must provide 
identification information according to the Provider's resetting 
specifications.
    c. After a Product/Device is reset, the Provider must provide the 
licensee with documentation of the transaction and the balance 
remaining in the licensee's account, unless the Provider provides a 
monthly statement documenting all transactions for the period and the 
balance after each transaction.

3.6  Amount of Postage

    The PSD descending register is programmed not to exceed $500 at any 
time.
4.0  INDICIA

4.1  Design

    Product/Device indicia designs (types, sizes, and styles) must be 
those specified when Product/Device is approved by the USPS for 
manufacture.

4.2  Legibility

    Product/Device indicia must be legible and must not overlap. An 
illegible or overlapping indicia is not acceptable when determining 
postage paid. Minimal standards for acceptable reflectance measurements 
of the indicia and the background material are in the Uniform Symbology 
Specifications PDF 417. The FIM must meet the dimensions and print 
quality specified in DMM C810. For an open system, the address and 
POSTNET barcode must meet the specifications listed in the DMM C840.

4.3  On Tape/Label

    The USPS-approved tape/label must be used when IBI indicia are to 
be printed on tape/label. Labels are subject to corresponding standards 
in DMM C810.

4.4  Position

    The Product/Device indicia must be printed or applied in the upper 
right corner of the envelope, address label, or tag. The indicia must 
be at least \1/4\ inch from the right edge of the mailpiece and \1/4\ 
inch from the top edge of the mailpiece. The indicia barcode must be 
horizontally oriented. The indicia must not infringe on the areas 
reserved for the facing identification mark (FIM), POSTNET barcode, or 
optical character reader (OCR) clear zone. These apply to pieces 
meeting the dimensions specified in C800.

4.5  Content, Generally

    In usage, the indicia must consist of human-readable information 
and two-dimensional barcoded information unless specified otherwise 
herein. The human-readable information must show, as a minimum, the 
city, state, and 5-digit ZIP Code of the licensing post office, the 
device id, and the amount of postage. On approval of the licensing post 
office, the Product/Device indicia may contain the name and state 
designation of its local classified branch. This authorization does not 
apply to classified stations or to contract stations or branches. 
Alternatively, the indicia may show the ZIP Code rather than the city 
and state designation. In this case, the words ``Mailed From ZIP Code'' 
and the mailer's delivery address ZIP Code must appear in place of the 
city and state, respectively. When it is necessary to print 
multidenomination Product/Device indicia on more than one tape, the 
human-readable information showing the post office must be on each 
tape.

4.6  Complete Date

    The month, day, and year must be shown in the indicia on all First-
Class Mail, and on all registered, certified, insured, COD, special 
delivery, and special-handling mail. On Standard Mail the day may be 
omitted. Mail pieces bearing an indicia with only the month and year 
may be accepted during the month shown. They may also be accepted 
through the third day of the following month if the postmaster finds 
that the mailing was unavoidably delayed before deposit with the USPS.

4.7  Date Accuracy

    The date shown in the indicia must be the actual date of deposit. 
Mail deposited after the day's last scheduled collection may bear the 
date of the next scheduled collection.

4.8  Date Correction

    With the mailpiece oriented to read the address, the indicia 
showing actual date of mail and the word ``REDATE'' instead of the 
postage amount may be used to correct the date. The indicia must be 
placed on the non-address side at least 20mm from the bottom edge of 
the mailpiece. The indicia impression must not bear the FIM nor the 
two-dimensional barcode.

4.9  Postage Correction

    An indicia for additional postage may be placed on a shortpaid 
mailpiece to correct postage. The corrected indicia must be printed on 
the nonaddress side at least 20mm from the bottom edge of the piece and 
not on an envelope flap. The Product/Device impression on the 
nonaddress side must contain all the indicia elements except for the 
FIM. To

[[Page 14837]]

meet two-dimensional barcode readability requirements, an indicia may 
be printed on a USPS-approved tape/label.

4.10  Other Matter Printed on Product/Device Indicium

    Advertising matter, slogans, return addresses, and the postal 
markings specified in 4.11 may be printed with the indicia within space 
limitations. A licensee must obtain the content for printing this 
matter from the authorized Product/Device Provider. Advertising art 
messages must include the mailer's name or words such as ``Mailer's 
Message.'' The advertising art must not be obscene, defamatory of any 
person or group, or deceptive and it must not advocate any unlawful 
action. The Provider must obtain prior approval for all advertising 
matter for any Product/Device.

4.11  Postal Markings

    Postal markings related to the class or category of mail are 
permissible. If placed in the advertising art area, only the postal 
marking may be printed, and it must fill the advertising art area as 
much as possible. All words must be in bold capital letters at least 
\1/4\ inch high (18-point type) and legible at 2 feet. Exceptions are 
not made for small advertising art that cannot accommodate a 
permissible marking.

4.12  Open System FIM

    A mailpiece generated from an open system must bear a USPS-approved 
FIM D unless the envelope is courtesy reply with a FIM A or the piece 
is not a letter or a flat. The location of the FIM applies to pieces 
meeting the dimensions specified in DMM C800.

4.13  Closed System FIM

    A mailpiece generated from a closed system must bear a USPS-
approved FIM E, if the piece is nonbarcoded prior to deposit. If the 
closed system generates or uses envelopes that bear or will bear a 
delivery point barcode (DPBC), the envelopes must have a USPS-approved 
FIM D unless the envelope is a courtesy reply with a FIM A or the piece 
is not a letter or a flat. The location of the FIM applies to pieces 
meeting the dimensions specified in DMM C800.
5.0  MAILINGS

5.1  Preparation

    Product/Device mail is subject to the preparation standards that 
apply to the class of mail and rate claimed.

5.2  Combination

    Product/Device mail may be combined in the same mailing with mail 
paid with other methods only if authorized by the USPS.

5.3  Where to Deposit

    Except as noted below, Product/Device mail must be deposited at a 
post office acceptance unit, window unit, or other location designated 
by the postmaster of the licensing post office (i.e., the post office 
shown in the indicia) and may not be given to a delivery employee or 
deposited in a street collection box, mail chute, receiving box, 
cooperative mailing rack, or other mail collection receptacle. 
Exceptions to this general standard are [as follows]:
    a. Single-piece rate First-Class Mail may be deposited in any 
street collection box or such other place where mail is accepted and 
that is served by the licensing post office.
    b. Limited quantities (i.e., a handful) of single-piece rate First-
Class Mail may be deposited at offices other than the licensing post 
office to expedite dispatch.

5.4  Irregularities

    Product/Device mail is examined by the USPS to detect 
irregularities in preparation and dating. Errors do not include pieces 
that legibly show the previous date if the pieces were deposited in a 
collection box after the last collection or were not collected by the 
USPS as scheduled on the date in the indicia.
6.0  PRODUCT/DEVICE MANUFACTURE AND DISTRIBUTION
    Title 39, Code of Federal Regulations, part 502, contains 
information about the authorization to manufacture and distribute 
Products/Devices; the suspension and revocation of such authorization; 
performance standards required in Products/Devices, test plans, 
testing, and approval of Products/Devices; required manufacturing 
security measures; and standards for the distribution and maintenance 
of Products/Devices. Further information may be obtained from Retail 
Systems and Equipment, USPS Headquarters.

List of Subjects in 39 CFR Part 502

    Administrative practice and procedure, Postal Service.
    Although exempt from the notice and comment requirements of the 
Administrative Procedure Act (5 U.S.C. 553(b), (c)), regarding proposed 
rulemaking by 39 U.S.C. 410(a), the Postal Service invites public 
comments on the following proposed amendments to the Code of Federal 
Regulations.
    For the reasons set out in this document, the Postal Service 
proposes to add 39 CFR part 502 as follows:

PART 502--AUTHORITY TO MANUFACTURE AND DISTRIBUTE INFORMATION BASED 
INDICIA PRODUCTS AND SERVICES

Sec.
502.1  Product/Service Provider authorization.
502.2  Product/Service Provider qualification.
502.3  Changes in ownership or control.
502.4  Burden of proof standard.
502.5  Suspension and revocation of authorization.
502.6  Description of product/device.
502.7  Description of open and closed systems.
502.8  Product/Service Provider.
502.9  Product/Device specifications.
502.10  Test plans.
502.11  Security testing.
502.12  Product/Device approval.
502.13  Conditions for approval.
502.14  Suspension and revocation of approval.
502.15  Reporting.
502.16  Administrative sanction on reporting.
502.17  Materials and workmanship.
502.18  Destruction of product/device indicia.
502.19  Inspection of new products/devices.
502.20  Distribution facilities.
502.21  Distribution controls.
502.22  Administrative sanctions.
502.23  Product/Device replacement.
502.24  Inspection of products/devices not located.
502.25  Products/Devices not located.
502.26  Computerized remote postage meter/PSD resetting.
502.27  Indicia quality assurance.
502.28  Product/Device refunds.
502.29  Key management requirements.
502.30  Provider infrastructure.
502.31  Notice of proposed changes in regulations.

    Authority: 5 U.S.C. 552(a); 39 U.S.C. 101, 401, 403, 410, 2610, 
2605; Inspector General Act of 1978, as amended (Pub. L. 95-452, as 
amended), 5 U.S.C. App. 3.


Sec. 502.1  Product/Service Provider authorization.

    Any person or concern seeking authorization to manufacture and/or 
distribute an Information Based Indicia Program (IBIP) Product/Device 
must submit a request to the Postal Service in person or in writing. 
Upon qualification and approval, the applicant is authorized in writing 
to manufacture Products/Devices and to lease them to persons licensed 
by the Postal Service. The Postal Service may specify the functional 
area charged with processing the application and administering its 
Product/Device program.

[[Page 14838]]

Sec. 502.2  Product/Service Provider qualification.

    Any person or Product/Service Provider (hereafter referred to as 
Provider) wanting authorization to provide and/or lease, sell, or 
otherwise distribute, as approved by the Postal Service, Products/
Devices for use by licensees under Domestic Mail Manual P050.1.2 must:
    (a) Satisfy the Postal Service of its integrity and financial 
responsibility;
    (b) Obtain approval of at least one Product/Device model 
incorporating all the features and safeguards specified in Sec. 502.9;
    (c) Have, or establish, and keep under its supervision and control 
adequate manufacturing facilities suitable to carry out the provisions 
of Sec. 502.18 through Sec. 502.21 to the satisfaction of the Postal 
Service (such facilities must be subject to unannounced inspection by 
representatives of the Postal Service); and
    (d) Have, or establish, and retain adequate facilities for the 
control, distribution, and maintenance of Products/Devices and their 
replacement when necessary.


Sec. 502.3  Changes in ownership or control.

    Any person or concern wanting to acquire ownership or control of an 
authorized Provider must provide the Postal Service with satisfactory 
evidence of that person's or concern's integrity and financial 
responsibility.


Sec. 502.4  Burden of proof standard.

    The burden of proof is on the Postal Service in the adjudication of 
suspensions and revocations under Sec. 502.5 and Sec. 502.14 and 
administrative sanctions under Sec. 502.16 and Sec. 502.22. Except as 
otherwise indicated in those sections, the standard of proof shall be 
the preponderance of evidence standard.


Sec. 502.5  Suspension and revocation of authorization.

    (a) The Postal Service may suspend and/or revoke authorization to 
provide and/or distribute any or all of a Provider's Products/Devices 
if the Provider engages in any unlawful scheme or enterprise, fails to 
comply with any provision in this part 502, or fails to implement 
instructions issued in accordance with any final decision issued by the 
Postal Service within its authority over the Product/Device programs.
    (b) The decision to suspend or revoke a Provider's authorization 
shall be based on the nature and circumstances of the violation (e.g., 
whether the violation was willful, whether the Provider voluntarily 
admitted to the violation, whether the Provider cooperated with the 
Postal Service, whether the Provider implemented successful remedial 
measures) and on the Provider's performance history. Before determining 
whether a Provider's authorization to manufacture and/or distribute 
Products/Devices should be revoked, the procedures in paragraph (c) of 
this section shall be followed.
    (c) Suspension in all cases shall be as follows:
    (1) Upon determination by the Postal Service that a Provider is in 
violation of the provisions in this part 502, the Postal Service shall 
issue a written notice of proposed suspension citing deficiencies for 
which suspension or authorization to manufacture and/or distribute a 
specific Product/Device or classes thereof may be imposed under 
paragraph (c)(2) of this section. Except in cases of willful violation, 
the Provider shall be given an opportunity to correct deficiencies and 
achieve compliance with all requirements within a time limit 
corresponding to the potential risk to postal revenue.
    (2) In cases of willful violation, or if the Postal Service 
determines that the Provider has failed to correct cited deficiencies 
within the specified time limit, the Postal Service shall issue a 
written notice setting forth the facts and reasons for the decision to 
suspend and the effective date if a written defense is not presented as 
provided in paragraph (d) of this section.
    (3) If, upon consideration of the defense as provided in paragraph 
(e) of this section, the Postal Service deems that the suspension is 
warranted, the suspension shall remain in effect for up to 90 days 
unless withdrawn by the Postal Service, as provided in paragraph 
(c)(4)(iii) of this section.
    (4) At the end of the 90-day suspension, the Postal Service may:
    (i) Extend the suspension in order to allow more time for 
investigation or to allow the Provider to correct the problem;
    (ii) Make a determination to revoke authorization to provide and/or 
distribute the Provider's Products/Devices in part or in whole; or
    (iii) Withdraw the suspension based on identification and 
implementation of a satisfactory solution to the problem. Provider 
suspensions may be withdrawn before the end of the 90-day period if the 
Postal Service determines that the Provider's solution and 
implementation are satisfactory.
    (d) The Provider may present the Postal Service with a written 
determination within 30 calendar days of receiving the written notice 
(unless a shorter period is deemed necessary). The defense must include 
all supporting evidence and specify the reasons for which the order 
should not be imposed.
    (e) After receipt and consideration of the defense, the Postal 
Service shall advise the Provider of the decision and the facts and 
reasons for it. The decision shall be effective on receipt unless it 
provides otherwise. The decision shall also advise the Provider that it 
may appeal that determination within 30 calendar days of receiving 
written notice (unless a shorter period is deemed necessary), as 
specified therein. The appeal must include all supporting evidence and 
specify the reasons the Provider believes that the decision is 
erroneous.
    (f) An order or final decision under this section does not preclude 
any other criminal or civil statutory, common law, or administrative 
remedy that is available by law to the Postal Service, the United 
States, or any other person or concern.


Sec. 502.6  Description of product/device.

    The Product/Device prints an authorized Postal Service Information 
Based Indicia that shows evidence of postage. The indicia consists of a 
USPS-approved two-dimensional barcode and certain human-readable 
information such as city and state, 5-digit ZIP Code of licensing post 
office, Device ID number, date, and amount of postage. The Product/
Device includes as a primary component a postal security device (PSD) 
that provides critical functionality for accounting postage with a 
computer-based (open system) or postage meter-based (closed system) and 
a host system. The PSD and host system interact to generate the 
indicia. The Product/Device is remotely set with postage value and 
requires the licensee to have funds on deposit with the Postal Service 
prior to initial setting or resetting.


Sec. 502.7  Description of open and closed systems.

    (a) An ``Open System'' does not require that the implementing 
components be dedicated to the IBIP functions. This system may allow 
multiple non-postage related software applications to be in use and it 
also may depend on several interconnected devices that may serve 
multiple purposes for their user. The open system computer and 
peripherals such as the printer and CD-ROM drive may perform functions 
unrelated to the Information Based Indicia Program (IBIP). Host 
operations may depend upon computer software such as operating systems 
and communications

[[Page 14839]]

systems. The open system version is responsible for composing a 
complete, integrated mailpiece front (or a tape/label for the piece).
    (b) The ``closed system'' is a device dedicated toward IBIP 
functions. Closed systems do not have to satisfy Postal Service address 
standards or include the destination ZIP Code in the indicia. Closed 
systems may satisfy the other administrative requirements through 
external processes. If a closed system operates as a component of an 
integrated mailing system, it may be subject to the open system 
requirements. An integrated mailing system shall be subject to open 
system requirements if it includes a computer interfaced to the meter 
and it prepares mailpiece fronts or labels that include both the 
destination address and the indicium. The integrated system is an open 
system even if different printers apply the address and the indicium. 
If the mailing system satisfies these criteria, the USPS considers the 
``meter'' to be an open system peripheral device that performs the dual 
functions of printing indicia and interfacing the PSD to the open host. 
The integrated mailing system must be approved by the USPS according to 
the open system criteria.


Sec. 502.8  Product/Device provider.

    A Product/Device is available only through a lease agreement from 
Providers authorized by the Postal Service. For an open system, the 
licensee may purchase the software if the PSD component operates 
independently of the software. The open system form of the host is 
envisioned to operate on personal computers. For a closed system, the 
licensee may purchase the printing device if it is rendered 
nonfunctional without the PSD. The Postal Service holds Providers 
responsible for the life cycle, control, operation, maintenance, and 
replacement of their Products/Devices.


Sec. 502.9  Product/Device specifications.

    The IBIP Specifications describe system elements that include 
Postal Service infrastructure, Provider infrastructure, and customer 
infrastructure. The existing Postal Service infrastructure supports 
customer authorization, product audit, postage resetting reporting, 
total population management, key management support, financial 
reconciliation, product lifecycle tracking, lost and stolen/
irregularity management functions. The Provider infrastructure will 
support all IBIP functions. The customer infrastructure will consist of 
the Product/Device's PSD and host system. The Postal Service will 
evaluate and test IBIP Products/Devices for compliance with this 
infrastructure.
    (a) The indicium data content is described in the Information Based 
Indicia Program (IBIP) Indicium Specification. Contact the Manager, 
Retail Systems and Equipment, USPS, 475 L'Enfant Plaza, Washington DC 
20260-6807 for these requirements.
    (b) The PSD implements digital signature technology for the 
creation and verification of digital signatures. Postal Security Device 
Specification is described in the Information Based Indicia Program 
Postal Security Device Specification. Contact the Manager, Retail 
Systems and Equipment, USPS, 475 L'Enfant Plaza, Washington DC 20260-
6807 for these requirements.
    (c) Indicia Design Requirements--The indicia design must comply 
with the requirements in Domestic Mail Manual (DMM) P050.
    (d) Host System Functional Requirements are contained in the 
Information Based Indicia Program Host System Specification. Contact 
the Manager, Retail Systems and Equipment, USPS, 475 L'Enfant Plaza, 
Washington DC 20260-6807 for these requirements.
    (e) Key Management Functional Requirements are contained in The 
Information Based Indicia Program Key Management Plan. Contact the 
Manager, Retail Systems and Equipment, USPS, 475 L'Enfant Plaza SW, 
Washington DC 20260-6807 for these requirements.


Sec. 502.10  Test plans.

    Each Product/Device Model that is submitted for USPS approval must 
be submitted in accordance with the provisions contained in the 
Information Based Indicia Program Interim Product Submission 
Procedures. Contact the Manager, Retail Systems and Equipment, USPS, 
475 L'Enfant Plaza, Washington DC 20260-6807 for these requirements.


Sec. 502.11  Security testing.

    The Postal Service reserves the right to require or conduct 
additional examination and testing at any time, without cause, of any 
Product/Device submitted to the Postal Service for approval or approved 
by the Postal Service for manufacture and distribution.


Sec. 502.12  Product/Device approval.

    As provided in Sec. 502.12, the Provider has a duty to report 
security weaknesses to the Postal Service to ensure that each Product/
Device model and every Product/Device in service protects the Postal 
Service against loss of revenue at all times. A grant of approval of a 
model does not constitute an irrevocable determination that the Postal 
Service is satisfied with the revenue-protection capabilities of the 
model. After approval is granted to manufacture and distribute a 
Product/Device, no change affecting the features or safeguards of a 
Product/Device may be made except as authorized or ordered by the 
Postal Service in writing.


Sec. 502.13  Conditions for approval.

    (a) The Postal Service may require at any time that production 
models of approved Products/Devices, as well as the design, user 
manuals, and specifications applicable to such Products/Devices and any 
revisions thereof, be deposited with the Postal Service.
    (b) On request by the Postal Service, additional Products/Devices 
must be submitted to the Postal Service for testing, at the expense of 
the Provider.
    (c) All Product/Device submissions must adhere to the requirements 
contained in the Information Based Indicia Program Interim Product 
Submission Procedures. Particular attention should be given to the 
requirement to simultaneously submit an identical Product/Device to a 
laboratory accredited under the National Voluntary Laboratory 
Accreditation Program (NVLAP) for FIPS 140-1 certification.


Sec. 502.14  Suspension and revocation of approval.

    (a) The Postal Service may suspend Product/Device approval under 
Sec. 502.13 if the Postal Service has probable cause to believe that a 
Provider's Product/Device or class and/or version thereof poses an 
unreasonable risk to postal revenue. Suspension of approval to Provider 
or distribute a Product/Device or class and/or version thereof, in 
whole or in part, shall be based on the potential risk to postal 
revenue. Before determining whether approval of a Product/Device or 
class and/or version should be revoked, the procedures in paragraph (b) 
of this section shall be followed.
    (b) Suspension in all cases shall be as follows:
    (1) Upon determination by the Postal Service that a Product/Device 
poses an unreasonable risk to postal revenue, the Postal Service shall 
issue a written notice of proposed suspension citing deficiencies for 
which suspension may be imposed under paragraph (b)(2) of this section. 
The Provider shall be given an opportunity to correct deficiencies and 
achieve compliance with all requirements within a time limit

[[Page 14840]]

corresponding to the potential risk to postal revenue.
    (2) If the Postal Service determines that the Provider has failed 
to correct cited deficiencies within the specified time limit, the 
Postal Service shall issue a written notice setting forth the facts and 
reasons for the decision to suspend and the effective date if a written 
defense is not presented as provided in paragraph (c) of this section.
    (3) If, upon consideration of the defense as provided in paragraph 
(d) of this section, the Postal Service deems that the suspension is 
warranted, the suspension shall remain in effect for up to 90 days 
unless withdrawn by the Postal Service, as provided in paragraph 
(b)(4)(iii) of this section.
    (4) At the end of the 90-day suspension, the Postal Service may:
    (i) Extend the suspension in order to allow more time for 
investigation or to allow the Provider to correct the problem;
    (ii) Make a determination to revoke the approval of the Provider's 
Product/Device or class and/or version, or
    (iii) Withdraw the suspension based on identification and 
implementation of a satisfactory solution to the problem. Provider 
suspensions may be withdrawn before the end of the 90-day period if the 
Postal Service determines that the Provider's solution and 
implementation are satisfactory.
    (c) The Provider may present the Postal Service with a written 
defense to any suspension or revocation determination within 30 
calendar days of receiving the written notice (unless a shorter period 
is deemed necessary). The defense must include all supporting evidence 
and specify the reasons for which the order should not be imposed.
    (d) After receipt and consideration of the written defense, the 
Postal Service shall advise the Provider of the decision and the facts 
and reasons for it. The decision shall be effective on receipt unless 
it states otherwise. The decision shall also advise the Provider that 
it may appeal that determination within 30 calendar days of receiving 
written notice (unless a shorter period is deemed necessary), as 
specified therein. The appeal must include all supporting evidence and 
the reasons that the Provider believes that the decision is erroneous.
    (e) An order or final decision under this section does not preclude 
any other criminal or civil statutory, common law, or administrative 
remedy that is available by law to the Postal Service, the United 
States, or any other person or concern.


Sec. 502.15  Reporting.

    (a) For purposes of this section, ``Provider'' refers to the 
authorized Product/Service Provider in Sec. 502.1 and its foreign or 
domestic affiliates, subsidiaries, assigns, dealers, independent 
dealers, employees, and parent corporations.
    (b) Each authorized Product/Service Provider in Sec. 502.1 must 
submit a preliminary report to notify the Postal Service promptly (in 
no event more than 21 calendar days of discovery) of the following:
    (1) All findings or results of any testing known to the Provider 
concerning the security or revenue protection features, capabilities, 
or failings of any Product/Device sold, leased, or distributed by the 
Provider that has been approved for sale, lease, or distribution by the 
Postal Service or any foreign postal administration; or have been 
submitted for approval by the Provider to the Postal Service or a 
foreign postal administration.
    (2) All potential security weaknesses or methods of Products/
Devices tampering that the Provider distributes of which the Provider 
knows or should know, and the Product/Device or model subject to each 
method. These potential security weaknesses include but are not limited 
to suspected equipment defects, suspected abuse by a Product/Device 
licensee or Provider employee, suspected security breaches of the 
Computerized Remote Postage Meter Resetting System, cryptographic key 
compromises, occurrences outside normal performance, or any repeatable 
deviation from normal Product/Device performance (within the same model 
family and/or by the same licensee).
    (c) Within 45 days of the preliminary notification of the Postal 
Service under Sec. 502.15(b), the Provider must submit a written report 
to the Postal Service. The report must include the circumstances, 
proposed investigative procedure, and the anticipated completion date 
of the investigation. The Provider must also provide periodic status 
reports to the Postal Service during subsequent investigation and, on 
completion, must submit a summary of the investigative findings.
    (d) The Provider must establish and adhere to timely and efficient 
procedures for internal reporting of potential security weaknesses. The 
Provider is required to submit a copy of internal reporting procedures 
and instructions to the Postal Service for review.


Sec. 502.16  Administrative sanction on reporting.

    (a) Notwithstanding any act, admission, or omission by the Postal 
Service, an authorized Provider may be subject to an administrative 
sanction for failing to comply with Sec. 502.15.
    (b) The Postal Service shall determine all costs and revenue losses 
measured from the date that the Provider knew, or should have known, of 
a potential security weakness, including, but not limited to, 
administrative and investigative costs and documented revenue losses 
that result from any Product/Device for which the Provider failed to 
comply with any provision in Sec. 502.15. The Postal Service may 
recover from Provider any and all such costs and losses (net of any 
amount collected by the Postal Service from the licensees or Product/
Device users) with interest by issuing a written notice to the Provider 
setting forth the facts and reasons on which the determination to 
impose the sanction is based. The notice shall advise the Provider of 
the date that the action takes effect if a written defense is not 
presented within 30 calendar days of receipt of the notice.
    (c) The Provider may present the Postal Service with a written 
defense to the proposed action within 30 calendar days of receipt. The 
defense must include all supporting evidence and specify the reasons 
for which the sanction should not be imposed.
    (d) After receipt and consideration of the defense, the Postal 
Service shall advise the Provider of the decision and the facts and 
reasons for it; the decision shall be effective on receipt unless it 
states otherwise. The decision shall also advise the Provider that it 
may, within 30 calendar days of receiving written notice, appeal that 
determination as specified therein.
    (e) The Provider may submit a written appeal to the Postal Service 
within 30 calendar days of receipt of the decision. The appeal must 
include all supporting evidence and specify the reasons that the 
Provider believes that the administrative sanction was erroneously 
imposed. The submission of an appeal stays the effectiveness of the 
sanction.
    (f) The imposition of an administrative sanction under this section 
does not preclude any other criminal or civil statutory, common law, or 
administrative remedy that is available by law to the Postal Service, 
the United States, or any other person or concern.


Sec. 502.17  Materials and workmanship.

    All Products/Devices must adhere to the quality in materials and 
workmanship of the approved

[[Page 14841]]

production model and must be manufactured with suitable chips, tools . 
. . etc., to ensure proper functioning.


Sec. 502.18  Destruction of product/device indicia.

    All IBIP indicia created in the process of testing the Products/
Devices by the provider, or its agent, must be collected and destroyed 
daily.


Sec. 502.19  Inspection of new products/devices.

    All new Products/Devices must be inspected carefully before leaving 
the Provider's Product/Device facility.


Sec. 502.20  Distribution facilities.

    An authorized Provider must keep adequate facilities for and 
records of the distribution, control, and maintenance of Products/
Devices. All such facilities and records are subject to inspection by 
Postal Service representatives.


Sec. 502.21  Distribution controls.

    Each authorized Product/Service Provider must do the following:
    (a) Hold title permanently to all leased PSDs except those 
purchased by the Postal Service.
    (b) On behalf of applicants, electronically transmit copies of 
completed PS Forms 3601-A, Application for a License to lease and use 
Postage Meters, to the designated Postal Service central processing 
facility.
    (c) Lease PSDs only to parties that have valid licenses issued by 
the Postal Service.
    (d) Supply with the host system only Product/Device slogan or 
advertising art that meets the Postal Service requirements for suitable 
quality and content. The Provider must obtain prior approval for all 
advertising matter for any Product/Device.
    (e) Unless otherwise authorized by the Postal Service, the Provider 
must immediately obtain and check out of service PSDs, if the licensee 
no longer wants the PSD or if the PSD is to be removed from service for 
any other reason. The Provider must keep in its possession for at least 
1 year the licensee's PS Form 3601-C, Postage Meter Installation, 
Withdrawal, or Replacement, and copy of the applicable PS Form 3602-A, 
Record of Meter Register Readings, or equivalent.
    (f) Retrieve any misregistering, faulty, or defective Product/
Device to be checked out of service within 3 business days of being 
notified by the licensee of the defect. After examining the Product/
Device withdrawn for apparent faulty operation affecting registration, 
the Provider must compile a report explaining the malfunction to Retail 
Systems and Equipment (RSE), USPS Headquarters.
    (g) Report promptly the loss or theft of any Product/Device or the 
recovery of any lost or stolen Product/Device. The Provider must 
provide notification to the Postal Service by completing a standardized 
lost and stolen Product/Device incident report and filing it with the 
Postal Service within 30 days of the Provider's determination of a 
Product/Device loss, theft, or recovery. The Provider must complete all 
preliminary location activities specified in Sec. 502.25 before 
submitting this report to the Postal Service.
    (h) Cancel a lease agreement with any lessee whose Product/Device 
license is revoked by the Postal Service, remove the Product/Device 
within 15 calendar days, and have the Product/Device checked out of 
service.
    (i) Promptly remove from service any Product/Device that the Postal 
Service indicates should be removed from service. When a Product/Device 
license is canceled, all Products/Devices in use by the licensee must 
be removed from service.
    (j) Examine each Product/Device withdrawn from service for failure 
to record its operations correctly and accurately, and report to the 
Postal Service the failure or fault that caused the failure.
    (k) Provide RSE monthly with a compatible computer tape of lost or 
stolen Products/Devices. The file is due on the first of each month 
(for the preceding month's activity).
    (l) Take reasonable precautions in the transportation and storage 
of Products/Devices to prevent use by unauthorized individuals. 
Providers must ship all Products/Devices by Postal Service Registered 
Mail unless given written permission by the Postal Service to use 
another carrier. The Provider must demonstrate that the alternative 
delivery carrier employs security procedures equivalent to those for 
registered mail.
    (m) Submit a daily financial transaction for each postage value 
download or postage refill.


Sec. 502.22  Administrative sanction.

    (a) Product/Device for purposes of this section means any Product/
Device manufactured by an authorized Provider under Sec. 502.1 that is 
not owned or leased by the Postal Service.
    (b) An authorized Provider that, without just cause, fails to 
conduct or perform adequately any of the controls in Sec. 502.21, to 
follow standardized lost and stolen Product/Device incident reporting 
in Sec. 502.25, or to conduct any of the inspections required by 
Sec. 502.24 in a timely fashion is subject to an administrative 
sanction based on the investigative and administrative costs and 
documented revenue losses (net of any amount collected by the Postal 
Service from the licensee or Product/Device user) with interest per 
occurrence measured from the date on which the cost and/or loss 
occurred, as determined by the Postal Service. Sanctions shall be based 
on the costs and revenue losses that result from the Provider's failure 
to comply with these requirements.
    (c) The Postal Service may impose an administrative sanction under 
this section by issuing a written notice to the Provider setting forth 
the facts and reasons on which the determination to impose the sanction 
is based. The Postal Service shall determine all costs and losses. The 
notice shall advise the Provider of the date that the action shall take 
effect if a written defense is not presented within 30 calendar days of 
receipt of the notice.
    (d) The Provider may present to the Postal Service a written 
defense to the proposed action within 30 calendar days of receipt of 
the notice. The defense must include all supporting evidence and 
specify the reasons for which the sanction should not be imposed.
    (e) After receipt and consideration of the written defense, the 
Postal Service shall advise the Provider of the decision and the facts 
and reasons for it. The decision shall be effective on receipt unless 
it states otherwise.
    (f) The Provider may submit a written appeal of the decision within 
30 calendar days of receiving the decision, addressed to the manager of 
Retail Systems and Equipment, Postal Service Headquarters. The appeal 
must include all supporting evidence and specify the reasons that the 
Provider believes that the administrative sanction was erroneously 
imposed. The submission of an appeal stays the effectiveness of the 
sanction.
    (g) The imposition of an administrative sanction under this section 
does not preclude any other criminal or civil statutory, common law, or 
administrative remedy that is available by law to the Postal Service, 
the United States, or any other person or concern.


Sec. 502.23  Product/Device replacement.

    (a) The Provider must keep its Products/Devices in proper operating 
condition for licensees by replacing them when necessary or desirable 
to prevent electronic failure, malfunction, clock/timer/battery life 
expiration, or mechanical breakdown.

[[Page 14842]]

    (b) The Provider must provide the licensees with modifications 
reflecting rate changes.


Sec. 502.24  Inspection of products/devices in use.

    The Provider must conduct audits of PSDs at least once every 3 
months in conjunction with the postage value resetting requirements in 
Sec. 502.26. In general, the primary role of the PSD in the device 
audit function is to create device audit messages and pass those 
messages to the host system for transmission to the Postal Service.


Sec. 502.25  Products/Devices not located.

    Upon learning that one or more of its Products/Devices in service 
cannot be located, the Provider must undertake reasonable efforts to 
locate the Products/Devices by following a series of Postal Service-
specified actions designed to locate the Products/Devices. If these 
efforts are unsuccessful and a Product/Device is determined to be lost 
or stolen, the Provider must notify the Postal Service within 30 days 
by submitting a Lost and Stolen Product/Device Incident Report.
    (a) If a licensee cannot be located, the Provider must, at a 
minimum, complete the following actions:
    (1) Call directory assistance for the licensee's new telephone 
number.
    (2) Contact the licensee's local post office for current change of 
address information.
    (3) Contact the CMLS site and the local MATS coordinator to verify 
the location of the Product/Device or licensee currently maintained in 
those Postal Service records.
    (4) Contact the rental agency responsible for the property where 
the licensee was located, if applicable.
    (5) Visit the licensee's last known address to see whether the 
building superintendent or a neighbor knows the licensee's new address.
    (6) Mail a certified letter with return receipt to the licensee at 
the last known address with the endorsement ``Forwarding and Address 
Correction Requested.''
    (7) If new address information is obtained during these steps, any 
scheduled Product/Device inspection must be completed promptly.
    (b) If a Product/Device is reported to be lost or stolen by the 
licensee, the Provider must, at a minimum, complete the following 
actions:
    (1) Ensure that the licensee has filed a police report and that 
copies have been provided to the appropriate Inspection Service 
Contraband Postage Identification Program (CPIP) specialist.
    (2) Withhold issuance of a replacement Product/Device until the 
missing Product/Device has been properly reported to the police and to 
the appropriate Inspection Service CPIP specialist.
    (c) If the Provider later learns that the Product/Device has been 
located and/or recovered, the Provider must update lost and stolen 
Product/Device activity records, inspect the Product/Device promptly, 
initiate a postage adjustment or transfer, if appropriate, and check 
the Product/Device out of service if a replacement Product/Device has 
been supplied to the licensee.
    (d) If a Product/Device reported to the Postal Service as lost or 
stolen is later located, the Provider is responsible for submitting a 
new Lost and Stolen Product/Device Incident Report that references the 
initial report and outlines the details of how the Product/Device was 
recovered. This report must be submitted to the Postal Service within 
30 days of recovery of the Product/Device. The Provider is also 
responsible for purging lost and stolen Product/Device reports that are 
provided on a periodic basis to the Postal Service for those Product/
Devices that have been recovered.
    (e) Any authorized Provider that fails to comply with standardized 
lost and stolen reporting procedures and instructions is subject to an 
administrative sanction under Sec. 502.22, as determined by the Postal 
Service.


Sec. 502.26  Computerized Remote Postage Meter Resetting/PSD Resetting.

    (a) Description. The Computerized Remote Meter Resetting System 
(CMRS) permits postal licensees to reset PSDs at their places of 
business and/or homes via modem and/or network interface. To reset a 
PSD, the licensee must connect to the Provider and provide identifying 
data and device audit data. Before proceeding with the setting 
transaction, the Provider must verify all the data (including 
conducting the product audit) and ascertain from its own files whether 
the licensee has sufficient funds on deposit with the Postal Service. 
If the funds are available and the product audit was successful, the 
Provider may complete the setting transaction.
    (b) Deposits with the Postal Service. (1) A CMBS licensee is 
required to have funds available on deposit with the Postal Service 
before resetting a PSD or the Provider may opt to provide a funds 
advance in accordance with The Cash Management Operating Specifications 
For The Computerized Remote Postage Meter Resetting System. Contact the 
Treasurer's Office of the United States Postal Service, 475 L'Enfant 
Plaza SW, Washington, DC 20260-5130 for this document. The details of 
this deposit requirement are covered within the Acknowledgment of 
Deposit Requirement document. By signing this document, the licensee 
agrees to transfer funds to the Postal Service through a lockbox bank, 
as specified by the Provider, for the purpose of prepayment of postage. 
The Provider representative must provide all new CMRS licensees with 
this document when a new account is established. The document must be 
completed and signed by the licensee and sent to the Minneapolis 
Accounting Service Center by the Provider.
    (2) This is required to incorporate the following language into its 
Product/Device rental agreements:

Acknowledgement of Deposit Requirement

    See The Cash Management Operating Specifications For The 
Computerized Remote Postage Meter Resetting System. Contact the 
Treasurer's Office of the United States Postal Service, 475 L'Enfant 
Plaza SW, Washington DC 20260-5130 for this document.


Sec. 502.27  Indicia quality assurance.

    The licensee is required to forward a mailpiece to the Provider at 
least once every 3 months for evaluation. If the licensee fails to 
comply with this requirement, the Provider must notify the licensee 
that, all future postage value resettings will be denied. The Provider 
must notify the Postal Service of all noncomplying licensees, so that 
license revocations can be initiated. The Provider is required to 
provide guidance to the licensee to correct any deficiencies that are 
discovered.


Sec. 502.28  Product/Device refunds.

    Postage losses due to malfunctions are the responsibility of the 
Provider. In order to receive a refund for any remaining balance on a 
PSD, the licensee will be required to submit a written refund request 
and the PSD to the Provider. Additionally, supporting documentation 
such as a daily activity report must be submitted. The Postal Service 
will also provide refunds to a licensee for any balance remaining in 
their CMRS account.


Sec. 502.29  Key management requirements.

    These requirements are contained in The Information Based Indicia 
Program Key Management Plan. Contact the Manager, Retail Systems and 
Equipment, USPS, 475 L'Enfant Plaza, Washington DC 20260-6807 for these 
requirements.


Sec. 502.30  Provider infrastructure.

    The Provider must establish and maintain an interface to USPS 
systems as specified in the Information Based

[[Page 14843]]

Indicia Program Product/Service Provider Infrastructure Specification. 
Contact the Manager, Retail Systems and Equipment, USPS, 475 L'Enfant 
Plaza, Washington DC 20260-6807 for these requirements.


Sec. 502.31  Notice of Proposed Changes in Regulations.

    Appropriate amendments to 39 CFR parts 111 and 502 to reflect these 
changes will be published if the proposal is adopted
Stanley F. Mires,
Chief Counsel, Legislative.
[FR Doc. 97-7861 Filed 3-27-97; 8:45 am]
BILLING CODE 7710-12-M