AECEIVU)
BEFORE THE
POSTAL RATE COMMISSION
WASHINGTON, DC 20268
POSTAL RATE AND FEE CHANGES, 2000
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Docket No. R2000-1
EMERY’S OPPOSITION TO MOTION OF
UNITED PARCEL SERVICE TO COMPEL PRODUCTION
OF INFORMATION AND DOCUMENTS REQUESTED IN
INTERROGATORIES UPS/USPS-T34-l(a) to l(c) and
UPS/USPS-T34-3(e)TO WITNESS ROBINSON
(March 10,200O)
Emery Worldwide Airlines, Inc., One Lagoon Drive, Suite 400, Redwood City, California
94065 (“Emery”), opposesthe relief requestedby United Parcel Service(“UPS”) in its motion to
compel production of information and documentsrequestedin interrogatoriesUPS/USPS-T34l(a)-(c) and 3(e). Emery supportsthe Postal Service’sobjections to the interrogatoriesand
requeststhat the Rate Commission enter a protective order denying UPS accessto the documents
requestedin the interrogatories. In the alternative, Emery requeststhat the documentsbe
producedonly under protective conditions that would prevent accessby individuals who are
involved in competitive decision-making for any companythat could gain a competitive
BACKGROUND
UPS’s interrogatories requestthat the Postal Serviceproducea copy of the contractand
related documentsdefining the relationship betweenEmery and the Postal Servicewith respectto
transportation and processingof Priority Mail. (& UPS/USPS-T34-l(a) to l(c).) The
interrogatoriesalso ask for documentsidentifying the rateschargedto the Postal Servicefor
Emery’s servicesunder the Priority Mail Contract. (See UPS/USPS-T34-3(e).) Both the Postal
Serviceand Emery considerthe requestedinformation to contain confidential and proprietary
information that could be usedto gain an unfair competitive advantagein the mail and parcel
transportationmarket. See,e.g., National Parks& ConservationAss’n v. Morton, 498 F.2d 765
(D.C. Cir. 1974). Revealing this information would be tantamountto revealing Emery’s costs
and pricing strategiesto a direct competitor of both Emery and the Postal Service.
As UPS points out, the Commission addresseda similar dispute betweenUPS, the Postal
Service,and Emery in the 1997 rate case. (SeePresiding Officer’s Ruling Nos. R97-1152(Oct.
23, 1997) & R-97-1/62 (Nov. 17, 1997).) The Commission concludedthat the requestedportions
of the Priority Mail Contract should be producedunder protective conditions. The reasons
justifying the protective conditions orderedin R97-1 are presentin R2000-1. Moreover, caselaw
defining the scopeof confidential and proprietary businessinformation has developed
substantially since 1997. The leading caseon the issuemakesclear that line item prices can, in
certain circumstances,be consideredconfidential commercial or financial information. The
public releaseof such information would causesubstantialcompetitive harm to the provider, and
is thus prohibited under the Trade SecretsAct. & McDonnell Douglas Corn v. National
Aeronautics & SoaceAdmin., 180 F.3d 303 (DC Cir. 1999)(discussedinfra at pages4-6).
ARGUMENT
The Freedom of Information Act and the Trade SecretsAct prohibit disclosureof trade
secretsand privileged or confidential commercial or financial information. 5 U.S.C 9 552(b)(4);
18 U.S.C. 5 1905. Information is confidential if its releasewould causesubstantialharm to the
competitive position of the personreleasingit. National Parks & ConservationAss’n v. Morton,
498 F.2d 765,770 (D.C. Cir. 1974). Contractor costs,profit margins, and pricing strategieshave
beenuniformly found to be exempt from disclosureunder FOIA becausereleasingthat
information “would allow competitors to estimate,and undercut [the contractor’s] bids.” b
Gulf & WesternIndus. v. United States,615 F.2d 527, 530 (D.C. Cir. 1979). And if releasing
line item prices would allow a contractor’s customersor competitorsto undercutits prices,even
line item prices may not be released. McDonnell Douelas Corn. v. National Aeronautics &
SoaceAdmiq, 180 F.3d 303 (D.C. Cir. 1999); seealso SoerrvUnivac Div. v. Baldridee, No. 820045-A, 1982 U.S. Dist. LEXIS 17764(E.D. Va. June 16, 1982) (unit prices cannot be released
if they would effectively reveal a contractor’s pricing strategies). In the context of litigation,
such confidential information can be releasedonly pursuantto a protective order that protects
againstthe potential competitive harm. &
United StatesSteel Corn. v. United States,730 F.2d
1465, 1468 (Fed. Cir. 1984); Matsushita Electric Industrial Co. v. United States,929 F.2d 1577,
1579-80(Fed. Cir. 1991).
I.
The Priority Mail Contract should not be publicly-released becauseit
contains Emery’s confidential commercial and financial information.
In this proceeding,the Priority Mail Contract should not be publicly disclosedbecauseit
containsconfidential and proprietary information that would causesubstantialcompetitive harm
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to Emery if releasedto the public. As explained in the Declaration attachedas Exhibit A,
releasing the Priority Mail Contract would reveal Emery’s costsand pricing strategiesand would
place Emery at a competitive disadvantageon titure contracts. The Priority Mail Contract
contains over 100 pagesof detailed pricing schedules. The schedulescontain separateline items
for transporting flats, parcels,and outsidesbetweeneachof ten Priority Mail processingcenters
(“PMPCs”) and a multitude of Air Mail Centers(“AMCs”) and Area Distribution Centers
(“ADCs”). It also contains adjustment factors for variations in the volume of piecestransported.
The price variations reflected in the pricing schedulereflects Emery’s experiencein the industry
and its analysis of expectedcostsand profit on the various routes. Even the table of contents
contains confidential information about Emery’s pricing strategiesand techniques.
This detailed pricing information would allow UPS, or any other competitor, to infer and
predict Emery’s costs for transporting different size piecesbetweenthe destinationschosenby
Emery. Releasingthe Priority Mail Contract would also allow competitors to seethe pricesthat
Emery has concluded are appropriatefor transporting individual piecesbetweenPMPCs, AMCs,
and ADCs. It would allow them to avoid the extensivework involved in developing sucha
pricing strategy. At the very least, it would allow Emery’s competitorsto estimateand undercut
Emery’s bids on other commercial and governmentair freight contracts. UPS or other
competitors would need only to apply their own knowledge of the air freight transportation
businessto determine which Emery routesare more profitable than othersand which routesare
discounted. They could use the results of their analysisto evaluatetheir own ability to compete
on Emery routes. They could develop a plan to undercutEmery’s prices on Emery’s most
profitable routes, leaving Emery with the lessprofitable ones-effectively
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“cherry-picking”
Emery’s best routes. Such unfair competition would causesubstantialharm to Emery’s
competitive position in the mail and parcel transportationmarkets.
The risk of such competitive harm causedby the releaseof unit price information was the
basis for the recent decision in McDonnell Douglas Core. v. National Aeronauticsand Soace
Admin., 80 F.3d 303 (DC. Cir. 1999). NASA soughtto releaseline item pricing information in
a McDonnell Douglas contract, arguing that releaseof the line item pricing was “‘the price of
doing business’with the government.” u at 306 (quoting NASA argument). McDonnell
Douglas sought to prevent the release,arguing that releasingthe line item pricing information
would causesubstantialharm to its competitive position. In particular, McDonnell Douglas
arguedthat releaseof the pricing information would allow commercial customersto “ratchet
down” its prices and would allow competitorsto “calculate its costswith a high degreeof
precision.” rd. at 306. The court agreedwith McDonnell Douglas:
Both of the reasonsMcDonnell Douglas advancedfor claiming its
line item prices were confidential commercial or financial
information are indisputable. McDonnell Douglas has shown - as
much as anyone can show before the event-that it is likely to
suffer substantialcompetitive harm. And under presentlaw,
whatever may be the desirablepolicy course,appellant has every
right to insist that its line item prices be withheld as confidential.
rd. at 307. BecauseMcDonnell Douglas showedthat the releaseof its line item prices would
causecompetitive harm, the court held that disclosureby NASA would have violated the Trade
SecretsAct. z at 306.
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II.
Releaseof other USPS contracts and information does not require public
release of the Priority Mail Contract.
The McDonnell Douelas decision directly addressesUPS’s contention that disclosureof
Emery’s line item prices is justified becausethe Postal Servicehasdisclosed information
concerningother contracts. (& UPS Memo., at 6.) In that case,the governmentsoughtto
disclose contract unit prices basedon its “long and consistentpractice” of releasingsuch
information. The court rejected this rationale, holding insteadthat the analysis of competitive
harm must be conductedon a caseby casebasis. McDonnell Douelas, 180 F.3d at 306-07. The
Court held that the fact that other contractorsagreedto releaseline item prices was irrelevant:
“That appellant’s competitors have not attemptedto stop the disclosureof their line item prices is
of no significance in determining the issuebefore us.” & at 306-07. Thus, the Postal Service’s
releaseof the WNET and other contractsis similarly irrelevant in determining the propriety of
releasingline item prices and other Emery confidential material in the Priority Mail Contract.
The WNET and TNET contractorsapparentlydid not object to the public releaseof their
contract prices. But Emery doesobject to public releaseof the Priority Mail Contract.
Moreover, the WNET and TNET contractsare much different contractsthan the Priority Mail
contract. Even UPS agreesthat the WNET contractcontainsonly about ten line items eachfor
aircraft, crews, maintenance,supplies,and other items. (&UPS
Memo., at 6 (citing Docket
No. R97-1, LR-H-249, WNET 92-01, at 2).) With respectto the MBE and TIC Enterprises
contracts,the only pertinent line item prices are commission rates. Thesecontractsdo not
contain a detailed pricing structureinvolving 10,000prices for separatecity pairs. These
contractsalso do not disclosehow to run and integratea complex and separatenetwork for the
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processing,handling, and delivery of a product (Priority Mail) that facesfierce marketplace
competition. (& UPS Memo., Ex. B.) And none of the contractspreviously releasedby the
Postal Servicecorrelatesper-pieceunit prices to volumes and origin-destination information as in
the Priority Mail Contract. Not only would releaseof the Priority Mail Contract give UPS access
to the prices for each of the origin-destination pairs in the contract,but it would allow them to
seeEmery’s adjustment factors for estimatedvolume. By allowing UPS to take advantageof
Emery’s corporateexperienceand analysis of transportationcostsand economies,it would give
UPS an unfair competitive advantageand substantially harm Emery’s competitive position.
Moreover, Emery’s releaseof general,non-confidential information concerningthe
Priority Mail Contract doesnot require it to releaseconfidential information. Providing investors
with a tour of a facility, for example, would not allow them to infer and predict Emery’s pricing
strategies. To the extent Emery publicly releasedinformation concerningits performanceunder
the Priority Mail Contract, such information was much more genera)than the specific pricing
schedulesand other information that UPS is seeking.
III.
Disclosure is not required by section 39 U.S.C. g 5005(b)(3).
UPS next contendsthat there is a statutory requirementthat any contract “for the
transportationof mail” be available for inspection. (a
UPS Memo., at 5 (citing 39 U.S.C.
$5005(b)(3).) Sections5000 to 5600 are provisions in the PostalReorganizationAct that
reenactthe Postal Service’s authority to purchasesurface,air, and vesseltransportationfrom
regulatedcarriersunder a regulatory schemethat has since beenabolished. The contracts
contemplatedby thesesectionsare contractsstrictly for mail transportation,such as “star route”
highway contracts. See.e.G, Mvers & Mvers. Inc. v. United States,527 F.2d 1252, 1257(2d Cir.
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1975) (“legislative history of $ 5005(a)(4), (b)(2) indicatesthat the statutewas enactedto give
star route contractorsa measureof security .
.“). Thesestatutory provisions are not applicable
to purchasesof mail transportation network contracts,which are purchasedunder the authority of
39 U.S.C. $401(3). Moreover, the Priority Mail Contract is not a contract for the “transportation
of mail” by surface,air, or vesselas contemplatedby thesesections. Emery does much more
than transport mail under the contract. Emery developedand independentlyoperatesIO brand
new Priority Mail ProcessingCenters;Emery createdand maintains complex mail sorting
schemes;Emery employs thousandsof employeesto handle,sort, and processmail; and Emery
collects, compiles, and transmits to the Postal Servicevast amountsof data concerningthe types
and volume of mail processedunder the Contract.
The Priority Mail Contract also doesnot contain the “public release”warning relied on by
UPS. TO the contrary, the Priority Mail Contract contemplatesthat the Contract will remain
confidential. Offerors could not even obtain a copy of the solicitation without first agreeingto a
strict non-disclosureagreement. The Contract itself prohibits Emery from providing copiesto
any third parties without expressapproval of the Postal Service. Oncea subcontractoror
prospectivesubcontractoris permitted access,the nondisclosureagreementlimits the availability
of information to those employeeswho (1) are actively involved in projects for the Priority Mail
Contract and (2) have a legitimate reasonto know the information. Emery strictly complies with
this requirementand instructs its employeesthat the information is confidential and not to be
disclosed. Emery also strictly limits accessby subcontractorsand prospectivesubcontractorsto
those who have executeda nondisclosureagreement. Even Emery’s counselwas required to
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executeand comply with a nondisclosureagreementbefore reviewing or discussingany aspectof
the Priority Mail Contract with Emery.
IV.
The Priority Mail Contract should be released, if at ail, only under strict
protective conditions.
To the extent that portions of the Priority Mail Contract are relevant to the issuesof this
proceeding,they should be provided only under strict protective conditions. In doing so, the
Commission would give UPS accessto the information it needsto presentits argumentsin the
rate case. At the sametime, it would protect Emery from the competitive harm associatedwith
the releaseof its confidential commercial and financial information. This was the approach
adoptedby the Commission in the 1997 rate case,and Emery urgesthe Commission to follow its
1997 decision. (&Presiding
Officer’s Ruling Nos. R97-1152(Oct. 23, 1997) & R97-l/62
(Nov. 17, 1997).) The protective conditions applicable to the releaseof the Priority Mail
Contract should bar accessby any individual who is involved in “competitive decision-making”
for any entity that might gain commercial benefit from the use of the information. Emery
suggeststhat the term “involved in competitive decision-making” should include consulting on
marketing or advertising strategies,pricing, product researchand development,product designor
the competitive structuring and composition of bids, offers or proposals. (& Emery’s Informal
Expressionof Views on Conditions for Accessto ProtectedMaterial (Feb. 28,2000).)
CONCLUSION
Emery supportsthe Postal Service’sobjections to interrogatoriesUPS/USPS-T34-l(a) to
l(c) and UPS/USPS-T34-3(e)to Witness Robinson. If the Commission requiresthe releaseof
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the Priority Mail Contract, Emery requeststhe use of strict protective conditions to preventthe
disclosureof Emery’s confidential and proprietary information.
Respectfully submitted,
pR-e.aw
Da&T!‘. Hendel
Brian P. Waagner
Wickwire Gavin, P.C.
8100 Boone Boulevard, Suite 700
Vienna, Virginia 22 182
(703) 790-8750
Attorneys for Emery Worldwide Airlines, Inc.
CERTIFICATE OF SERVICE
I hereby certify that I havethis __
10 day of March 2000 servedthe foregoing document
by first-class mail, postageprepaid, in accordancewith section 12 of the rules of practice.
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