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Probe finds Amazon used wrong postal rates

- The Washington Times - Tuesday, January 4, 2011

A recently settled U.S. Postal Inspection Service investigation into online retailer Amazon.com revealed the company was shipping parcels at postal rates cheaper than the prices they were entitled to receive, records show.

Seattle-based Amazon had been "mailing parcels at the media rate for which they were not eligible," postal officials wrote in documents recently released to The Washington Times after an Oct. 23 open-records request.

The cheaper media rate is reserved for shipping books and other educational materials, which are not supposed to include advertisements.

The media-mail rate was designed in 1938 to provide lower postal rates for mailing books, and the Postal Rate Commission in 1984 updated the policy to include computer media.

TechFlash, an online news site that covers the technology industry and that has covered the investigation, in November first reported that Amazon.com would pay $1.5 million to settle the probe but that the company did not admit any wrongdoing. The report also said Amazon disputed the Postal Service's contention that it had improperly mailed products mainly from the video game category from January 2006 through January 2009.

Amazon.com first disclosed in a Securities and Exchange Commission filing that it was facing an investigation in early 2009 but provided few details and noted only that the investigation centered on "our compliance with Postal Service rules." The company said it was cooperating.

The company said in an Oct. 22 SEC filing that "the investigation was closed after we settled for a nominal amount."

In the documents released to The Times, officials withheld 308 pages of records from the now-closed investigation in their entirety and released 19 other documents, including press clippings and postal rates.

The documents stated that in March 2009, Amazon executives and their outside lawyers traveled to Bala Cynwyd, Pa., to provide a presentation to postal inspectors that covered "an overview of the company, the media mail problem, new safeguards implemented by them, and the underpayment for media mail in [calendar year] 2008 as calculated by them."

Postal officials also released a September 2009 U.S. Postal Service ruling that did not specifically reference Amazon or the investigation, but stated that neither video games nor storage devices such as "thumb drives" are eligible for shipping under the media-mail rate. The ruling says materials may not contain advertisements except "incidental announcements of other books with books in a computer-readable format."

According to the Postal Service's website, media-mail rates are reserved for "books, sound recordings, recorded video tapes, printed music and recorded computer-readable media," such as CDs and DVDs. But materials aren't supposed to contain advertisements "except for incidental announcements of books."

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