Appeal of P.S. Docket No. 26/109 -- HAL GOLDSTEIN


 In the Matter of the Petition by

 HAL GOLDSTEIN, Publisher,
 Post Office Box 869,
 Fairfield, IA 52556-0869,

 Denial of Application for Second-Class Mail
 Privileges for "THE PORTABLE PAPER"

 P.S. Docket No. 26/109

 August 11, 1987

 Edwin S. Bernstein Administrative Law Judge

 APPEARANCE FOR PETITIONER:
 James D. Pearson, Esq. 
 506 North Fourth Street
 Fairfield, IA 52556 

 APPEARANCE FOR RESPONDENT:
 Jeffrey H. Zelkowitz, Esq. 
 Law Department
 United States Postal Service
 Washington, DC 20260-1143

 BEFORE: Judge Edwin S. Bernstein

INITIAL DECISION

This is an appeal by Petitioner from a decision of the Director, Office of Classification and Rates Administration denying Petitioner second-class mail privileges for its publication, The Portable Paper . The Director decided that The Portable Paper was ineligible for second-class mail privileges pursuant to Domestic Mail Manual (DMM) 422.6(c) based upon his determination that The Portable Paper was controlled by the owners of Personalized Software and conducted as an auxiliary to and essentially for the advancement of Personalized Software's main business.

A hearing was held in Cedar Rapids, Iowa. The parties filed proposed findings of fact, proposed conclusions of law, and memoranda. All of these have been considered. To the extent indicated, they have been adopted. Otherwise, they have been rejected as irrelevant or not supported by the evidence.

FINDINGS OF FACT

The parties stipulated and I find:

1. The Portable Paper ( Paper ) applied for second-class privileges as a general publication under Domestic Mail Manual 422.2 on November 27, l985, at the Fairfield, Iowa, Post Office.

2. Paper is owned by Personalized Software (Software).

3. Software's business consists entirely of the sale of products and services which may be used in conjunction with Hewlett-Packard computers, particularly Hewlett-Packard portable computers, or which otherwise assist users of Hewlett-Packard computers.

4. Personalized Software is owned by Rita Goldstein, the spouse of Petitioner Hal Goldstein. Rita Goldstein does not hold any ownership interest in Hewlett-Packard.

5. Personalized Software is managed by Petitioner Hal Goldstein, who is president of the firm. Hal Goldstein is not currently employed by Hewlett-Packard, nor does he have any ownership interest in that company.

6. Petitioner Hal Goldstein is the publisher and sole editor of Paper . He is the only technical person on the publication's staff, with the remaining three staff members involved in mail preparation and similar duties.

7. Paper is published six times per year. Its annual subscription price is $55.00.

8. Since Paper was started in January 1986, Paper has received more than 100 unsolicited letters from readers containing favorable comments concerning the publication. Twenty of these letters were appended to Petitioner's appeal letter, and will be stipulated for admission into the record. Paper does not conduct any reader surveys or other systematic research regarding readers' views concerning the publication.

9. Personalized Software has produced a brochure concerning Paper which Hewlett-Packard has placed in cartons containing new Hewlett-Packard Portable Plus computers. This brochure was stipulated for admission into the record.

10. The Director, Office of Classification and Rates Administration, denied Paper's second-class application on November 28, l986, in a letter from Donald D. Dillman to Hal Goldstein. The sole basis for this decision was Paper's violation of Domestic Mail Manual 422.231(b). For purposes of this proceeding, Respondent does not contend that Paper violates any other second-class requirement.

In addition, I find:

1. Before publishing The Portable Paper , Hal Goldstein created a software product entitled Printertalk for Hewlett-Packard portable computers. (Tr. 65-66) He attempted to sell Printertalk through Personalized Software, but was unsuccessful. (Tr. 16) He conceived of The Portable Paper as a means to market Printertalk and other products sold by Personalized Software. (JE-8 at 19; Tr. 67)

2. The Portable Paper's solicitations emphasize that subscribers receive substantial discounts of up to 45 percent on products sold by Personalized Software, and up-to-date information on new products sold by the firm. (Tr. 84-85; JE-3 at 2, 3, 4)

3. The Portable Paper's contents extensively feature the products and services sold by Personalized Software. and the majority of display advertisements in The Portable Paper are for Personalized Software. (JE 6-11)

4. Personalized Software advertisements are prominently featured in The Portable Paper , and often occupy the inside front and inside back covers and adjacent pages, or the centerfold. In addition, The Portable Paper contains an order form listing Personalized Software's products.

5. The Portable Paper also contains a page headed "Personalized Software Products For HP Portables" which lists and describes the products sold by Personalized Software. ( E.g. , JE-10 at inside back cover)

6. Display advertisements for Personalized Software products emphasize the discounts available to The Portable Paper subscribers. ( E.g. , JE-11 at inside from cover, 11, 15, 19, 22, 23, 24, 25, 28, 31) Additionally, one product's advertisement includes a favorable statement from Petitioner Hal Goldstein, who is described as the "Editor, The Portable Paper ," without disclosing that he also is the President of the firm selling the product. (JE-11 at 22; JE-8 at 17)

7. Many articles in The Portable Paper feature and discuss products sold by Personalized Software. (Tr. 79, 81; e.g. , JE-11 at 2, 4, 14, 16-17, 18-26) The articles invariably give favorable accounts of Personalized Software's products. (Tr. 81; e.g. , JE-10 at 3; JE-8 at 21)

8. At least two major contributors of articles to The Portable Paper , Ed Keefe and Norman Brown, sell products and services through Personalized Software. (JE-8 at 2; JE-9 at 4) Other contributors are sought through an article suggesting the possibility of their trading products and services with Personalized Software. (JE-6 at 4)

9. Articles in The Portable Paper about Personalized Software products state the retail price of the product and the reduced price available to subscribers, (Tr. 63; 83; JE-10 at 3, 4, 12, 21) but do not disclose that the products are available from other dealers at prices lower than those offered by Personalized Software. (Tr. 61-64) While Personalized Software has modified some of these products before sale, customers who purchase the product from other dealers can make the same modification free or at a nominal cost, (Tr. 64-65) so that the net cost of buying the product from another dealer is less than the cost of purchasing it from Personalized Software. This too is not disclosed in articles in The Portable Paper . (Tr. 61-64) The articles also provide instructions for ordering Personalized Software's products. ( E.g. , JE-6 at 16)

10. In other ways, The Portable Paper serves as a communica- tions link between Personalized Software and its potential customers. The publication advises customers of new services, such as training, which Personalized Software is considering, and seeks suggestions and orders for those services. (JE-11 at 4; JE-10 at 3 ("Soon We'll Put Your Data In EPROM")) The Portable Paper also is used by Personalized Software as a means to seek rights to sell additional products. (JE-7 at 2; JE-11 at 30 (classified advertisement captioned "We'll Sell Your Software"))

11. The Portable Paper and Personalized Software share offices and are managed and staffed by the identical people - Petitioner, his spouse, and three employees. (Tr. 49-50) Consultants and contributors to The Portable Paper also perform duties for Personalized Software, (Tr. 67; JE-11 at 2, 3) or are involved in ventures to sell Personalized Software's products. (JE-9 at 4; JE-8 at 2, 4)

12. Petitioner does not maintain separate books or separate financial statements for The Portable Paper and Personalized Software's sales of products and services. (Tr. 50)

13. In estimating expenses for The Portable Paper , (Tr. 72-73), Petitioner did not include any expenses for management or staff time in producing the publication; labor and other costs of fulfilling promises to subscribers for free products and other premiums; or overhead costs such as space, telephones, and supplies. (Tr. 51, 59, 73, 92, 96)

14. The Portable Paper's annual gross receipts are approxi- mately $75,000, while those of Personalized Software's are approximately $225,000. (Tr. 56, 90-91) However, because the absence of separate financial records for The Portable Paper and Personalized Software's other ventures, these figures are estimates. (Tr. 51)

CONCLUSIONS OF LAW

The sole issue as to whether Petitioner is entitled to second-class mail privileges for The Portable Paper is whether or not The Portable Paper complies with Domestic Mail Manual (DMM) 422.6(c). DMM 422.6(c) requires that:

The publication must not be owned or con- trolled by one or more individuals or business concerns and conducted as an auxiliary to and essentially for the advancement of the main business or calling of those who own or control it.

It has been stipulated that Personalized Software owns The Portable Paper . (Stip. F. 2) I further find and conclude that The Portable Paper is conducted as an auxiliary to and essentially for the advancement of the main business of Personalized Software.

In applying Domestic Mail Manual 422.6(c), "auxiliary has the meaning of aiding or assisting." Florists' Transworld Delivery Association , P.S. Docket No. 1/167, P.S. Decision (May 24, l974) at 11. See also Commodore Business Machines, Inc. , P. S. Docket No. 14/95 (Feb. 17, l983), Initial decision at 11; TV Host, Inc. , P.S. Docket No. 17/25, Initial Decision (February 28, l984) at 14. This definition is consistent with the common meaning of the term, see , e.g. , Webster's Third New International Dictionary, Unabridged 149 (1968). The Portable Paper is auxiliary to Personalized Software's business under this standard. Potential readers are urged to purchase subscriptions to it on the basis of future entitlement to substantial discounts on items sold by Personalized Software, and because it provides a readily available source of information on new products sold by the company. (Tr. 84-85; JE-3 at 2, 3, 4; JE-8 at 32 ("Order Form")) The Portable Paper further provides Personalized Software customers with other forms and information for ordering products from Personalized Software, as well as assistance in using those products. ( See , e.g. , JE-8 at 2, 4, 9, 16-17, 18-19, 20, 21, 24, 31, 32, inside back cover) In addition, The Portable Paper is used to advise Software customers of the firm's entry into new fields such as training and other support services, and seeks orders for those services. (Tr. 83-84; JE-11 at 4)

The evidence also shows that The Portable Paper is conducted essentially for the advancement of Personalized Software's sales of computer-related products and services.

Petitioner's statements demonstrate that The Portable Paper was conceived as a means to market a product he created and was selling through Personalized Software.

If there hadn't been a Printertalk, there probably would not have been The Portable Paper . . .

[T]here was no real way to market my creation. Then the newsletter idea came to me as a way to share knowledge and distribute HP Portable products.

(JE-8 at 19)

As Personalized Software expanded the line of products it sells, The Portable Paper was used to market those products. (Tr. 27, 41, 43, 44; JE-11 at 1 ("Publisher's Message'))

The contents of The Portable Paper extensively feature Personalized Software's products and services. Display advertise- ments for Personalized Software's offerings far outnumber adver- tisements from other companies. (Tr. 79-80, 86-87; JE-11 which features Personalized Software's display advertisements on the inside front cover, 9, 11, 15, 19, 22, 23, 24, 25, 28, 31, 35, 36, inside back cover, and display advertisements from other companies on pages 4, 10, 21, 27, 31, and 33) Moreover, many of the Personalized Software advertisements cover a full page, while those of other firms generally do not.

In addition, numerous articles in The Portable Paper feature products sold by Personalized Software, and instruct the reader on prices and how to order the product from Personalized Software. (Tr. 79, 81-83. See e.g. , JE-11 at 3, 4, 14, 16-17, 18-26) Editorial portions of The Portable Paper appear to speak in the "person" of Personalized Software, particularly when conveying information about its products. (JE-9 at 1 ("We hope to have SideWinder ready for shipping by June 15"); JE-8 at inside front cover, Publisher's message ("Our product line is expanding and we think you will find us quicker filling your orders as we come to understand the way inventory and order processing work. We will do our best to get you your products two days after we receive your order"); JE-11 at 4 ("Another area we would like to get into is training . . . . If we are to provide more products and services we will have to expand . . . . Help us expand, and we will help you with more knowledge, products, and service for your Portable")) The Portable Paper provides favorable treatment to Personalized Software and its offerings, both with respect to its advertising and editorial portions. Personalized Software's advertisements frequently occupy prominent portions of The Portable Paper , such as the centerfold, (JE-9 at 18-19, or the inside front and back covers and adjacent pages, e.g. , JE-10)

The articles concerning Personalized Software's products give highly favorable impressions concerning their quality and usefulness. (Tr. 81-82; Also see , e.g. , JE-10 at 3, and JE-8 at 21) Reviewers are sought for The Portable Paper with the invitation that they may be able to trade products or services with Personalized Software. (JE-6 at 4) While The Portable Paper does, on occasion, list disadvantages of products sold by Personalized Software, they are often followed with statements limiting their negative impact, or even explaining why those purported drawbacks are advantageous to potential purchasers. (Tr. 81-82)

The conclusion that The Portable Paper is conducted primarily for the advancement of Software's sales of computer-related products and services in violation of Domestic Mail Manual 422.231(b), is in accordance with previous decisions. Commodore Business Machines , supra , also involved a publication concentrating on computer-related products, held a publication ineligible for second-class privileges on the basis of the circumstances similar to these present in this case: statements in the publication and elsewhere that the publication advised readers of the parent company's product developments; the predominance of advertisements concerning the parent's products; and the presence of articles discussing the parent's articles in favorable terms. Initial Decision at 11-13. See also , e.g. , TV Host , supra ; Banner Publications, Inc. , supra ; Direct Mailing and Printing Company , P.S. Docket No. 3/128 (1975); R. H. Smith, Jr. , P.S. Docket No. 3/112 (1975); Jack Schaffer , P.S. Docket No. 3/98 (1975); Florists' Transworld Delivery Association , supra ; Encore Publishing Company , P.S. Docket No. 1/79 (1973).

The instant case presents even stronger circumstances for the application of Domestic Mail Manual 422.231(b) because The Portable Paper is utilized to provide discounts on Personalized Software products to its readers, with forms and instructions provided for ordering those products, and because of the total absence of any separation between The Portable Paper and Personalized Software's other enterprises.

This case is distinguishable from Lotus Publishing Corporation , supra . Although Lotus and the case at hand deal with computer- related subject matter, there is little similarity between The Portable Paper and Lotus magazine. Lotus magazine was established and maintained as a separate and distinct entity, legally, financially, managerially, and editorially, from the Lotus Development Corporation (LDC) the firm that owned the magazine.

In contrast, The Portable Paper does not maintain separate financial books, or a separate office from Personalized Software. (Tr. 50) Personalized Software and The Portable Paper are managed by the same person. (Stip. F. 5, 6; Tr. 9-11, 48-49) and utilize the same staff. (Tr. 49-50). Lotus did not give preference to LDC or its products, either editorially or in placement of LDC's advertisements. In contrast, the articles in The Portable Paper are invariably highly complimentary to products sold by Personalized Software. (Tr. 81-82) and usually appear in prominent places in the publication.

Importantly, The Portable Paper 's policy in publishing prices for products sold by Personalized Software demonstrates the preference it gives to Software and its products. The Portable Paper 's articles print the retail price for the article, and Personalized Software's discounted price. (Tr. 63, 83; JE-10 at 3, 4, 12, 21) However, The Portable Paper's articles do not reveal that other companies sell these products for less than Personalized Software.

The instant case is also distinguishable from The Diners Club, Inc. , supra ; Holmes Management , supra ; SmokEnders, Inc. , P.S. Docket No. 4/192 (1977); and Exxon Travel Club, Inc. , P.S. Docket No. 2/85 (1974). In those cases, the subscriber generally already had purchased the publisher's other product before subscribing to the publication.

Accordingly the decision of the Director, Office of Classi- fication and Rates Administration, denying The Portable Paper's second-class application was correct and is affirmed.