[Federal Register Volume 68, Number 13 (Tuesday, January 21, 2003)]
[Rules and Regulations]
[Pages 2697-2699]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-1156]


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POSTAL SERVICE

39 CFR Part 501


Authorization To Manufacture and Distribute Postage Meters

AGENCY: Postal Service.

ACTION: Final rule.

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SUMMARY: This final rule amends the regulations for postage meter 
inventory control and for the protection and control of security-
related processes and components. A desire to enhance the security of 
Postal Service revenues motivates these changes. The rule will improve 
the secure handling of postage meters and their security components by 
the approved postage meter manufacturers, and will extend the 
regulations to third-party agents and representatives of the 
manufacturers.

DATES: The rule is effective January 21, 2003.

FOR FURTHER INFORMATION CONTACT: Wayne Wilkerson, manager of Postage 
Technology Management, at 703-292-3691, or by fax at 703-292-4050.

[[Page 2698]]


SUPPLEMENTARY INFORMATION: The proposed rule was published in the 
Federal Register on April 24, 2002 (67 FR 20077), with a request for 
submission of comments by May 24, 2002. We received three submissions 
in response to the solicitation of public comments. The Postal Service 
gave thorough consideration to the comments it received, modified the 
proposed rule as appropriate in response to the comments, and now 
announces adoption of the final rule. We will amend the remaining 
sections of title 39 CFR part 501 in the near future so that they 
reflect the changes in the postage meter population and recent changes 
to regulations published in the Domestic Mail Manual regarding postage 
meters and other postage evidencing systems.

Discussion of Comments

    1. One commenter noted that since the Postal Service has control 
over all distributors of postage meters through the manufacturers, the 
amendments to the existing regulations make sense only if the 
manufacturer is allowed to transfer ownership of meters to 
distributors. The commenter suggested that revising the proposed 
regulation to allow transfer of ownership would increase competition in 
the marketplace and put an end to regulations that the commenter 
perceived as favoring manufacturers who operate a vertically integrated 
operation over those who use third parties to distribute meters. The 
commenter suggested that this change would make the regulation by the 
Postal Service of the security of postage meters in the custody of 
distributors and other third parties the same whether or not the third 
party owns, repairs, or distributes the meters.
    Any control the Postal Service exercises over a person or concern 
that controls, distributes, maintains, replaces, repairs, or disposes 
of meters is currently exercised through the manufacturer. The Postal 
Service is seeking to standardize and strengthen the level of 
manufacturer control. The Postal Service does not now allow the 
transfer of ownership of meters to a third party. Any entity wanting to 
own meters now must qualify under 39 CFR part 501 to become an approved 
manufacturer. The entity must be capable of performing all functions 
required by part 501, including performance of inspections and 
identifying meters that are defective or tampered. The entity must also 
be capable of protecting and controlling internal and security 
components within the scope of Sec.  501.28, as amended by this rule. 
No substantive change is made to the proposed rule in response to this 
comment.
    2. One commenter requested that the Postal Service provide standard 
written terms and conditions for manufacturers to include in all future 
third-party distributor agreements.
    Given the variety of relationships that could exist between a 
manufacturer and a third party that controls, distributes, maintains, 
replaces, repairs, or disposes of meters, the Postal Service does not 
believe it is feasible to provide standard written terms and conditions 
for manufacturers to include in a third-party agreement. All third 
parties must adhere to applicable regulations, just as the manufacturer 
does. The applicable regulations include title 39, Code of Federal 
Regulations, part 501, Authorization to Manufacture and Distribute 
Postage Meters, and Domestic Mail Manual, Issue 57, especially section 
P030, Postage Meters (Postage Evidencing Systems). Manufacturers could 
consider requiring adherence to these regulations, and any others that 
may be applicable, in any third-party agreement. No change is made to 
the proposed rule in response to this comment.
    3. One manufacturer with existing third-party relationships to 
distribute, replace, and dispose of meters suggested in its comment 
that such existing relationships should be grandfathered and exempt 
from the new regulations.
    The manufacturer is responsible for controlling any third party in 
accordance with all applicable regulations. Postage Technology 
Management has the authority to review all existing relationships and 
the manufacturer's internal controls to ensure compliance. In this 
final rule, the Postal Service is clarifying the proposed rule in 
response to this comment.
    4. One commenter asked that changes in field distribution 
relationships not require preapproval by the Postal Service. The time 
required to obtain such approval would unfairly burden the company and 
hinder its competitiveness. The commenter suggested that new third-
party relationships, with the exception of new field sales 
relationships, should be presented for approval.
    The Postal Service will review and approve third-party 
relationships only when the relationship has the potential to affect 
meter security or the security of Postal Service revenue. The Postal 
Service will not review those relationships commonly known as field 
sales or dealer relationships unless there is a particular security 
concern with the dealer or its operations. However, manufacturers must 
exercise control over their dealers in accordance with Postal Service 
regulations. In this final rule, the Postal Service is clarifying the 
proposed rule with respect to relationships with dealers and field 
sales representatives.

List of Subjects in 39 CFR Part 501

    Administrative practice and procedure, Postal Service.

The Amendment

    For the reasons set out in this document, the Postal Service is 
amending 39 CFR part 501 as follows:

PART 501--AUTHORIZATION TO MANUFACTURE AND DISTRIBUTE POSTAGE 
METERS

    1. The authority citation for part 501 continues to read as 
follows:

    Authority: 5 U.S.C. 552(a); 39 U.S.C. 101, 401, 403, 404, 410, 
2601, 2605; Inspector General Act of 1978, as amended (Pub. L. 95-
452, as amended); 5 U.S.C. App. 3.

    2. Revise Sec.  501.22 to read as follows:


Sec.  501.22  Inventory control.

    (a) An authorized manufacturer must maintain sufficient facilities 
for and records of the distribution, control, storage, maintenance, 
repair, replacement, and destruction or disposal of all meters and 
their components to enable accurate accounting thereof throughout the 
entire meter life cycle. Recordkeeping is required for all meters 
including newly produced meters, active leased meters, inactive meters, 
unleased meters, and lost or stolen meters. All such facilities and 
records are subject to inspection by Postal Service representatives.
    (b) If the manufacturer uses a third party to perform functions 
that may affect meter security, including, but not limited to meter 
repair, maintenance, and disposal, the manager of Postage Technology 
Management, Postal Service Headquarters, must review in advance all 
aspects of the relationship, as they relate to the custody and control 
of meters, and must specifically authorize in writing the arrangement 
between the parties.
    (1) Postal Service authorization of a third-party relationship for 
a given function does not extend to any other function. Extension of 
the third-party relationship to another function must be implemented 
and approved as if it were a new relationship.
    (2) No third-party relationship shall compromise the security of 
the meter, or of any of its components, including, but not limited to, 
the hardware, software, communications, and security components, or of 
any system with

[[Page 2699]]

which it interfaces, including, but not limited to, the resetting 
system, reporting systems, and Postal Service support systems. The 
functions of the third party with respect to a meter, its components, 
and the systems with which it interfaces are subject to the same 
scrutiny as the equivalent functions of the manufacturer.
    (3) Any authorized third party must keep adequate facilities for 
and records of meters and their components in accordance with paragraph 
(a) of this section. All such facilities and records are subject to 
inspection by Postal Service representatives, insofar as they are used 
to distribute, control, store, maintain, repair, replace, destroy, or 
dispose of meters.
    (4) The manufacturer must ensure that any party acting in its 
behalf in any of the functions described in paragraph (a) of this 
section maintains adequate facilities, records, and procedures for the 
security of the meters. Deficiencies in the operations of a third party 
relating to the custody and control of postage meters, unless corrected 
in a timely manner, can place at risk a manufacturer's approval to 
manufacture and/or distribute postage meters.
    (5) The Postal Service reserves the right to review all aspects of 
any third-party relationship when it becomes aware that the 
relationship poses a threat to meter security under paragraph (b)(2) of 
this section, whether or not that relationship required authorization 
under paragraph (b) of this section.

    3. Revise Sec.  501.28 to read as follows:


Sec.  501.28  Protection and control of internal and security 
components.

    Any physical or electronic access to the internal components of a 
meter, as well as any access to software or security parameters, must 
be conducted within an approved factory or meter repair facility under 
the manufacturer's direct control and active supervision. The Postal 
Service must have checked a meter out of service before any component, 
software, or security parameter is accessed or modified in any way, or 
internal repairs are undertaken. This does not apply to Postal Service-
approved user, field, or Postal Service access to a specific internal 
component or software. To prevent unauthorized use, the manufacturer or 
any third party acting on its behalf must keep secure any equipment or 
other component that can be used to open or access the internal, 
electronic, or secure components of a meter.

Stanley F. Mires,
Chief Counsel, Legislative.
[FR Doc. 03-1156 Filed 1-17-03; 8:45 am]
BILLING CODE 7710-12-P