[Federal Register Volume 71, Number 217 (Thursday, November 9, 2006)]
[Rules and Regulations]
[Pages 65732-65740]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-18949]


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POSTAL SERVICE

39 CFR Part 501


Requirements for Authority To Manufacture and Distribute Postage 
Evidencing Systems

AGENCY: Postal Service.

ACTION: Final rule.

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SUMMARY: This final rule revises the requirements for authority to 
manufacture and distribute postage evidencing systems. This final rule 
includes updating the regulations, removing obsolete text, and 
incorporating pertinent portions of the rules for postage meters 
(Postage Evidencing Systems) formerly contained in section P030 of the 
Mailing Standards of the United States Postal Service, Domestic Mail 
Manual (DMM) (Issue 58). This rule integrates the requirements that 
apply to the distribution and manufacture of PC Postage[supreg] 
products, a type of Postage Evidencing System. In addition, obsolete 
references to requirements for manually reset and mechanical meters are 
eliminated.

DATES: This rule is effective December 11, 2006.

FOR FURTHER INFORMATION CONTACT: Daniel J. Lord, Manager, Postage 
Technology Management, U.S. Postal Service, at 202-268-4281.

SUPPLEMENTARY INFORMATION: Postage Evidencing Systems are devices or 
systems of components that a customer uses to print evidence that the 
prepaid postage required for mailing has been paid. They include, but 
are not limited to, postage meters and PC Postage[supreg] systems. The 
Postal ServiceTM regulates these systems and their use in 
order to protect postal revenue. Only Postal Service-authorized product 
service providers may design, produce, and distribute Postage 
Evidencing Systems.
    As a result of changes in technology, proposed revisions were 
published in the Federal Register on June 27, 2006 [Vol. 71, No. 123, 
Pages 36498-36506], with a request for submission of comments by July 
27, 2006. We received three submissions from postage evidencing system 
providers in response to our solicitation for public comments. The 
Postal Service gave thorough consideration to the comments it received, 
modified the proposed rule as appropriate, determined that some 
comments were outside the scope of this rulemaking, and now announces 
the adoption of the final rule.

List of Subjects in 39 CFR Part 501

    Postal Service.

[[Page 65733]]


0
For the reasons set out in the preamble, the Postal Service revises 39 
CFR part 501 to read as set forth below:

PART 501--AUTHORIZATION TO MANUFACTURE AND DISTRIBUTE POSTAGE 
EVIDENCING SYSTEMS

Sec.
501.1 Definitions.
501.2 Postage Evidencing System provider authorization.
501.3 Postage Evidencing System provider qualification.
501.4 Changes in ownership or control, bankruptcy, or insolvency.
501.5 Burden of proof standard.
501.6 Suspension and revocation of authorization.
501.7 Postage Evidencing System requirements.
501.8 Postage Evidencing System test and approval.
501.9 Demonstration or test Postage Evidencing Systems.
501.10 Postage Evidencing System modifications.
501.11 Reporting Postage Evidencing System security weaknesses.
501.12 Administrative sanctions.
501.13 False representations of Postal Service actions.
501.14 Postage Evidencing System inventory control processes.
501.15 Computerized Meter Resetting System.
501.16 PC Postage payment methodology.
501.17 Decertified Postage Evidencing Systems.
501.18 Customer information and authorization.
501.19 Intellectual property.

    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.


Sec.  501.1  Definitions.

    (a) Postage Evidencing Systems regulated by part 501 produce 
evidence of prepayment of postage by any method other than postage 
stamps and permit imprints. A Postage Evidencing System is a device or 
system of components that a customer uses to generate and print 
evidence that postage required for mailing has been paid. Postage 
Evidencing Systems print indicia, such as meter imprints or 
information-based indicia to indicate postage payment. They include but 
are not limited to postage meters and PC Postage systems.
    (b) A postage meter is a Postal Service-approved Postage Evidencing 
System that uses a device to account for postage purchased and printed. 
The term meter as used in this part refers to a postage meter.
    (c) PC Postage products are Postal Service-approved Postage 
Evidencing Systems that use a personal computer as an integral part of 
the system. PC Postage products may use the Internet to download 
postage to a mailer's computer from which the postage indicia may then 
be printed.
    (d) A provider is a person or entity authorized under this section 
to manufacture and/or distribute Postage Evidencing Systems to 
customers.
    (e) A manufacturer of postage meters produces postage meters.
    (f) A distributor of postage meters may be a manufacturer who 
leases postage meters directly to end-user customers or may be an 
independent entity who leases postage meters to end-user customers on 
behalf of the manufacturer.
    (g) A customer is a person or entity authorized by the Postal 
Service to use a Postage Evidencing System in accordance with Mailing 
Standards of the United States Postal Service, Domestic Mail Manual 
(DMM) 604 Postage Payment Methods, 4.0 Postage Meters and PC Postage 
Products (Postage Evidencing Systems).


Sec.  501.2  Postage Evidencing System provider authorization.

    (a) The Postal Service considers Postage Evidencing Systems and 
their respective infrastructure to be essential to the exercise of its 
specific powers to prescribe postage and provide evidence of payment of 
postage under 39 U.S.C. 404(a)(2) and (4).
    (b) Due to the potential for adverse impact upon Postal Service 
revenue, the following activities may not be engaged in by any person 
or entity without prior, written approval of the Postal Service:
    (1) Producing or distributing any Postage Evidencing System that 
generates U.S. postage.
    (2) Repairing, distributing, refurbishing, remanufacturing, 
modifying, or destroying any component of a Postage Evidencing System 
that accounts for or authorizes the printing of U.S. postage.
    (3) Owning or operating an infrastructure that maintains operating 
data for the production of U.S. postage, or accounts for U.S. postage 
purchased for distribution through a Postage Evidencing System.
    (4) Owning or operating an infrastructure that maintains operating 
data that is used to facilitate registration with the Postal Service of 
customers of a Postage Evidencing System.
    (c) Any person or entity seeking authorization to perform any 
activity described in paragraph (b) of this section, or to materially 
modify any activity previously approved by the Postal Service, must 
submit a request to the Postal Service in person or in writing. 
Decisions of the Postal Service upon such requests are effective only 
if in writing (including electronic mail).
    (d) Approval shall be based upon satisfactory evidence of the 
applicant's integrity and financial responsibility, commitment to the 
security of the Postage Evidencing System, and a determination that 
disclosure to the applicant of Postal Service customer, financial, or 
other data of a commercial nature necessary to perform the function for 
which approval is sought would be appropriate and consistent with good 
business practices within the meaning of 39 U.S.C. 410(c)(2). The 
Postal Service may condition its approval upon the applicant's 
agreement to undertakings that would give the Postal Service 
appropriate assurance of the applicant's ability to meet its 
obligations under this section, including but not limited to the method 
and manner of performing certain financial, security, and servicing 
functions and the need to maintain sufficient financial reserves to 
guarantee uninterrupted performance of not less than 3 months of 
operation.
    (e) Qualification and approval may be based upon additional 
conditions agreed to by the Postal Service and the applicant. The 
applicant is approved in writing to engage in the function(s) for which 
authorization was sought and approved.
    (f) To the extent that any provider manufactures and/or distributes 
any PC Postage product through any authorized Postage Evidencing 
System, such provider must adhere to the requirements of these 
regulations.
    (g) The Postal Service office responsible for administration of 
this Part 501 is the office of Postage Technology Management (PTM) or 
successor organization. All submissions to the Postal Service required 
or invited by this Part 501 are to be made to this office in person or 
via mail to 475 L'Enfant Plaza SW, North Building Suite 4200, 
Washington, DC 20260-4200. Information updates may be found on the 
Postal Service Web site at http://www.usps.com/postagesolutions/flash.htm.


Sec.  501.3  Postage Evidencing System provider qualification.

    Any person or entity seeking authorization to manufacture and/or 
distribute Postage Evidencing Systems must:
    (a) Satisfy the Postal Service of its integrity and financial 
responsibility.
    (b) Obtain Postal Service approval under this part of at least one 
Postage Evidencing System satisfying the requirements of Postal Service 
regulations.

[[Page 65734]]

    (c) As a condition of obtaining authorization under this section, 
the Postage Evidencing System provider's facilities used for the 
manufacture, distribution, storage, resetting, or destruction of 
postage meters and all facilities housing infrastructure supporting 
Postage Evidencing Systems will be subject to unannounced inspection by 
representatives of the Postal Service. If such facilities are outside 
the continental United States, the provider will be responsible for all 
reasonable and necessary travel-related costs incurred by the Postal 
Service to conduct the inspections. Travel-related costs are determined 
in accordance with Postal Service Handbook F-15, Travel and Relocation. 
At its discretion, the Postal Service may continue to fund routine 
inspections outside the continental United States as it has in the 
past, provided the costs are not associated with particular security 
issues related to a provider's Postage Evidencing System or supporting 
infrastructure, or with the start-up or implementation of a new plant 
or of a new or substantially changed manufacturing process.
    (1) When conducting an inspection outside the continental United 
States, the Postal Service will make every effort to combine the 
inspection with other inspections in the same general geographic area 
in order to enable affected providers to share the costs. The Postal 
Service team conducting such inspections will be limited to the minimum 
number necessary to conduct the inspection. All air travel will be 
contracted for at the rates for official government business, when 
available, under such rules respecting class of travel as apply to 
those Postal Service representatives inspecting the facility at the 
time the travel occurs.
    (2) If political or other impediments prevent the Postal Service 
from conducting security evaluations of Postage Evidencing System 
facilities in foreign countries, Postal Service approval of the 
activities conducted in such facilities may be suspended until such 
time as satisfactory inspections may be conducted.
    (d) Have, or establish, and keep under its active supervision and 
control adequate facilities for the control, distribution, and 
maintenance of Postage Evidencing Systems and their replacement or 
secure disposal or destruction when necessary and appropriate.


Sec.  501.4  Changes in ownership or control, bankruptcy, or 
insolvency.

    (a) Any person or entity authorized under Sec.  501.2 must promptly 
notify the Postal Service when it has a reasonable expectation that 
there may be a change in its ownership or control including changes in 
the ownership of an affiliate which exercises control over its Postage 
Evidencing System operations in the United States. A change of 
ownership or control within the meaning of this section includes entry 
into a strategic alliance or other agreement whereby a third party 
either has access to data related to the security of the system or is a 
competitor to the Postal Service. Any person or entity seeking to 
acquire ownership or control of a person or entity authorized under 
Sec.  501.2 must provide the Postal Service satisfactory evidence that 
upon completion of the contemplated transaction, it will satisfy the 
conditions for approval stated in Sec.  501.2. Early notification of a 
proposed change in ownership or control will facilitate expeditious 
review of an application to acquire ownership or control under this 
section.
    (b) Any person or entity authorized under Sec.  501.2 must promptly 
notify the Postal Service when it has a reasonable expectation that 
there may be a change in the status of its financial condition either 
through bankruptcy, insolvency, assignment for the benefit of 
creditors, or other similar financial action. Any person or entity 
authorized under Sec.  501.2 who experiences a change in the status of 
its financial condition may, at the discretion of the Postal Service, 
have its authorization under Sec.  501.2 modified or terminated.


Sec.  501.5  Burden of proof standard.

    The burden of proof is on the Postal Service in administrative 
determinations of suspension and revocation under Sec.  501.6 and 
administrative sanctions under Sec.  501.12. Except as otherwise 
indicated in those sections, the standard of proof shall be the 
preponderance-of-evidence standard.


Sec.  501.6  Suspension and revocation of authorization.

    (a) The Postal Service may suspend and/or revoke authorization to 
manufacture and/or distribute any or all of a provider's approved 
Postage Evidencing System(s) if the provider engages in any unlawful 
scheme or enterprise, fails to comply with any provision in this Part 
501, fails to implement instructions issued in accordance with any 
final decision issued by the Postal Service within its authority over 
Postage Evidencing Systems or if the Postage Evidencing System or 
infrastructure of the provider is determined to constitute an 
unacceptable risk to Postal Service revenues.
    (b) The decision to suspend or revoke pursuant to paragraph (a) of 
this section shall be based upon the nature and circumstances of the 
violation (e.g. whether the violation was willful, whether the provider 
voluntarily admitted to the violation, or cooperated with the Postal 
Service, whether the provider implemented successful remedial measures) 
and on the provider's performance history. Before determining that a 
provider's authorization to manufacture and/or distribute Postage 
Evidencing Systems should be suspended or revoked, the procedures in 
paragraph (c) of this section shall be followed.
    (c) Suspension or revocation procedures:
    (1) Upon determination by the Postal Service that a provider is in 
violation of provisions of this Part 501, or that its Postal Evidencing 
System poses an unreasonable risk to postal revenue, PTM, acting on 
behalf of the Postal Service shall issue a written notice of proposed 
suspension citing the specific conditions or deficiencies for which 
suspension of authorization to manufacture and/or distribute a specific 
Postage Evidencing System or class of Postage Evidencing Systems may be 
imposed. 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 revenue 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, PTM shall issue a written notice of 
suspension 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) The notice shall also advise the provider of its right to file 
a response under paragraph (d) of this section. If a written response 
is not presented in a timely manner the suspension may go into effect. 
The suspension shall remain in effect for ninety (90) calendar days 
unless revoked or modified by PTM.
    (4) 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 
(c)(5)(iii) of this section.
    (5) At the end of the ninety (90) day suspension, the Postal 
Service may:

[[Page 65735]]

    (i) Extend the suspension in order to allow more time for 
investigation or to allow the provider time to correct the problem.
    (ii) Make a determination to revoke authorization to manufacture 
and/or distribute a Postage Evidencing System in part or in whole.
    (iii) Withdraw the suspension based on identification and 
implementation of a satisfactory solution to the problem.
    (d) The provider may present the Postal Service with a written 
defense to any suspension or revocation determination within thirty 
(30) calendar days of receiving the written notice (unless a shorter 
period is deemed necessary). The defense must include all supporting 
evidence and state with specificity the reasons why the order should 
not be imposed.
    (e) After receipt and consideration of the defense, PTM shall 
advise the provider of its decision and the facts and reasons for it. 
The decision shall be effective on receipt unless provided otherwise. 
The decision shall also advise the provider that it may be appealed 
within thirty (30) calendar days of receipt (unless a shorter time 
frame is deemed necessary). If an appeal is not filed in a timely 
manner, the decision of PTM shall become a final decision of the Postal 
Service. The appeal may be filed with the Chief Marketing Officer of 
the Postal Service and must include all supporting evidence and state 
with specificity the reasons the provider believes that the decision is 
erroneous. The decision of the Chief Marketing Officer shall constitute 
a final decision of the Postal Service.
    (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 entity.


Sec.  501.7  Postage Evidencing System requirements.

    (a) A Postage Evidencing System submitted to the Postal Service for 
approval must meet the requirements of the Performance Criteria for 
Information-Based Indicia and Security Architecture for Open IBI 
Postage Evidencing Systems or Performance Criteria for Information-
Based Indicia and Security Architecture for Closed IBI Postage Metering 
Systems published by PTM. The current versions of the Performance 
Criteria may be found on the Postal Service Web site at http://www.usps.com/postagesolutions/programdoc.html or 
requests for copies may be submitted via mail to the address in Sec.  
501.2(g).
    (b) The provider must affix to all meters a cautionary message 
providing the meter user with basic reminders on leasing and meter 
movement.
    (1) The cautionary message must be placed on all meters in a 
conspicuous and highly visible location. PROPERTY OF [NAME OF PROVIDER] 
as well as the provider's toll-free number must be emphasized by 
capitalized bold type and preferably printed in red. The minimum width 
of the message should be 3.25 inches, and the minimum height should be 
1.75 inches. The message should read as follows:

RENTED POSTAGE METER-NOT FOR SALE
PROPERTY OF [NAME OF PROVIDER]
(800) -


    Use of this meter is permissible only under U.S. Postal Service 
authorization. Call [Name of Provider] at (800) 
- to 
relocate/return this meter.

WARNING! METER TAMPERING IS A FEDERAL OFFENSE.
IF YOU SUSPECT METER TAMPERING, CALL POSTAL INSPECTORS AT (800) 372-
8347

    REWARD UP TO $50,000 for information leading to the conviction 
of any person who misuses postage meters resulting in the Postal 
Service not receiving correct postage payments.

    (2) Exceptions to the formatting of the required message are 
determined on a case-by-case basis. Any deviation from standardized 
meter message requirements must be approved in writing by the Postal 
Service.
    (c) The provider must ensure that any matter printed by a postage 
evidencing system, whether within the boundaries of the indicia or 
outside the clear zone as defined in DMM 604.4.0 and the Performance 
Criteria for Information-Based Indicia and Security Architecture for 
Open IBI Postage Evidencing Systems or Performance Criteria for 
Information-Based Indicia and Security Architecture for Closed IBI 
Postage Metering Systems, is:
    (1) Consistent with the Postal Service's intent to maintain 
neutrality on religious, social, political, legal, moral, or other 
public issues;
    (2) Is not obscene, deceptive, or defamatory of any person, entity, 
or group, and does not advocate unlawful action;
    (3) Does not emulate any form of valid postage, government, or 
other official indicia, or payment of postage; and
    (4) Does not harm the public image, reputation, or good will of the 
Postal Service and is not otherwise derogatory or detrimental to the 
interests of the Postal Service.
    (d) Providers must also ensure that customers acknowledge, agree, 
and warrant in writing that:
    (1) The customer bears full responsibility and liability for 
obtaining authorization to reproduce and otherwise use the matter as 
proposed (including, without limitation, any trademarks, slogans, 
likenesses or copyrighted material contained in the image);
    (2) The customer in fact has the legal authority to reproduce and 
otherwise use the matter as proposed; and
    (3) The customer understands that images or other matter is not 
provided, approved, or endorsed in any way by the Postal Service.


Sec.  501.8  Postage Evidencing System test and approval.

    (a) To receive Postal Service approval, each Postage Evidencing 
System must be submitted by the provider and evaluated by the Postal 
Service in accordance with the Postage Evidencing Product Submission 
Procedures published by PTM. The current version of the Product 
Submission Procedures may be found on the Postal Service Web site at 
http://www.usps.com/postagesolutions/programdoc.html or requests for copies may be submitted 
via mail to the address in 501.2(g). These procedures apply to all 
proposed Postage Evidencing Systems regardless of whether the provider 
is currently authorized by the Postal Service to distribute Postage 
Evidencing Systems. All testing required by the Postal Service will be 
an expense of the provider.
    (b) As provided in Sec.  501.11, the provider has a duty to report 
security weaknesses to the Postal Service to ensure that each approved 
Postage Evidencing System protects the Postal Service against loss of 
revenue at all times. A grant of approval of a system does not 
constitute an irrevocable determination that the Postal Service is 
satisfied with the revenue-protection capabilities of the system. After 
approval is granted to manufacture and/or distribute a Postage 
Evidencing System, no change affecting its basic features or safeguards 
may be made except as authorized or ordered by the Postal Service in 
writing.


Sec.  501.9  Demonstration or test Postage Evidencing Systems.

    (a) A demonstration or test postage evidencing system is any system 
that produces an image that replicates a postage indicium for which the 
Postal Service has not received payment for postage. The following 
procedures must be followed to implement controls over

[[Page 65736]]

demonstration or test Postage Evidencing Systems:
    (1) A demonstration or test Postage Evidencing System may print 
only specimen or test indicia. A specimen or test indicia must clearly 
indicate that the indicia does not represent valid postage.
    (2) A demonstration or test Postage Evidencing System must be 
recorded as such on internal provider inventory records and must be 
tracked by model number, serial number, and physical location.
    (3) A demonstration or test Postage Evidencing System must remain 
under the provider's direct control. A demonstration or test Postage 
Evidencing System may not be left in the possession of a customer under 
any circumstance.
    (b) All indicia printed by a demonstration or test Postage 
Evidencing System must be collected and destroyed daily.


Sec.  501.10  Postage Evidencing System modifications.

    (a) An authorized provider must receive prior written approval from 
the manager, PTM, of any and all changes made to a previously approved 
Postage Evidencing System. The notification must include a summary of 
all changes made and the provider's assessment as to the impact of 
those changes on the security of the Postage Evidencing System and 
postage funds. Upon receipt of the notification, PTM will review the 
summary of changes and make a decision regarding the need for the 
following:
    (1) Additional documentation.
    (2) Level of test and evaluation required.
    (3) Necessity for evaluation by a laboratory accredited by the 
National Institutes of Standards and Technology (NIST) under the 
National Voluntary Laboratory Accreditation Program (NVLAP).
    (b) Upon receipt and review of additional documentation and/or test 
results, PTM will issue a written acknowledgement and/or approval of 
the change to the provider.


Sec.  501.11  Reporting Postage Evidencing System security weaknesses.

    (a) For purposes of this section, provider refers to the Postage 
Evidencing System provider authorized under Sec.  501.2 and its foreign 
affiliates, if any, subsidiaries, assigns, dealers, independent 
dealers, employees, and parent corporations.
    (b) Each authorized provider of a Postage Evidencing System must 
notify the Postal Service within twenty-four (24) hours, upon 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 Postage Evidencing System sold, leased, or 
distributed by it that has been approved for sale, lease, or 
distribution by the Postal Service or any foreign postal 
administration; or has been submitted for approval by the provider to 
the Postal Service or other foreign postal administration(s).
    (2) All potential security weaknesses or methods of tampering with 
the Postage Evidencing Systems that the provider distributes of which 
it knows or should know and the Postage Evidencing System model subject 
to each such method. Potential security weaknesses include but are not 
limited to suspected equipment defects, suspected abuse by a customer 
or provider employee, suspected security breaches of the Computerized 
Meter Resetting System (CMRS) or databases housing confidential 
customer data relating to the use of Postage Evidencing Systems, 
occurrences outside normal performance, or any repeatable deviation 
from normal Postage Evidencing System performance.
    (c) Within a time limit corresponding to the potential revenue risk 
to postal revenue as determined by the Postal Service, 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 and 
shall provide a copy of such internal reporting procedures and 
instructions to the Postal Service for review.
    (e) Failure to comply with this section may result in suspension of 
approval under Sec.  501.6 or the imposition of sanctions under Sec.  
501.12.


Sec.  501.12  Administrative sanctions.

    (a) An authorized Postage Evidencing System provider may be 
responsible to the Postal Service for revenue losses caused by failure 
to comply with Sec.  501.11.
    (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 Postage Evidencing System for which the provider 
failed to comply with any provision in Sec.  501.11. The Postal Service 
issues a written demand for reimbursement of any and all such costs and 
losses (net of any amount collected by the Postal Service from the 
customers) with interest. The demand shall set forth the facts and 
reasons on which it is based.
    (c) The provider may present the Postal Service with a written 
defense to the proposed action within thirty (30) calendar days of 
receipt. The defense must include all supporting evidence and state 
with specificity 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 
provides otherwise. The decision shall also advise the provider that it 
may, within thirty (30) calendar days of receiving written notice, 
appeal that determination to the Chief Marketing Officer of the Postal 
Service who shall issue a written decision upon the appeal which will 
constitute the final Postal Service decision.
    (e) 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 entity.
    (f) An authorized Postage Evidencing System provider, who without 
just cause fails to follow any Postal Service approved procedures, 
perform adequately any of the Postal Service approved controls, or 
fails to obtain approval of a required process in Sec.  501.14 in a 
timely fashion, is subject to an administrative sanction under this 
provision Sec.  501.12.


Sec.  501.13  False representations of Postal Service actions.

    Providers, their agents, and employees must not intentionally 
misrepresent to customers of the Postal Service decisions, actions, or 
proposed actions of the Postal Service respecting its regulation of 
Postage Evidencing Systems. The Postal Service reserves the right to 
suspend and/or revoke the authorization to manufacture or distribute 
Postage Evidencing Systems throughout the United States or any part 
thereof pursuant to Sec.  501.6 when it

[[Page 65737]]

determines that the provider, its agents, or employees failed to comply 
with this section.


Sec.  501.14  Postage Evidencing System inventory control processes.

    (a) Each authorized provider of Postage Evidencing Systems must 
permanently hold title to all Postage Evidencing Systems which it 
manufactures or distributes except those purchased by the Postal 
Service or distributed outside the United States.
    (b) An authorized provider must maintain sufficient facilities for 
and records of the distribution, control, storage, maintenance, repair, 
replacement, and destruction or disposal of all Postage Evidencing 
Systems and their components to enable accurate accounting and location 
thereof throughout the entire life cycle of each Postage Evidencing 
System. A complete record shall entail a list by serial number of all 
Postage Evidencing Systems manufactured or distributed showing all 
movements of each system from the time that it is produced until it is 
scrapped, and the reading of the ascending register each time the 
system is checked into or out of service. These records must be 
available for inspection by Postal Service officials at any time during 
business hours.
    (c) To ensure adequate control over Postage Evidencing Systems, 
plans for the following processes must be submitted for prior approval, 
in writing, to PTM:
    (1) Check in to service procedures for all Postage Evidencing 
Systems--the procedures are to address the process to be used for new 
Postage Evidencing Systems as well as those previously leased to 
another customer.
    (2) Transportation and storage of meters--procedures that provide 
reasonable precautions to prevent use by unauthorized individuals. 
Providers must ship all meters 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.
    (3) Postage meter examination/inspection procedures and schedule--
The provider is required to perform postage meter examinations or 
inspections based on an approved schedule. Failure to complete the 
meter examination or inspections by the due date may result in the 
Postal Service requiring the provider to disable the meter's resetting 
capability. If necessary, the Postal Service shall notify the customer 
that the meter is to be removed from service and the authorization to 
use a meter revoked, following the procedures for revocation specified 
by regulation. The Postal Service shall notify the provider to remove 
the meter from the customer's location.
    (4) Check out of service procedures for a non-faulty Postage 
Evidencing System when the system is to be removed from service for any 
reason.
    (5) Postage meter repair process--any physical or electronic access 
to the internal components of a postage meter, as well as any access to 
software or security parameters, must be conducted within an approved 
facility under the provider's direct control and active supervision. To 
prevent unauthorized use, the provider 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.
    (6) Faulty meter handling procedures, including those that are 
inoperable, mis-registering, have unreadable registers, inaccurately 
reflect their current status, show any evidence of possible tampering 
or abuse, and those for which there is any indication that the meter 
has some mechanical or electrical malfunction of any critical security 
component, such as any component the improper operation of which could 
adversely affect Postal Service revenues, or of any memory component, 
or that affects the accuracy of the registers or the accuracy of the 
value printed.
    (7) Lost or stolen meter procedures--the provider must promptly 
report to the Postal Service the loss or theft of any meter or the 
recovery of any lost or stolen meter. Such notification to the Postal 
Service will be made by completing and filing a standardized lost and 
stolen meter incident report within ten (10) calendar days of the 
provider's determination of a meter loss, theft, or recovery.
    (8) Postage meter destruction, when required-the postage meter must 
be rendered completely inoperable by the destruction process and 
associated postage--printing dies and components must be destroyed. 
Manufacturers/distributors of meters must submit the proposed 
destruction method; a schedule listing the postage meters to be 
destroyed, by serial number and model; and the proposed time and place 
of destruction to PTM for approval prior to any meter destruction. 
Providers must record and retain the serial numbers of the meters to be 
destroyed and provide a list of such serial numbers in electronic form 
in accordance with Postal Service requirements for meter accounting and 
tracking systems. Providers must give sufficient advance notice of the 
destruction to allow PTM to schedule observation by its designated 
representative who shall verify that the destruction is performed in 
accordance with a Postal Service--approved method or process. To the 
extent that the Postal Service elects not to observe a particular 
destruction, the provider must submit a certification of destruction, 
including the serial number(s) to the Postal Service within five (5) 
calendar days of destruction. These requirements for meter destruction 
apply to all postage meters, Postage Evidencing Systems, and postal 
security devices included as a component of a Postage Evidencing 
System.
    (d) If the provider uses a third party to perform functions that 
may affect Postage Evidencing System security, including, but not 
limited to repair, maintenance, and disposal of Postage Evidencing 
Systems, PTM must be advised in advance of all aspects of the 
relationship, as they relate to the custody and control of Postage 
Evidencing Systems, and must specifically authorize in writing the 
proposed arrangement between the parties.
    (1) Postal Service authorization of a third party relationship to 
perform specific functions applies only to the functions stated in the 
written authorization but may be amended to embrace additional 
functions.
    (2) No third-party relationship shall compromise the security of 
the Postage Evidencing System, or its components, including, but not 
limited to, the hardware, software, communications, and security 
components, or of any security-related system with 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 Postage Evidencing System, its components, and the 
systems with which it interfaces are subject to the same scrutiny as 
the equivalent functions of the provider.
    (3) Any authorized third party must keep adequate facilities for 
and records of Postage Evidencing Systems and their components in 
accordance with paragraph (b) 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 Postage Evidencing Systems.
    (4) The provider must ensure that any party acting on its behalf in 
any of the functions described in paragraph (b) of this section 
maintains adequate

[[Page 65738]]

facilities, records, and procedures for the security of the Postage 
Evidencing Systems. Deficiencies in the operations of a third party 
relating to the custody and control of Postage Evidencing Systems, 
unless corrected in a timely manner, can place at risk a provider's 
approval to manufacture and/or distribute Postage Evidencing Systems.
    (5) The Postal Service reserves the right to review all aspects of 
any third party relationship if it appears that the relationship poses 
a threat to Postage Evidencing System security and may require the 
provider to take appropriate corrective action.


Sec.  501.15  Computerized Meter Resetting System.

    (a) Description. The Computerized Meter Resetting System (CMRS) 
permits customers to reset their postage meters at their places of 
business. Authorized providers, who operate CMRS services, are known as 
resetting companies (RCs).
    (b) A customer is required to have funds available on deposit with 
the Postal Service before resetting a Postage Evidencing System or the 
provider may opt to provide a funds advance in accordance with 
paragraph (c) of this section.
    (c) If the RC chooses to offer advancement of funds to customers, 
the RC is required to maintain a deposit with the Postal Service equal 
to at least one (1) day's average funds advanced. The total amount of 
funds advanced to customers on any given day shall not exceed the 
amount the provider has on deposit with the Postal Service. The Postal 
Service shall not be liable for any payment made by the RC on behalf of 
a customer that is not reimbursed by the customer, since the RC is 
solely responsible for the collection of advances made by the RC.
    (d) The CMRS customer is permitted to make deposits in one of three 
ways: check, electronic funds transfer (or wire transfer), or automated 
clearinghouse (ACH) transfer. These deposits must be remitted to the 
Postal Service's designated bank account.
    (e) The RC must require each CMRS customer that requests a meter 
resetting to provide the meter serial number, the CMRS account number, 
and the meter's ascending and descending register readings. The RC must 
verify that there are sufficient funds in the customer's CMRS account 
to cover the postage setting requested before proceeding with the 
setting transaction (unless the RC opts to provide the customer a funds 
advance).
    (f) The Postal Service requires that the RC publicize to all CMRS 
customers the following payment options (listed in order of 
preference):
    (1) Automated clearinghouse (ACH) debits/credits.
    (2) Electronic funds transfers (wire transfers).
    (3) Checks.
    (g) Returned checks and ACH debits are the responsibility of the 
Postal Service. Upon notice from the Postal Service's designated bank, 
the provider will be required to immediately lock the customer account 
to prevent a meter reset until the Postal Service receives payment for 
the returned check or the provider is provided with valid ACH credit or 
wire information.
    (h) Refunds. The Postal Service will issue a refund in the amount 
remaining in a customer's Computerized Meter Resetting System account, 
after such time as the customer provides a written request to the 
provider, as long as the request meets the Postal Service approved 
minimum and time frame.
    (i) Security and Revenue Protection. To receive Postal Service 
approval to continue to operate systems in the CMRS environment, the RC 
must submit to a periodic audit of its system, to be conducted by an 
independent systems auditor, the frequency and scope of which shall be 
determined by the Postal Service. The provider will be responsible for 
all reasonable costs to conduct these audits.
    (j) Inspection of records and facilities. The RC must make its 
facilities that handle the operation of the computerized resetting 
system and all records about the operation of the system available for 
inspection by representatives of the Postal Service at all reasonable 
times. At its discretion, the Postal Service may continue to fund 
inspections as it has in the past, provided the costs are not 
associated with a particular security issue related to the provider's 
CMRS or supporting infrastructure.
    (k) The RC is required to incorporate the following language into 
its meter rental agreements:

Acknowledgment of Deposit Requirement--Meters

    By signing this meter rental agreement, you the customer 
represent that you have read the Acknowledgment of Deposit 
Requirement--Meters and are familiar with its terms. You agree that, 
upon execution of this agreement with the RC, you will also be bound 
by all terms and conditions of the Acknowledgment of Deposit 
Requirement--Meters, as it may be amended from time to time.


Sec.  501.16  PC Postage payment methodology.

    (a) The PC Postage customer is permitted to make payments for 
postage in one of two ways: automated clearinghouse (ACH) transfer or 
credit card.
    (b) The provider must make payments on behalf of the customer to 
the Postal Service in accordance with contractual and/or regulatory 
responsibilities.
    (c) The Postal Service requires that the provider publicize to all 
PC Postage customers the following payment options (listed in order of 
preference):
    (1) Automated clearinghouse (ACH) debits/credits.
    (2) Credit cards.
    (d) Returned ACH debits and credit card returns are the 
responsibility of the Postal Service. The RC must lock the customer 
account immediately so that the customer is unable to reset the account 
until the Postal Service receives payment in full.
    (e) Refunds. The provider issues a refund to a customer for any 
unused postage in a Postage Evidencing System. After verification by 
the Postal Service, the provider will be reimbursed by the Postal 
Service for the individual refunds provided to customers by the 
provider, as long as the individual customer requests meet the Postal 
Service approved minimum and time frame.
    (f) Security and revenue protection. To receive Postal Service 
approval to continue to operate PC Postage systems, the provider must 
submit to a periodic audit of its system, to be conducted by an 
independent systems auditor, the frequency and scope of which shall be 
determined by the Postal Service. The provider will be responsible for 
all reasonable costs to conduct these audits.
    (g) Inspection of records and facilities. The provider must make 
its facilities, which handle the operation of the PC Postage system and 
all records about the operation of the system, available for inspection 
by representatives of the Postal Service at all reasonable times. At 
its discretion, the Postal Service may continue to fund inspections as 
it has in the past, provided the costs are not associated with a 
particular security issue related to the provider's CMRS or supporting 
infrastructure.
    (h) To the extent that the customer maintains funds on deposit for 
the payment of postage, the provider is required to incorporate the 
following language into its agreements with PC Postage customers:

Acknowledgment of Deposit Requirement--PC Postage

    By signing this agreement with the provider, you represent that 
you have read the Acknowledgment of Deposit Requirement--PC Postage 
and are familiar with its terms. You agree that, upon execution of 
this agreement with the provider, you will also be bound by all 
terms

[[Page 65739]]

and conditions of the Acknowledgment of Deposit Requirement--PC 
Postage, as it may be amended from time to time.


Sec.  501.17  Decertified Postage Evidencing Systems.

    (a) A Decertified Postage Evidencing System is a device for which 
the provider's authority to distribute has been withdrawn by the Postal 
Service as a result of any retirement plan for a given class of meters 
published by the Postal Service in the Federal Register; a suspension 
or revocation under Sec.  501.6; or a voluntary withdrawal undertaken 
by the provider.
    (b) A Decertified Postage Evidencing System must be withdrawn from 
service by the date agreed to by the Postal Service and provider.
    (c) To the extent postage meters are involved, the provider must 
utilize the approved procedures for lost and stolen meters under Sec.  
501.14(c)(7) to locate the meter and remove it from service by the 
agreed upon date.
    (d) Decertified Postage Evidencing Systems that are not submitted 
to the Postal Service for refund within one hundred and eighty (180) 
days of the agreed upon withdrawal from service date will not be 
eligible for refund of unused postage.
    (e) Postage indicia printed by Decertified Postage Evidencing 
Systems may no longer be considered valid postage one hundred and 
eighty (180) days from the agreed upon withdrawal from service date.


Sec.  501.18  Customer information and authorization.

    (a) Authorized providers must electronically transmit the necessary 
customer information to the designated Postal Service central data 
processing facility, in Postal Service-specified format, in order for 
the Postal Service to authorize a customer to use a Postage Evidencing 
System. Postal Service receipt and acceptance of the customer 
information provides the customer with the authorization to possess or 
use a Postage Evidencing System in accordance with DMM 604 Postage 
Payment Methods, 4.0 Postage Meters and PC Postage Products (Postage 
Evidencing Systems).
    (b) The Postal Service may refuse to issue a customer authorization 
to use a Postage Evidencing System for the following reasons:
    (1) The customer submitted false or fictitious information.
    (2) Within five years preceding submission of the information, the 
customer violated any standard for the care or use of the Postage 
Evidencing System that resulted in revocation of that customer's 
authorization.
    (3) Or there is sufficient reason to believe that the Postage 
Evidencing System is to be used in violation of the applicable 
standards.
    (c) The Postal Service will notify the provider of the revocation 
of a customer's authorization to use a Postage Evidencing System. 
Within ten (10) days of receipt of the notice of revocation, the 
provider must cancel any lease or other agreement and remove the 
Postage Evidencing System from service. A customer's authorization to 
use a Postage Evidencing system is subject to revocation for any of the 
following reasons:
    (1) A Postage Evidencing System is used for any illegal scheme or 
enterprise.
    (2) The customer's Postage Evidencing System is not used for twelve 
(12) consecutive months.
    (3) Sufficient control of a Postage Evidencing System is not 
exercised or the standards for its care or use are not followed.
    (4) The Postage Evidencing System is kept or used outside the 
customs territory of the United States or those U.S. territories and 
possessions where the Postal Service operates.
    (5) The customer is in possession of a Decertified Postage 
Evidencing System.
    (d) The provider must electronically transmit any updates to the 
necessary customer information to the designated Postal Service central 
data processing facility, in Postal Service-specified format.
    (e) No one other than an authorized provider may possess a Postage 
Evidencing System without a valid rental or other agreement with the 
provider. Other parties in possession of a Postage Evidencing System 
must immediately surrender it to the provider or the Postal Service.
    (f) The Postal Service may use customer information consistent with 
the Privacy Act and the Postal Service's privacy policies posted on 
http://www.usps.com. Examples include the following:
    (1) Communication with customers who may no longer be visiting a 
traditional Postal Service retail outlet or communication with 
customers through any new retail channels.
    (2) Issuance (including re-authorization, renewal, transfer, 
revocation or denial, as applicable) of authorization to use a Postage 
Evidencing System to a postal patron that uses a Postage Evidencing 
System, and communications with respect to the status of such 
authorization.
    (3) Disclosure to a meter provider of the identity of any meter 
required to be removed from service by that meter provider, and any 
related customer data, as the result of revocation of an authorization 
to use a Postage Evidencing System, questioned accurate registration of 
that meter, or de-certification by the Postal Service of any particular 
class or model of postage meter.
    (4) Tracking the movement of meters between a meter provider and 
its customers and communications to a meter provider (but not to any 
third party other than the customer) concerning such movement. The term 
meter provider includes a meter provider's dealers and agents.
    (5) To transmit general information to all Postage Evidencing 
System customers concerning rate and rate category changes implemented 
or proposed for implementation by the Postal Service.
    (6) To advertise Postal Service services relating to the 
acceptance, processing, and delivery of, or postage payment for, 
metered mail.
    (7) To allow the Postal Service to communicate with Postal Service 
customers on products, services, and other information otherwise 
available to Postal Service customers through traditional retail 
outlets.
    (8) Any internal use by Postal Service personnel, including 
identification and monitoring activities relating to Postage Evidencing 
Systems, provided that such use does not result in the disclosure of 
applicant information to any third party or will not enable any third 
party to use applicant information for its own purposes; except that 
the applicant information may be disclosed to other governmental 
agencies for law enforcement purposes as provided by law.
    (9) Identification of authorized Postage Evidencing System 
providers or announcement of the de-authorization of an authorized 
provider, or provision of currently available public information, where 
an authorized provider is identified.
    (10) To promote and encourage the use of Postage Evidencing Systems 
as a form of postage payment, provided that the same information is 
provided to all Postage Evidencing System customers and no particular 
Postage Evidencing System provider will be recommended by the Postal 
Service.
    (11) To contact customers in cases of revenue fraud or revenue 
security.
    (12) Disclosure to a Postage Evidencing System provider of 
applicant information pertaining to that provider's customers that the 
Postal Service views as necessary to enable the

[[Page 65740]]

Postal Service to carry out its duties and purposes.
    (13) To transmit to a Postage Evidencing System provider all 
applicant and system information pertaining to that provider's 
customers and systems that may be necessary to permit such provider to 
synchronize its computer databases with information contained in the 
computer files of the Postal Service.
    (14) Subject to the conditions stated herein, to communicate in 
oral or written form with any or all applicants any information that 
the Postal Service views as necessary to enable the Postal Service to 
carry out its duties and purposes under part 501.


Sec.  501.19  Intellectual property.

    Providers submitting Postage Evidencing Systems to the Postal 
Service for approval are responsible for obtaining all intellectual 
property licenses that may be required to distribute their product in 
commerce and to allow the Postal Service to process mail bearing the 
indicia produced by the Postage Evidencing System. To the extent 
approval is granted and the Postage Evidencing System is capable of 
being used in commerce, the provider shall indemnify the Postal Service 
for use of such intellectual property in both the use of the Postage 
Evidencing System and the processing of mail bearing indicia produced 
by the Postage Evidencing System.

Neva R. Watson,
Attorney, Legislative.
 [FR Doc. E6-18949 Filed 11-8-06; 8:45 am]
BILLING CODE 7710-12-P