Texas City Argues Netflix, Hulu Owe ‘Franchise Payments’ for Providing Streaming Services Statewide [UPDATE]
Last Updated on October 7, 2021
City of New Boston, Texas v. Netflix, Inc. et al.
Filed: August 11, 2020 ◆§ 5:20-cv-00135
A class action claims Netflix and Hulu owe franchise payments to Texas municipalities for using broadband wireline facilities located wholly or partly in public rights-of-way.
October 7, 2021 – Netflix, Hulu Franchise Fees Class Action Dismissed
The proposed class action detailed on this page was dismissed without prejudice on September 30, 2021.
In a nine-page order, United States District Judge Robert W. Schroeder III granted Netflix and Hulu’s motion to toss the lawsuit on the grounds that neither streaming company holds the state-issued certification of franchise authority that would require it to pay five-percent fees to each municipality in which it provides video services.
What ultimately sunk New Boston’s lawsuit was the specific language of the Texas Utilities Code and the potential mess that might ensue if the court were to tinker with the semantics of the law. Although the plaintiff effectively asked the court to declare that Netflix and Hulu are, and should always have been, holders of a state-issued certificate of franchise authority, the judge reminded that the law does not grant the court any authority to do so, as that power is held only by the Public Utility Commission.
“It is not the province of this Court, or courts anywhere, to read words out of a statute,” Judge Schroeder wrote. “If the Court were to modify the concept of a holder of a state-issued certification of franchise authority in § 66.005, it would impact not only that instance in the statute, but every instance that phrase appears, introducing possible inconsistencies and ambiguities.”
In light of the foregoing, the rest of the plaintiff’s arguments were also “unavailing,” the judge found.
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The City of New Boston, Texas has filed a proposed class action in which it claims Netflix and Hulu “should be and are required by law” to pay municipalities statewide a franchise fee of five percent of their gross revenue given they use broadband wireline facilities located partly in public rights-of-way.
The Bowie County municipality claims in the 12-page suit that because the content-streaming giants deliver their services over broadband internet connections that rely upon wireline facilities located in whole or in part in public rights-of-way, the companies were required to file an application with the Public Utility Commission of Texas for a state-issued certificate of franchise authority (SICFA) prior to providing video streaming services.
The lawsuit argues that because Netflix and Hulu failed to apply for and obtain a SICFA, the companies provide video services throughout Texas without authorization and in contravention of the Texas Utility Code.
According to the complaint, a SICFA would have authorized Netflix and Hulu to use public rights-of-way as long as the companies made quarterly franchise payments to each city in which they provided services. Per the suit, the required franchise payment must be equal to five percent of the companies’ respective gross revenues.
“Plaintiff New Boston, individually and on behalf of other Texas municipalities, seeks to require Defendants to abide by the Texas Utilities Code, and pay what they owe to these municipalities,” the complaint reads.
The lawsuit looks to represent all Texas municipalities in which Netflix and/or Hulu has provided video streaming services.
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