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Netflix and Hulu have convinced a federal judge that they are more than mere video service providers. That’s important because a ruling on Friday will allow Netflix and Hulu to dodge a lawsuit demanding the streamers pay the type of fees imposed on cable operators.
The suit came from the city of Reno, Nevada, and is one of about two dozen lawsuits around the country on the subject of franchise fees. Towns and cities once collected a portion of revenue from cable companies needing to dig up the ground and lay their lines. In the era of cord-cutting, though, the question arises whether local municipalities may impose fees on services that are now feeding movies and TV shows to the citizenry. That entails complicated analysis on everything from the First Amendment to the Internet Tax Freedom Act, a federal statute designed to prevent local taxes on electronic commerce. Until now, Netflix and Hulu have been suffering a losing streak in court although with no definitive defeat.
With that context comes a new decision from a Nevada federal court, which has decided to dismiss the putative class action filed by Reno.
U.S. District Court Judge Miranda Du looks at how in 2007, Nevada’s state legislature amended the regulatory structure for video service providers. The goal was some conformity on franchise fees in the state. Under the revised statute, local governments were allowed to require video service providers to pay fees, but there was an exception for “[a]ny video content provided solely as part of, and through, a service which enables users to access content, information, electronic mail or other services that are offered via the public Internet.”
The city of Reno argued that Netflix and Hulu weren’t offering video service “as part of” a larger service. (Netflix doesn’t offer an email service, for example.) Moreover, the city argued that since these were paid services, the vice content didn’t come “via the public Internet.”
Judge Du rejects this reading of the law.
“The individual films and individual television programs Defendants provide are each a piece of their video content library and thus a ‘part of’ a service, and not the ‘entire’ service,” she writes. “Plaintiff’s argument suggests the Court read ‘any’ as ‘all’ video content, but that simply is not the statutory language, and the Court declines to read it as so. As such, Plaintiff’s argument that Defendants’ video content is the ‘entire’ and not ‘part of’ the services provided, and therefore not excluded, does not persuade the Court to agree that Defendants are video service providers.”
In other words, video-on-demand doesn’t get treated like cable television, and as far as the “public Internet” goes, the judge agrees with Netflix’s analogy that “public parks are for the use and benefit of all, and merely requiring an individual to pay an entrance fee for park access does not make it less — or not — ‘public.’”
The judge grants a motion for dismissal, also adding that the statute only allows for a suit from the Nevada Attorney General; not a private right of action where a city like Reno could seek underpayment of fees. Here’s the full ruling.
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