Calif. City Opposes Second Demurrer in Netflix and Hulu Video Provider Fee Case

The City of Lancaster, California contested Netflix Inc. and Hulu LLC’s bid to end a lawsuit brought under the state’s Digital Infrastructure and Video Competition Act of 2006 (DIVCA) seeking to hold the streaming video content providers accountable for franchise fees payable to local governments. Monday’s opposition to Netflix’s demurrer said that the city’s revised complaint has cured previous deficiencies that caused the court to toss the case in September.

As previous coverage explained, Lancaster filed suit to compel the defendants to pay for using broadband wireline facilities located at least in part in public rights-of-way. Under the DIVCA, qualifying franchises must pay up to 5% percent of their gross revenue generated in that vicinity to the local authority.

The California state court presiding over Lancaster’s case granted the defendants’ prior demurrers on multiple grounds. The opinion said that DIVCA does not grant a private right of action against franchise-less video service providers; the complaint failed to establish that the defendants “use” public rights-of-way; and the allegations did not support a finding that they provide “video programming.”

Now, Lancaster argues that the complaint suffices for myriad reasons. Chief among them is that DIVCA applies to the defendants’ service. Under a “plain reading” of the statute Netflix and Hulu “provide[] video programming that is generally considered comparable to programming provided by broadcast television stations, and it does so through facilities located in public rights-of-way using Internet protocol technology,” the opposition says.

The city also argues that the defendants use infrastructure in the public rights-of-way in two ways, both through “wireline Internet to transmit programming from central content servers to servers located in California,” and that when users want to watch video programming, their request and the platform’s response is relayed using “Internet protocol technology through wireline facilities located in public rights-of-way.”

Among other arguments, Lancaster asserts that the action is permissible under both the California and the United States Constitution. The city says that the lawsuit neither seeks to exact an impermissible tax under the state’s constitution, nor does it impermissibly interfere with First Amendment free speech rights.

The demurrer hearing is scheduled for April 7 before Judge Yvette M. Palazuelos. The plaintiff and putative class are represented by Andrus Anderson LLP and Schneider Wallace Cottrell Konecky LLP. Netflix is represented by Latham & Watkins and Hulu by Wilson Sonsini Goodrich & Rosati.

Notably, Lancaster is not alone in its attempt to exact fees from online streaming platforms. In the Midwest, cases are proceeding to determine whether the defendants and their rivals are liable under comparable law, while a suit filed by a Texas city did not survive dismissal.