Tenn. Court Latest to Dismiss Franchise Fee Suit Against Netflix and Hulu

On Monday, a federal court found in favor of defendants Netflix and Hulu in the City of Knoxville, Tennessee’s suit seeking to force them to pay franchise fees under the state’s Competitive Cable and Video Services Act (CCVSA). After the state’s Supreme Court found that Netflix and Hulu, which provide online streaming video content, do not offer “video services” within the meaning of the CCVSA, the federal court dismissed the case with prejudice.

The putative class action is one of several proceeding around the country premised on state laws regulating cable service. In general, the laws require that cable television service providers obtain licenses and pay municipalities some of their revenue in exchange for the privilege to do business locally. Lawsuits have tested whether the same regulations apply to streaming services, and courts have largely returned ‘no’ answers.

Most recently, the Ninth Circuit affirmed the findings of a trial court ruling that the municipal plaintiff had no private right of action to enforce Nevada’s statute. Lawsuits concerning the laws of Arkansas and California have also been shut down in recent months.

In this week’s opinion, the federal court said its decision rested on a question certified to the Tennessee Supreme Court. The “novel question,” whether Netflix and Hulu are video service providers within the meaning of the CCVSA, was answered in the negative by the state’s high court in late November.

“Considering the City’s claims are wholly contingent on the assertion that Netflix and Hulu are video service providers, ‘it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations,’” the court concluded.

Knoxville is represented by Branstetter, Stranch & Jennings PLLC, DiCello Levitt Gutzler LLC, Nix Patterson LLP, and Schneider Wallace Cottrell Konecky LLP.

Hulu is represented by Sherrard Roe Voigt Harbison PLC and Wilson Sonsini Goodrich & Rosati.

Netflix is represented by Bernstein, Stair & Mcadams LLP and Latham & Watkins LLP.