COLUMBUS, Ohio (CN) — The Ohio Supreme Court heard oral arguments Wednesday morning over whether Netflix and Hulu are video service providers subject to city franchise fees under state law.
The court must also decide if a municipality, rather than the state, can file a lawsuit to enforce the law.
In 2007, Ohio passed a law giving the state's Department of Commerce authority to issue authorizations to video service providers to install lines across the state. This made it possible for cable and telecommunications companies to install internet and fiber optic technologies without having to negotiate with municipalities. It also gives the municipalities the right to charge authorized video service providers a franchise fee.
After the law took effect, cable and telecommunications providers sought and received authorization to install high-speed networks to deliver their services. Streaming giants Hulu and Netflix never sought that authorization.
The city of Maple Heights filed a class action in Cleveland federal court on behalf of all Ohio municipalities that charge franchise fees, claiming Netflix and Hulu are required to obtain video service authorization from the state commerce director and must pay fees to the communities they are serving.
A federal judge referred the case to the Ohio Supreme Court after Netflix and Hulu moved for it to be dismissed, asking the state high court whether the streaming companies are video service providers under state law and whether Maple Heights can sue to enforce the law.
Arguing before the Ohio justices on Wednesday morning, Netflix attorney Gregory Garre of Latham & Watkins stated that because Netflix and Hulu “do not own, operate or control any wires, cables or facilities in the public rights of ways" in Ohio, they are not video service providers as defined by state law.
If there is a doubt about their status, he said, it would “be the director of commerce and not the city of Maple Heights” who would have cause to bring a lawsuit.
“What would you call Hulu and Netflix? Streaming services?” Justice Melody Stewart asked Garre,
The attorney responded in the affirmative.
“The reason why Netflix and Hulu have never been asked to get a video service authorization from the director of commerce is because they don’t provide a video service,” Garre explained. “They don’t provide anything over wires or cables in the public rights of way.”
Garre also explained that, in the case of Netflix, there is no scheduled programming, and both services make their programs available anywhere at any time.
“Holding that Netflix and Hulu are video service providers would result in an extreme conclusion in that anyone who streams content over the internet – whether it be a high school that streams educational programs or athletic events, a church that may stream programs, this court itself which is streaming this argument live today – would be a video service provider under the act, potentially subject to the franchising fees requirements," he said.
Representing Maple Heights, attorney Justin Hawal of DiCello Levitt argued that the relevant state law applies to Netflix and Hulu because “they are video service providers because they provide their services over wires and cables located in the public rights of way."
"There is nothing in that definition of video service that requires Netflix and Hulu to operate facilities in those rights of way, nothing that requires them to construct facilities in the rights of way, they only must provide programing over wire and cables," Hawal continued.
“Doesn’t that mean everybody, teenagers, TikTok postings, Instagram, anything that can be accessed through data or through Wi-Fi?” Justice Stewart asked,
Referring to the court's livestreaming, Justice Patrick Fischer asked Hawal, “Would you recommend Columbus tax us?”
”The statute defines video programming as being comparable to broadcast television," Hawal said.
The attorney went on to explain that Netflix and Hulu offer services and programming comparable to cable providers, and then talked about people “cutting the cord” and only using streaming services.
Justice Jennifer Brunner asked about other content providers like Apple TV and YouTube.
“We are not taking the position that Hulu and Netflix are the only providers that stream content,” Hawal explained.
Brunner then suggested there should be a change in the statute and that this issue should be one for state lawmakers to decide.
In rebuttal, Hulu’s attorney Victor Jih of Wilson Sonsini noted Netflix and Hulu have not been determined by the state commerce director to owe franchise fees, and only the director has that right to make such a determination.
Mathura Sridharan of the Ohio Attorney General's Office similarly argued that only the state has the right to declare who is a video service provider.
“I want to start off by talking about who calls the shots here under the statute. There is only one person who is authorized to call the shots, that is to declare an entity a video service provider and compel them to get an authorization. And that person is the director of commerce. They are not only the franchising authority, but the sole franchising authority under the statute. And that ends the case here, because Maple Heights cannot sue to compel entities like Netflix and Hulu to get authorizations," she said.
Sridharan also explained the core principle of the video service authorization law, which is meant to apply only to companies that physically intrude on a municipality's property.
“This about those who dig, they must pay. If they don’t dig, they don’t pay,” she explained.
None of the attorneys were immediately available for comment Wednesday.
The justices did not indicate when they would issue a ruling.