Illinois Federal Court Joins Line of Decisions Rejecting Attempts to Impose Municipal Franchise Fees on Streaming TV Providers

We previously addressed a recent series of cases across the country in which municipalities sought to impose franchise fees, like those that apply to cable TV, on streaming TV providers like Netflix and Hulu.  The latest decision in this string was issued last week in the Eastern District of Illinois, City of East St. Louis v. Netflix, Inc. et al., Case No. 3:21-CV-561 (S.D. Ill., Sept. 23, 2022).  The judge dismissed a suit by the City of East St. Louis against streaming TV providers, finding that the Illinois Cable and Video Competition Law of 2007 (220 ILCS 5/21-100 et seq.), which requires video service providers to register with the state and pay service provider fees to local units of government, does not contain an express or implied right of action for local governments.  Rather, it contains only an express right of action for the state attorney general.  The court added that it would not make sense to leave enforcement to individual cities, since they may interpret and apply the law differently.  The court also dismissed the City’s claims for trespassing, unjust enrichment, and ordinance violations.  It held that, under Illinois law, trespassing requires a physical act of entering or causing someone else to enter land owned by a third person, without permission, and that the transmission of video streaming services doesn’t do that.   Dismissal of the City’s claims is in line with most decisions in other states, as discussed in our prior posts.

Ninth Circuit Holds FCC Cell Phone Radiofrequency (RF) Radiation Rules Preempt State-Law Claims Against Apple and Samsung

The RF Radiation Issue

Over the years, various claims have been made about potential adverse health impacts from the radiofrequency (RF) radiation emissions of cell phones, which in some instances can cause biological effects by increasing the temperature of tissues.  Federal Communications Commission (FCC) rules set RF radiation limits (ceilings) that cell phone manufacturers must meet in order to have the FCC authorize their phones for sale.  See 47 C.F.R. §§ 12.1093(d)(1) and 2.907.

But does complying with the FCC’s rules protect the manufacturers from state-law claims?  A recent Ninth Circuit decision appears to answer that question, holding that held that state-law tort and consumer-fraud claims regarding RF radiation conflicted with the FCC’s rules, which strike a careful balance between competing interests that the FCC is charged with addressing under the Communications Act of 1934 (47 U.S.C. §§ 151 et seq.), and were therefore preempted. Cohen v. Apple, Inc., ___ F. 4th ___, 2022 WL3696583 (9th Cir., Aug. 26, 202).

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FCC Proposes $116 Million Fine for Scheme Mixing Robocalling, Traffic Pumping, and Attacks on Phone Systems

In its latest salvo to combat illegal robocalling, the FCC proposed a $116 million fine for an alleged scheme mixing robocalling with traffic pumping to fund telephone denial of service attacks (TDoS) against other companies.  In the Matter of Thomas Dorsher, ChariTel Inc., Ontel Inc., and ScammerBlaster Inc., Notice of Apparent Liability, FCC 22-57 (rel. July 14, 2022).  The alleged scheme at issue involved Thomas Dorsher, ChariTel Inc., Ontel Inc., and ScammerBlaster Inc.

As the FCC described it, in a two-month period at the start of 2021, ChariTel made about 10 million prerecorded voice message calls (robocalls) to toll free numbers without the recipients’ consent.  If the recipient did not terminate the call, these robocalls would play the prerecorded message continuously for up to 10 hours, effectively taking a line out of service and costing the toll free service provider an opportunity to talk to actual customers on that line.  Ironically, the robocalls at issue purported to be public service announcements to warn against scam calls, and encouraged recipients to report such calls.

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FCC’s New Proposed Rules Would Apply Traffic-Pumping Triggers to VoIP Providers

Access charges are the fees local exchange carriers (LECs) charge long distance carriers (interexchange carriers, or IXCs) to originate or terminate the IXCs’ customers’ calls.  These have been the subject of disputes ever since the breakup of Ma Bell in 1984.  For over a decade now, the disputes have centered on a practice known as access stimulation (also called traffic pumping or access arbitrage).  This arbitrage became possible because, over time, the rates for access charges became disconnected from the costs of providing the service, with rates far exceeding costs.  That mismatch created an incentive for some LECs to make arrangements with entities that offered high-volume calling services (e.g., “free” chat lines, “free” conference calling) to route (“pump”) large volumes of long-distance traffic to their partner LECs’ switches for termination.  That enabled the LEC and service provider to split the profits from the high access charges paid by the IXCs sending all that traffic to be terminated (far more traffic than would ever occur with normal customers and calling patterns).

The FCC found such schemes harm consumers by increasing IXCs’ costs and rates.  It therefore sought to prevent them in a 2011 order and rules (26 FCC Rcd. 17663), and again in an order and rules in 2019 (34 FCC Rcd. 9035).  The 2019 Order adopted certain “traffic ratio triggers,” which classified a LEC as an unlawful traffic pumper if its interstate terminating-to-originating traffic ratio was too high (meaning it was terminating vastly more long-distance traffic than it originated).  A traffic pumper cannot recover terminating access charges.

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Franchise Fees and the FCC’s Mixed-Use Rule – Oregon Federal Decision for Comcast May Have Wide Impact

For decades, cities and municipalities have counted on steady revenue from the franchise fees they charge cable companies for use of the public rights-of-way (ROWs). Such fees are imposed by local franchising authorities (LFAs).  Under the federal Cable Act, these fees could be as high as 5% of a cable operator’s gross revenues from providing cable TV service.  47 U.S.C. § 542(b).

As the television industry has migrated toward streaming platforms, cable TV revenues have been affected, leading local governments to seek new sources of income from entities using the public ROW. One effort has been to try to impose local fees on streaming platforms, like Netflix or Hulu, that send video using broadband service provided over wires in the public ROW. That has been largely unsuccessful, as discussed here.

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Franchise Fees – Georgia Joins Other States in Rejecting Attempts to Recover Franchise Fees From Streaming TV Providers Under State Video Franchise Law

In a decision by a state trial court, Georgia has joined California and Texas in holding that local governments cannot impose franchise fees on over-the-top (“OTT”) streaming TV services like Netflix, Hulu, or Amazon Prime.  Gwinnett County, Georgia, et al. v. Netflix, Inc., et al., Civil Action File No. 20-A-07909-10, Gwinnett County Superior Court, Feb. 18, 2022. Like those other states, the Georgia court held that the state video franchising statute (here, the Georgia Consumer Choice for Television Act), did not give local governments an express or implied private cause of action against the steaming TV providers.  While the local governments cited provisions allowing actions for disputes over franchise fee payments or for discrimination by franchise holders, the court noted that the provisions applied only to franchise holders, and that the streaming TV providers did not hold state-issued franchises.

In addition, the court explained that the Television Act does not apply to streaming TV providers because they do not construct and operate facilities in the public rights-of-way, and therefore cannot be required to obtain franchises or pay franchise fees to local governments.  As the court put it, “[a]pplying the Television Act – which contemplates fees for providers that offer facilities-based service – to non-facilities-based streaming services would be akin to applying a tax on horses to cars simply because cars have horsepower.”  In fact, the decision said, if the Television Act applied to non-facilities-based vide providers, local governments could seek franchise fees from an extremely broad range of entities that could not reasonably be covered by the Television Act, such as newspapers that provide online video or churches that stream their services online.  And like other courts, the Georgia court held that streaming TV providers do not “use” the public right-of-way simply because they send video content over the wires of internet service providers in the public right-of-way.  Finally, and again like other courts, the Georgia court held that streaming TV providers’ service falls within the exception in the Television Act for video provided via a service “offered over the public internet.”

This is the latest in a line of decisions in cases across the country where local governments seek to recover franchise fees from streaming video providers.  For an overview of the issues, arguments, and other cases, see this blog post.

Franchise Fees and Streaming TV – Municipalities Across the Country Seek to Subject Netflix, Hulu, Amazon and Others to Franchise Fees to Offset Declining Revenue From Cable TV Providers

A billion-dollar battle continues to play out in lawsuits pitting municipalities against providers of over-the-top (“OTT”) video streaming services, like Netflix or Hulu.  For decades, municipalities have raised revenues by collecting “franchise fees” from cable TV providers that needed to construct, install, or operate their facilities in public rights-of-way.  More recently, however, many consumers have “cut the cord” on traditional cable TV service in favor of streaming services.  That reduces cable companies’ revenues, thus reducing the franchise fees they pay based on a percentage of revenues.  And that hits municipalities in the bottom line.  In at least 14 states, municipalities have reacted by suing OTT streaming companies, asserting that they owe franchise fees under the statewide video franchising statutes passed in many states in the 2000s to reduce entry barriers and boost video competition with cable.  The stakes are high, as municipalities seek both back payments and to impose the fees going forward.

Threshold Question – Jurisdiction and Comity Abstention.  A threshold issue in many of these cases is whether they can be removed to federal court.  The Seventh Circuit sent one case back to Indiana state court by relying on the doctrine of comity abstention under Levin v. Commerce Energy, Inc., 560 U.S. 413 (2010), reasoning that state courts were better positioned to address claims regarding local revenue collection and taxation, even when federal-law defenses were raised.  City of Fishers, Indiana v. DirecTV, 5 F.4th 750 (7th Cir. 2021).  A district court judge in Missouri remanded another case to state court on the same basis. City of Creve Coeur, Missouri v. DirecTV, LLC, 2019 WL 3604631 (E.D. No. Aug. 6, 2019).  And the same kind of jurisdictional issue is currently pending at the Eleventh Circuit, where OTT streaming providers are challenging a Georgia district court’s remand order.  No. 21-13111 (11th Cir.), appealing Gwinnet County, Georgia v. Netflix, Inc., 2021 WL 3418083 (N.D. Ga. Aug. 5, 2021).

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Telecom Decision – Preemption – Internet Trade Groups Seek Ninth Circuit Rehearing on California’s Net-Neutrality Rules

In several states there is an ongoing battle over whether or how states can regulate broadband internet access service in the wake of the D.C. Circuit’s Mozilla v. FCC decision (940 F.3d 1).  The California case is leading the pack, and last Friday the leading internet trade associations asked the Ninth Circuit for rehearing en banc of its decision upholding a California statute, SB-822, that imposes the same “net-neutrality” obligations on broadband providers that the FCC revoked.  ACA Connects v. Bonta, No. 21-15430 (9th Cir. Jan. 28, 2022).

Background.  In 2018, the FCC decided to remove its net-neutrality requirements in order to better promote broadband investment, deployment, and competition, goals toward which federal and state governments today are devoting billions of dollars.  While core policy concerns drove its decision, the FCC removed its net-neutrality rules by reclassifying broadband internet service as an “information service” under Title I of the federal Communications Act rather than a “telecommunications service” under Title II, which freed broadband internet service from common carrier-type regulation (and the prior net-neutrality requirements).

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Telecom Decision – D.C. Circuit Upholds FCC Antenna Rule Aimed at Promoting Wireless Broadband

Expanding the availability of broadband internet service is among the hottest telecommunications policy topics of the day, especially as the federal and state governments funnel billions of dollars toward more deployment and higher speeds.  Last week the D.C. Circuit upheld an FCC rule aimed at that goal, which allows commercial-grade wireless internet antennas in residential areas, a move sought by wireless internet providers.

As technology has changed over time, the FCC has adopted and amended its rules that allow antennas to be placed on private dwellings.  The original 1996 regulation allowed for installation of antennas on private property to receive services like satellite and cable television, and  preempted state and local restrictions.  A 2004 amendment allowed such antennas to serve multiple customers in a single location, provided the antennas were not used primarily as “hubs for the distribution of service.”  And in 2021, the FCC amended the rule to allow such antennas to be used as hubs for the distribution of service, paving the way for commercial-grade equipment for, among other things, wireless internet service.  Children’s Health Defense (CHD) and others appealed, concerned about the health effects of such antennas on nearby residents with radiofrequency sensitivity.  The court’s decision, however, deals mainly with fine legal points of rejecting CHD’s challenges.  Children’s Health Defense v. FCC, No. 21-1075 (D.C. Cir. Feb. 11, 2022).

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D.C. Circuit Addresses Agency’s Duty to Provide More Than a “Passing Reference to Relevant Factors,” as Well as the “Rule of Reason” Aspect of Tariffing and the Filed Rate Doctrine

Parties appealing agency orders often assert the agency failed to provide a reasoned explanation for its decision.  This is typically an uphill battle.  From time to time, however, courts reconfirm that the duty is real and an order based on generalities will not suffice.  The D.C. Circuit did just that recently on review of FERC decisions.  City and County of San Francisco v. FERC, Nos. 20-1084 & 20-1297 (D.C. Cir., Jan. 25, 2022).

San Francisco’s publicly owned utility, the San Francisco Public Utilities Commission, sells power to city residents.  In doing so, however, it relies on Pacific Gas & Electric’s distribution lines to reach the actual end-user customers.  For that, San Francisco prefers to buy “secondary” voltage service from PG&E (rather than “primary,” higher voltage service).  PG&E allows retail customers to receive secondary service if their demand is below 3,000 kW.  Starting in 2015, however, PG&E refused to interconnect to new locations for San Francisco’s customers at secondary voltage unless the total electricity demand was less than 75 kW (forcing San Francisco to buy the more expensive primary voltage service if it wanted to serve that location).  San Francisco filed a Complaint against PG&E with the Federal Energy Regulatory Commission.  FERC found for PG&E, accepting PG&E’s claim in its Answer to the Complaint that the denials of secondary service were based on “technical, safety, reliability, and operational reasons,” and that PG&E could use its discretion, based on such considerations, to decide what level of service was best for a given customer.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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