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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Telecom Preemption – Ninth Circuit Upholds California Net-Neutrality Law

The Ninth Circuit Court of Appeals has issued a much-anticipated decision on California’s state “net-neutrality” law, which reimposes the net-neutrality requirements the FCC removed back in 2018.  ACA Connects v. Bonta, No. 21-15430 (9th Cir., Jan. 28, 20222).  The California law is viewed as a template for other states interested in that sort of legislation, and this case served as the lead trial balloon as industry associations challenged the statute on preemption grounds.

As quick background, in 2015 the FCC established net-neutrality rules that prohibited broadband internet service providers from blocking access to websites, slowing certain customers’ internet access (“throttling”), or prioritizing access to some websites over others.  But in 2018 the FCC reversed itself and removed those rules (relying instead on a “transparency” requirement) 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 of that Act.  The purpose in switching to Title I was to subject broadband internet service to only the light-touch regulation that applies to Title I services.  The FCC also expressly preempted state laws that were inconsistent with its deregulatory approach, or that would effectively reimpose the net-neutrality rules it repealed.  The D.C. Circuit upheld the FCC’s reclassification of broadband internet service in 2019, but overturned the express preemption mandate.  Mozilla v. FCC, 940 F.3d 1 (D.C. Cir. 2019).  It left open the question whether, after the FCC’s decision, state net-neutrality requirements could be defeated by other types of preemption.

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Illinois Decision Raises Issues Regarding Use of Filed Rate Doctrine on Motions to Dismiss

The ruling.  Commonwealth Edison (ComEd), the retail electric utility for the Chicago area, has been accused of bribing the Illinois Speaker of the House to help pass laws that led to ComEd being able to increase its charges by billions of dollars.  In 2020, a putative class of retail consumers sued ComEd in the Northern District of Illinois, alleging RICO and state-law violations.  As damages, they sought a refund of the “fee increases” that led to them “overpaying for electricity.”  Last week, in Gress v. Commonwealth Edison Co., Nos. 20-cv-4405 et al., 2021 WL 4125085 (N.D. Ill. Sept. 9, 2021), the court dismissed the RICO claim for failure to plead sufficient facts and under the principle of Fletcher v. Peck, 10 U.S. 87 (1810), finding that the RICO claim effectively asked a federal court to nullify the state laws that led to the rate increases based on the state legislators having bad motives, which Fletcher precludes.

Prior to making those rulings, however, the court declined to dismiss the RICO claim under the filed rate doctrine – a century-old rule that shields public utilities from liability on claims they charged excessive rates when the rates charged were those in their filed tariffs.  The court reasoned that the filed rate doctrine is an affirmative defense as to which the defendant must prove each element, and that because the complaint did not expressly state the plaintiffs paid for service under ComEd’s filed tariffs, ComEd could not prove all the elements it needed at the motion-to-dismiss stage.  (For discussion of another recent case involving alleged bribery of legislators to increase public utility rates in Ohio, see here).

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Preemption of State Broadband Regulation – New York and California Federal Courts Diverge

How a communications service is classified has a critical impact on how (or whether) it can be regulated.  That has been a critical issue with respect to internet access service, where the FCC has vacillated between defining it as a “telecommunications service” (and thus potentially subjecting it to common carrier regulation under Title II of the federal Communications Act) or as an “information service” (thus subjecting it to very limited potential FCC regulation under Title I of that Act).  After classifying broadband internet access service (BIAS) as a “telecommunications service” in 2015 and imposing “net neutrality” requirements in BIAS providers, the FCC changed course in 2018 and removed those rules, finding they were detrimental to broadband investment, innovation, and availability and that BIAS should instead be classified as an “information service.  Many states then considered how to react to the FCC’s 2018 Order.  Some considered new statutes that ultimately did not pass, some directed agencies to look into the topic and report back, some used executive orders to require broadband providers contracting with the state to follow net neutrality principles, and some passed specific statutes.

The two most far-reaching statutes, from California and New York, have been challenged in federal court by industry associations arguing both field preemption and conflict preemption.  The California court denied a preliminary injunction of the law there (SB-822), which reimposed the same net neutrality requirements the FCC removed in 2018.  American Cable Ass’n v. Becerra, No. 18-cv-2684 (E.D. Cal., Feb. 23, 2021) (oral ruling).  That decision is on appeal at the Ninth Circuit, where it has been fully briefed (No. 21-15430).  Meanwhile, last Friday the New York court granted a preliminary injunction against a New York law (referred to as the ABA) that requires BIAS providers to offer a $15 broadband internet service plan to qualifying low-income customers.  New York State Telecomms. Ass’n v. James, No. 21-cv-02389 (E.D.N.Y., June 11, 2021).  That ruling may well be taken up to the Second Circuit.  Although the two states’ laws are different, there is extensive overlap in the arguments in the cases, and it is interesting to compare how differently the two courts addressed them.

Field Preemption.  BIAS is an interstate service, as it provides users with access to all internet endpoints, which could be anywhere in the world.  In both California and New York, the industry associations argued that 47 U.S.C. § 152(a) gives the FCC exclusive jurisdiction to regulate the provision of interstate communications services, and that this exclusive jurisdiction preempts states from regulating in that field.  They also relied on caselaw stating that the FCC has exclusive or plenary authority over interstate communication services, and distinguishing that from the power left to the states over intrastate communications services.  California and New York responded by arguing that Section 152(a) merely discusses FCC authority to regulate interstate services, without clearly excluding the states.  They also contended that the federal Communications Act excludes some interstate communications services, such as information services, from FCC authority, and argued that this means Congress did not give the FCC exclusive power in the field of interstate communications services.

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Facebook Wins Battle of the Canons in Supreme Court Autodialer Case

In a hotly anticipated decision that should have significant impact on litigation under the Telephone Consumer Protection Act of 1991 (TCPA), the Supreme Court held, 9-0, that the TCPA’s definition of an “autodialer” does not include equipment that merely stores telephone numbers to be dialed automatically, unless the equipment does so using a random or sequential number generator.  Facebook, Inc. v. Duguid, No. 19-511 (U.S., April 1, 2021).

Stopping unwanted or harmful telemarketing calls has long been a consumer-protection priority.  Toward that end, the TCPA prohibits certain communications made with an “automatic telephone dialing system,” or “autodialer.”  47 U.S.C. § 227(b)(1).  The TCPA defines “autodialers” as equipment with the capacity “to store and produce telephone numbers to be called, using a random or sequential number generator,” and to dial those numbers.  47 U.S.C. § 227(a)(1).  There was no dispute that the last clause (“using a random or sequential number generator”) qualifies the last verb in the preceding clause (“produce”).  The exam-worthy question before the Court, however, was whether that last clause also qualifies the first verb in the preceding clause, “store.”  Put another way, does the TCPA’s definition of autodialer apply to all equipment that “store[s] … telephone numbers to be called,” even if the equipment does not do so “using a random or sequential number generator?”  (The facts of the case play no real role here, but, for context, Facebook used equipment that stored numbers to be dialed automatically, but did not use a random or sequential number generator, so the question was whether Facebook’s equipment fell with the TCPA definition of autodialer).

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CLECs Challenge FCC’s 2019 Access Stimulation Rules

Briefing is now complete at the D.C. Circuit in the latest appeal involving the FCC’s rules on access stimulation schemes.  Access stimulation (or traffic pumping) refers to a practice in which a local telephone company partners with entities that generate large amounts of terminating long-distance traffic, such as “free” conference calling providers and chat lines.  This allows the local telephone company to generate large revenues from the access charges that long-distance carriers must pay to terminate the calls through the local telephone company.  The revenues are then shared with the conferencing or chat line entities, which allows the services to be “free” to the end users.

In 2011, the FCC declared access stimulation a “wasteful arbitrage scheme” and adopted rules to curb the practice, primarily through requiring companies engaged in traffic pumping to reduce their rates to those of the large, urban carriers.  Connect America Fund, 26 FCC Rcd 17663, ¶¶ 656-201 (2011), aff’d, In re FCC 11-161, 753 F.3d 1015 (10th Cir. 2014).  However, those rules did not reduce the practice as much as hoped.  For instance, some traffic pumpers  adjusted their schemes by including intermediate carriers (tandem and transport providers) in the call flow, which increased the overall charges.

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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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