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California State Court Tosses City’s Right-of-Way Fee Dispute Against Hulu and Netflix

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On Tuesday, Judge Yvette M. Palazuelos rejected the City of Lancaster, Calif.’s bid to hold Hulu and Netflix accountable for unpaid franchise fees in a public-right-of-way case, one of several underway around the country. The state court said the plaintiff’s second pleading fared no better than its first, in part because the Digital Infrastructure and Video Competition Act of 2006 (DIVCA) provides municipalities only a limited right of action inapplicable to the case.

The suit dates to early 2021, when Lancaster, on behalf of a putative class of all California municipalities, claimed that the streaming platforms owe utility usage fees for using broadband wireline facilities located at least in part in public-rights-of-way. The defendants demurred, and in September 2021, the court granted their request.

The plaintiffs repled their allegations, which the defendants criticized as merely “doubl[ing]-down on the old facts” while pressing the court to reconsider its prior ruling.

In this week’s 27-page final decision, Judge Palazuelos sustained the demurrer for a second time. The statutory interpretation ruling found that DIVCA does not apply to the defendants for the dual reason that they do not “use” the public right-of-way and they do not provide “video programming.”

As to its first reason, the court harkened back to its previous ruling that DIVCA does not apply to Hulu and Netflix because they do not own or operate infrastructure in any public rights-of-way. “Plaintiff has provided no reason for the Court to change its prior ruling,” the opinion concluded.

With regard to the court’s second reason, Judge Palazuelos ruled that the defendants’ services are not comparable to programming provided by a traditional television broadcast station as mandated by DIVCA. The opinion explained that the streaming services they provide are on demand, rather than “live, linear, channelized, scheduled, or programmed.”

Judge Palazuelos denied further leave to amend, concluding that additional revision would not better the plaintiff’s cause. 

The City of Lancaster is represented by Andrus Anderson LLP and Schneider Wallace Cottrell Konecky LLP.

Netflix is represented by Latham & Watkins and Hulu by Wilson Sonsini Goodrich & Rosati.

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