COLUMBUS, Ohio — A federal class action lawsuit involving Maple Heights and 2,000 other American communities against Netflix and Hulu made a detour to the Ohio Supreme Court on Wednesday, with city of Maple Heights officials asking state judges to define streaming giants as “video service providers.”
If the Supreme Court agrees, streaming services would be subject to the same video service provider fees paid by cable companies. These fees in Ohio are 5% of the gross business revenue they earn in the city and go directly into city coffers.
The streaming companies argued they were instead “specified digital goods” under state law. Therefore, they pay state sales tax and Ohio would lose money if the court determines that they owe the local franchise fee because they would be exempt from state sales tax under Ohio law.
The Ohio Supreme Court will determine whether Netflix and Hulu are video service providers, among other legal issues, in the coming months. After the opinion of the Supreme Court of Ohio, the case in federal court in Cleveland can resume.
This case involves about 2,000 cities, but U.S. District Judge James Gwin ordered the Ohio Supreme Court to answer legal questions first.
law of 2007
At the heart of Wednesday’s arguments from both sides is a law passed by the Ohio General Assembly in 2007 that gave the director of the Ohio Department of Commerce sole franchise authority for video service providers. .
With this authority, video service providers were given the right to install lines across rights-of-way across the state.
Prior to the 2007 law, video service providers had to negotiate individual agreements with some 2,000 local governments in Ohio to access rights of way and lay cable. Each government could charge a different fee until the 2007 law set it at 5% of a city’s gross revenue.
wires and cables
Gregory Garre, an attorney representing Netflix, told the judges that Netflix and Hulu do not own, operate or control any cable, and that the Ohio Department of Commerce has never required the companies to obtain a license to video services.
It would be absurd to call video service providers Netflix and Hulu and could have extreme consequences, Garre said.
“That would mean that anyone who broadcasts content on the internet – whether it’s a high school that broadcasts educational programs or sporting events or a church that may broadcast programs or this court itself, which broadcasts this argument live today – would be a video service provider under the law, potentially subject to franchise fee requirements,” Garre said.
Ohio Attorney General Dave Yost filed a friend of the court brief supporting Netflix and Hulu, and Ohio Deputy Solicitor General Mathura Sridharan addressed the court.
“The statute is very clear. These are those who dig. They have to pay,” she said. “If they don’t dig, they don’t pay. And I think that’s the fundamental principle that drives this whole thing.
Cut the rope
However, Maple Heights attorney Justin Hawal noted that people are canceling cable services and subscribing to streaming services, which is increasing demand on the existing system and requiring more fiber cables to be laid. optical.
“Their content is virtually indistinguishable from broadcast television,” Hawal said. “They offer the same shows, the same films. They are in competition with television broadcasting. They produce their own content.
“How do they compete with broadcast TV?” asked Judge Melody Stewart.
“Your Honor, I don’t know if you’re familiar with the cord-cutting phenomenon, but there are various subscribers or consumers in the State of Ohio and across the country who ‘cut the cord,'” moving away from traditional cable providers and subscribing to one or more streaming services like Netflix and Hulu,” Hawal said.
The result is that cities are rapidly losing money through franchise fees.
“So what about Roku, Apple, YouTube?” asked judge Jennifer Brunner, referring to other streaming services. “Did you include those?” »
“We didn’t,” Hawal said.
“Why not?” Brunner asked.
“Roku is a device that makes streaming content easy,” he said. “It doesn’t really have its own content. The same with Apple TV, Your Honor.
“You pay a subscription to Apple to get particular movies, shows, and TV shows, just like you do for Hulu and Netflix,” Brunner said.
“We don’t assume that Hulu and Netflix are the only video service providers streaming content,” Hawal said.
Brunner and Judge Patrick Fischer have each asked at different times whether it would be safer for cities to ask the Ohio General Assembly to specify in law that streaming services are video service providers.
Hawal replied that it was already clear in the law and the court could recognize it.
Hawal also noted that many traditional cable providers are also joining the streaming trend, such as AT&T, offering customers services over Wi-Fi, and the court must also take this into account in its decision.
Brunner also asked if companies that install fiber have agreements with Netflix and Hulu because they create such a demand on the system. Hawal responded that the federal case is not far enough along for “discovery”, or the submission of documents by the parties to the case, for Maple Heights to understand such agreements.