State Video Franchising Laws and the Legal Actions Taking Place in New Jersey
by Nancy Werner, General Counsel for NATOA
Legal action has begun to take hold all across the country and even here in New Jersey. Communities are beginning to fight back against over-the-top service providers and their franchise fee obligations believed owed to them as required by franchising laws and the New Jersey Cable Television Act, N.J. Rev. Stat. § 48:5A-1.
The information that follows is from Nancy L. Werner, General Counsel for NATOA and explains what is happening and why these actions are taking place.
*Litigation is pending in at least a dozen states, brought by local governments arguing that over-the-top (OTT) video service providers like Netflix and Hulu are subject to state video franchising laws. The focus of the litigation is the alleged obligation of these companies to pay to local governments the franchise/video service fee. As discussed below, the obligation generally depends on the definitions of “video service” and “video service provider” in state law. These cases are not arguing that OTT providers are “cable operators” as that term is defined in the Cable Act.
While the cases have been brought by different attorneys in different states, there is significant overlap in the issues raised. The main issues are:
• Whether OTT providers provide “video service” such that they are “video service providers” under state law. There are at least two related sub-issues:
- Is their OTT programing generally considered comparable to video programming delivered to viewers by a television broadcast station?
- Do OTT services fall within a statutory exception for service provided via the public internet?
• Whether OTT providers “use” the rights of way as contemplated in state video franchising laws given that they do not own the facilities over which their services are delivered.
• Whether local governments have the authority to sue OTT providers who have not registered as video service providers, or whether that authority is vested with the appropriate state agency, with local authority limited to enforcing payment of fees by registered providers.
In addition to these common legal issues, several cases filed in state courts have faced procedural issues where OTT providers have used a federal law to remove the cases from state court to federal court. Many of the local government plaintiffs have asked the federal courts to remand the case back to state court based on several theories, including the Tax Injunction Act (which says that state, not federal, courts should hear cases impacting state taxes in certain circumstances) and the doctrine of comity, which similarly is aimed at restraining federal courts from entertaining claims for relief that risk disrupting state tax administration. Several local governments have prevailed on this issue.
It does not appear that local governments are raising the issue of compliance with PEG and other state franchising requirements. In several cases, the provision of PEG channels has been raised by defendants in an effort to show state law does not apply to them because they do not own networks and thus cannot provide “capacity” for PEG programming. Other issues OTT providers have raised include whether the local governments’ claims are preempted by the Cable Act or the Internet Tax Freedom Act, and whether they implicate the First Amendment speech rights of the OTT providers by imposing fees and other “prior restraints” on their speech (i.e., their programming).*
We have all speculated for some time that this was something that should be occurring, but it has now become reality as a Class Action Complaint here in New Jersey.
*New Jersey: Borough of Longport along with the Township of Irvington, et al. v. Netflix and Hulu, et al.: Complaint filed in federal court on August 13, 2021. Defendants’ motion to dismiss is pending as of March 2022. Note that New Jersey law tracks more closely with the Cable Act than other state franchising laws, but it defines “cable television service” to include “video programming, without regard to the technology used to deliver such video programming, including Internet protocol technology,” which is not included in the federal definition of “cable service.”*
What is happening right now represents an important issue for all municipalities. Should these townships prevail, it could potentially mean more income via franchise fees and therefore more support for our municipal members. Whether they win the case or not, it certainly is worth watching the developments and strategies put forth by both the plaintiffs and the OTT providers here in New Jersey and around the country.