Netflix and Hulu Failure to Pay Franchise Fee Texas Class Action

To operate in Texas, video service providers are required to apply to the Public Utility Commission of Texas for a certificate of franchise authority (SICFA). In exchange, they must pay the Texas municipalities 5% of their gross profits in that municipality. The complaint for this class action alleges that Netflix, Inc. and Hulu, LLC have never applied to a SICFA and have never paid the required 5% fee.

The class for this action is all Texas municipalities in which Netflix or Hulu has provided video service.

The class action is brought by one such municipality, the City of New Boston, Texas.

When Netflix and Hulu undertake to provide services to a place, they use wireline or broadband wireline facilities that are located at least partly in public rights-of-way.

Both companies provide video programming, including movies and television shows and original or other programming. They compete with other programming providers like cable companies and broadcast television stations. Netflix and Hulu both send programming to customers with Internet-connected devices that have software that allow them to stream or play the programming. This is done with Internet protocol technology, which makes use of the wireline or broadband wireline facilities.

The complaint says, “When a Netflix subscriber wants to view Netflix programming, the subscriber’s Internet service provider will connect the subscriber to the closest Netflix Open Connect server offering the fastest speeds and best video quality.” To facilitate this, the complaint says, “Netflix has ‘end-to-end’ control of its entire Open Connect system, including any servers located in New Boston and other Texas municipalities.”

The situation with Hulu is similar. The customer’s Internet provider connects the customer to a Hulu server. The company then delivers the program over the Internet to the customer’s Internet-connected device.

The complaint says, “As video service providers, [Netflix and Hulu] were required to file an application with the Public Utility of Texas for a state-issued certificate of franchise authority (‘SICFA’) prior to providing video service.” The complaint alleges that neither company did so, and that they are therefore “providing video service throughout Texas without authorization, and in contravention of the Texas Utilities Code.”

The companies’ failure to obtain a SICFA, the complaint claims, does not “relieve [them] of the obligation to pay a franchise fee of 5% of their gross revenues” derived from providing service in those areas.

The counts include violations of the Texas Utilities Code and asks for a declaratory judgment relating to Netflix’s and Hulu’s obligations as video service providers under Texas law.

Article Type: Lawsuit
Topic: Utilities

Most Recent Case Event

Netflix and Hulu Failure to Pay Franchise Fee Texas Complaint

August 11, 2020

To operate in Texas, video service providers are required to apply to the Public Utility Commission of Texas for a certificate of franchise authority (SICFA). In exchange, they must pay the Texas municipalities 5% of their gross profits in that municipality. The complaint for this class action alleges that Netflix, Inc. and Hulu, LLC have never applied to a SICFA and have never paid the required 5% fee.

Netflix and Hulu Failure to Pay Franchise Fee Texas Complaint

Case Event History

Netflix and Hulu Failure to Pay Franchise Fee Texas Complaint

August 11, 2020

To operate in Texas, video service providers are required to apply to the Public Utility Commission of Texas for a certificate of franchise authority (SICFA). In exchange, they must pay the Texas municipalities 5% of their gross profits in that municipality. The complaint for this class action alleges that Netflix, Inc. and Hulu, LLC have never applied to a SICFA and have never paid the required 5% fee.

Netflix and Hulu Failure to Pay Franchise Fee Texas Complaint
Tags: Authorization to Do Business, Municipal Fees, Utilities