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Disney, Hulu, Netflix Hit With Franchise Fee Lawsuit in Texas

Aug. 5, 2022, 5:09 PM

Disney DTC LLC, Hulu LLC, and Netflix Inc. are facing another suit by municipalities seeking franchise fees for providing streaming services, this time by Dallas and 24 other cities in Texas.

The cities argue in their complaint filed in Texas District Court that the streaming companies violate the Texas Public Utility Regulatory Act by failing to pay video service fees.

“Despite transmitting their video programming through wireline facilities located at least in part in the public right-of-way, defendants have ignored their statutory obligations to obtain a state-issued certificate of franchise authority and pay the required franchise fees, depriving Texas municipalities of the required compensation for their use of the right-of-way,” the suit alleges.

Use of the rights-of-way also violates the gift clauses of the Texas Constitution, which prohibit giving away public resources to further private enterprise, the cities say.

The case is one of more than a dozen suits filed by cities and counties around the country seeking to treat streaming services like cable companies as customers shift away from traditional television subscriptions. A Missouri court recently certified a suit there to proceed as a class action.

Causes of Action: Texas Public Utility Regulatory Act; Texas Constitution’s gift clauses; trespass; unjust enrichment.

Relief: Declaration that companies are subject to PURA and have failed to comply with it and other laws; money damages; permanent injunction; attorneys’ fees and costs.

Response: Disney, Hulu, and Netflix didn’t immediately respond to requests for comment.

Attorneys: McKool Smith PC, Ashcroft Sutton Reyes LLC, Korein Tillery LLC, and the city attorneys filed the complaint.

The case is Dallas v. Disney DTC, LLC, Tex. Dist. Ct., docket number not yet available, 7/28/22.

To contact the reporter on this story: Perry Cooper in New Bern, N.C. at pcooper@bloomberglaw.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergindustry.com; Kathy Larsen at klarsen@bloombergtax.com