Maple Heights asks Court to require streaming companies pay franchise fees similar to those paid by cable television providers.

Maple Heights asks Court to require streaming companies pay franchise fees similar to those paid by cable television providers.

Ohio is in the spotlight in a multistate legal dispute between Netflix, Hulu, and cities that are seeking franchise fees from companies streaming entertainment programming.

In 2020, the city of Maple Heights, near Cleveland, filed a class-action lawsuit against the streaming companies seeking to represent the 2,000 municipalities and townships that are eligible to charge franchise fees. The companies asked the U.S. District Court for the Northern District of Ohio to dismiss the case, arguing they are exempt under the state law regulating cable television competition.

The federal court submitted two questions of law to the Supreme Court of Ohio for clarification.

During oral arguments next week, the Supreme Court will consider if Netflix and Hulu fit the definition of “video service providers” under Ohio law, and if Maple Heights can sue to enforce a state law requiring the companies to register as video service providers and pay resulting fees.

In a brief submitted to the Supreme Court, Hulu notes the decision in this case will be of national significance. While similar lawsuits are pending in several states, no state supreme court has yet ruled on the issues presented in this case.

Revised Law Changed Franchise Fee Structure
Prior to 2007, cable television companies seeking to use Ohio’s public rights-of-way to install cable and wires to carry their services had to negotiate franchise fees or other agreements with each individual municipality. In 2007, the Ohio General Assembly passed the cable competition law granting the director of the state’s commerce department “sole franchising authority” to issue “video service authorizations.”

This authorization gave providers the right to install lines through rights-of-way across the state without having to negotiate individual agreements with the estimated 2,000 localities. The law allows local governments to charge the video service providers a fee of up to 5% of the gross revenue derived from subscribers located in Ohio municipalities and townships.

After the new law passed, cable television and telecommunications companies sought state authorization to use public rights-of-way to install equipment to deliver telecommunication services, including video, through high-speed networks. Hulu and Netflix did not.

Authorizations Only Required for Networks, Companies Say
Netflix and Hulu describe themselves as internet streaming services that don’t own or operate any physical equipment located in Ohio public rights-of-way to deliver their content to their customers. The companies argue that under R.C. 1332.24, the law requires video service authorization for those that “construct and operate a video service network in, along, across, or on public rights-of-way for the provision of video service.” The law applies only to companies such as cable television and telecommunications companies that install wire, lines, and other equipment along the rights-of-way to deliver service, Netflix and Hulu assert. The streaming companies pay a “specified digital product” state sales tax. If the streaming companies are deemed to be video service providers and required to pay a franchise fee to local governments, then state law exempts them from the sales tax. That will cost the state millions of dollars in sales taxes, Hulu notes.

Use, Not Network Ownership, Determines Who Should Pay Fee, City Counters
Maple Heights points to a provision in the law that defines “video service” as video programming “over wires or cables located at least in part in public rights-of-way.” While the law allows those with authorization to construct facilities, it doesn’t require them to do so, nor does the law apply only to those who do, the city argues. Netflix and Hulu stream their programming “over the wires and cables” located in the rights-of-way, so they are subject to the franchise fee, the city asserts.

The city argues that communications providers are increasingly burdening the public rights-of-ways to construct facilities in large part because of the increased capacity needed to serve streaming companies like Netflix and Hulu. These expansion efforts are impacting Maple Heights and other localities, the city maintains, and the fee “is just a small return” on the billions of dollars in benefit the services receive from using public rights-of-way.

Oral Argument Details
The Supreme Court will consider Maple Heights v. Netflix and Hulu on April 13, along with two other cases during a two-day session. On April 12, the Court will hear four other appeals. Oral arguments begin each day at 9 a.m. The arguments will be streamed live online at sc.ohio.gov and broadcast live, and archived, on The Ohio Channel.

In addition to these highlights, the Court’s Office of Public Information released preview articles today about each case, available through the case-name links.

Tuesday, April 12
K-9 Unit Search
Following a traffic stop for speeding in Mount Vernon, a man’s car was searched after a K-9 unit “alert,” and the man was sentenced to 30 months in prison for drug possession. After his conviction, he filed a request in the trial court for a hearing , raising additional legal claims. He included his affidavit. He alleged that the search was illegal because the traffic stop took longer than was reasonable for a speeding violation. The court denied the hearing. He argues in State v. Lewis that the court must hold a hearing in a postconviction matter unless the court’s review of the petition, files, and case record don’t support the claim. The county prosecutor contends that the man didn’t offer enough evidence to warrant a hearing.

Judicial Discipline
A Cleveland Municipal Court judge has admitted to what the state professional conduct board describes as a “breathtaking” number of violations during a two-year period. The infractions include holding hearings without the prosecutor present, creating false court journal entries, and inappropriately issuing arrests warrants and jailing defendants. In Disciplinary Counsel v. Judge Carr, the judge asks for a stay of 18 months of the recommended two-year suspension without pay, arguing that her health conditions called for a lesser penalty. The disciplinary counsel responds that the judge’s health already was considered as a mitigating factor.

Guilty Pleas
A Cleveland man pled guilty to involuntary manslaughter after a 2017 shooting at a gas station. Between his plea and sentencing, the man saw security video that he believed would support his self-defense claim, and he asked to withdraw his guilty plea. The trial court rejected his request. In State v. Barnes, he argues that only a defendant decides whether to pursue the constitutional right to go to trial. The county prosecutor counters that the court weighed testimony and reviewed the record in making its decision.

Ineffective Counsel
A Mahoning County man was 16 years old when he was convicted of rape and several other crimes. No DNA or physical evidence linked him to the attack, and the victim was unable to identify him through mugshots. Later, when able to see a photo of the man from the torso up, the victim recognized him as one of the assailants. At the trial, only the victim and one of the participants in the attack identified the man. In State v. Bunch, the Court will consider the man’s claim of ineffective assistance of counsel because his attorney didn’t consult with or call an expert witness to question the credibility of the victim’s testimony.

Wednesday, April 13
Contract Dispute
A truck manufacturer appeals a $1.9 million judgment against it for breach of warranty and fraudulent nondisclosure that was brought by a Licking County commercial truck fleet owner who purchased several heavy-duty trucks. The purchaser sued, claiming that he was verbally assured by the manufacturer’s representatives that a design flaw in the truck’s engines had been resolved. After signing the contract for the purchase, the trucks’ engines required numerous repairs. In Navistar v. Dutchmaid, the manufacturer argues express disclaimers in the written purchase contract bar any lawsuits based on verbal claims made prior to the written contract.

Firearm Penalties
In the 2019 shooting death of a Canton woman, a man pled guilty to three charges and the three associated firearm specifications. One offense merged with another for sentencing. For the firearm specifications associated with those merged crimes, consecutive sentences were imposed. In State v. Bollar, the man notes that a “specification” enhances the penalty for the underlying offense. An offender must be sentenced for the underlying crime to be sentenced for the specification, he maintains. The county prosecutor states that the man pled guilty to the specification and could be sentenced for it.