TEXARKANA, Texas - The City of New Boston, Texas, filed a proposed class action lawsuit Tuesday in a Texarkana federal court against the popular streaming services Netflix and Hulu.
The city claims the services should be paying 5% of their local gross revenues to Texas municipalities because the services take advantage of local infrastructure to stream videos.
"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. According to Netflix, that means that most of its subscribers receive Netflix's video programming from servers either inside of, or directly connected to, the subscriber's Internet service provider's network within their local region," states a complaint filed by Austin Tighe of Nix Patterson's Austin law office.
The complaint alleges Hulu uses a similar process to deliver its content and complains that neither service filed a required application with the Public Utility Commission of Texas for a "state-issued certificate of franchise authority" or SICFA.
"Defendants were required to obtain a SICFA before providing video service in New Boston, and the other Texas municipalities in which it provides they provide their video services. Defendants' failure to obtain a SICFA, however, did not relieve Defendants of the obligation to pay a franchise fee of 5 % of their gross revenues, as derived from providing such video service in those municipalities," the complaint argues.
New Boston isn't planning to go it alone in its suit against Hulu and Netflix. The complaint asks for class action certification which would include as plaintiffs "all Texas municipalities in which one or more of the defendants has provided video service."
The complaint accuses Netflix and Hulu of violating the Texas Utilities Code and seeks a declaration from the court affirming the position. Netflix has argued in a suit pending in state court in Missouri that it isn't a video service provider. The Texas suit wants the court to declare that Netflix and Hulu meet the definition spelled out in the Texas Utility Code and thus liable for paying the franchise fee.
The case has been assigned to U.S. District Judge Robert Schroeder III in the Texarkana Division of the Eastern District of Texas. Neither Netflix nor Hulu have been formally served with a copy of the complaint.