Hulu, Disney+ Countersue Texas Cities on Franchise Fees, Citing First Amendment
Until late last year, Hulu and Disney+ offered video content to Texas residents over the public internet “without state or local government interference,” said the streaming services’ counterclaim Tuesday (docket DC-22-09128) in 14th Judicial District Court in Dallas against the 31 Texas cities seeking to force the services to pay franchise fees for the video programming they provide through wireline facilities in the public rights-of-way (see 2304120051). Netflix also is a defendant in the dispute with the Texas cities but wasn’t party to the Hulu-Disney+ counterclaim.
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No Texas authority previously claimed the streaming services “needed the government’s permission before they could offer video content, owed franchise fees for exercising their First Amendment rights or had to otherwise comply" with the Texas Public Utility Regulatory Act (PURA), said the counterclaim. Late in 2022, 25 Texas cities “suddenly reversed course,” it said. They claimed for the first time that Hulu and Disney+ are now subject to state franchise requirements, even though neither operates facilities in the public rights of way, it said. The cities “not only insisted on compliance going forward, but also payment of back-fees even though no one believed PURA applied,” it said.
The cities’ “about-face attempt” to apply PURA’s franchise obligations on the Hulu and Disney+ streaming services violates the First Amendment, said the counterclaim. It imposes a “prior restraint” before Hulu and Disney+ can engage in “protected activity,” it said. It also discriminates against Hulu and Disney+ while giving “preferential treatment” to services that offer non-video content, like Spotify or Audible, and other types of video content, like TikTok, Snapchat or YouTube, it said. It imposes a fee that’s “constitutionally excessive” because it bears “zero relation to any burden or expense inflicted on a municipality,” it said.
The Texas cities decided to enforce PURA against Hulu and Disney+ “even though neither constructs, owns, or operates any wireline facilities in any Texas public rights-of-way,” said the counterclaim. “They have made this decision even though PURA has never been applied to streaming services before,” it said. The Texas Public Utility Commission also “never required Hulu and Disney+ to obtain a franchise, and Hulu and Disney+ have no state franchise,” it said.
Hulu and Disney+ assert their counterclaim under Section 1983 of the Ku Klux Klan Act to enjoin the Texas cities from violating the services’ First Amendment rights, said the counterclaim. They also seek to recover damages, fees and costs they’re entitled to in light of the cities’ unconstitutional acts, it said.
The First Amendment has long protected video content as a form of expression, “just as it protects music, art, and the printed word,” said the counterclaim. It recognizes the right to create and offer video content, plus “the right to access and to consume it,” it said. “This is true whether it informs, persuades, or simply entertains. It remains true even when done for profit.”