New Kan. Law Seen as a 'Problem' for City's Suit Against Streamers

A freshly inked state law exempting streaming TV services from paying franchise fees to local governments in Kansas could upend a city's lawsuit against Hulu and Netflix at a state appeals court. Gov. Laura Kelly (D) signed a bill (SB-144) to carve out satellite and over-the-top video services from the Kansas Video Competition Act (KVCA). The streamers filed briefs last week in the case at the Kansas Court of Appeals (docket 22-125784-A).

Fort Scott, Kansas, is appealing a lower court dismissing its lawsuit that seeks franchise fees from streaming services for the past three years and prospectively. Representing the city, Kapke & Willerth's Michael Fleming opposed the bill at a committee hearing last month (see 2303090026). Legislation similar to SB-144 is moving in at least a dozen other states.

The new law means Fort Scott is "going to have a problem" with its claim to collect future fees, Fleming told us Friday. However, the city should still get retroactive relief because "the general rule in Kansas is that a statute operates prospectively unless the legislature clearly intends for it to operate retrospectively." SB-144 doesn't contain language on retroactive relief, he said. However, this general rule doesn't apply if the law is classified as procedural rather than substantive, noted Fleming, predicting Hulu and Netflix probably will argue the change is procedural and therefore applies backward.

"The content provided by cable providers is the same as the content provided by streaming companies," but the Kansas law picks "winners and losers" by treating the technologies differently for fees, said Fleming. The lawyer said he's preparing a reply brief to file in about two weeks in the state court case. After that, the court probably will schedule oral argument, he said. Fleming said he isn't sure if there might be a legal challenge to SB-144.

Kansas' Bourbon County District Court correctly said video content distributors that don't construct or operate facilities in the right of way aren't required to pay fees under the KVCA, wrote Hulu in a Wednesday brief at the state appeals court. Streaming services rely on third-party ISPs to deliver video content through the ISP's wireline facilities, so the KVCA doesn't apply, said Hulu: Including entities without facilities in the ROW "creates a mismatch between the franchise mandate and the franchise conferred, generates inconsistencies throughout the KVCA, makes the statute impracticable to administer, and mires Fort Scott in numerous First Amendment violations."

Municipalities have no private right of action to enforce claims under the KVCA, added Hulu: And Fort Scott never notified the streamer that it owed money. "Municipalities must provide entities with written notice of levy before any fees are owed."

Fort Scott's "lawsuit would rewrite the [KVCA's] text and undermine its purpose," said a separate Netflix brief that day. The company noted 13 other state and federal courts dismissed or affirmed dismissal of similar lawsuits in other states. They did so because Netflix lacks facilities in the ROW and doesn't provide video programming, which refers to content that is "linear, scheduled, channelized, and programmed," it said.

Imposing franchise fees would "yield unintended windfalls to local governments by requiring multiple streaming services to pay ... with the ultimate financial impact borne by Kansas customers and residents," Netflix said. "And it would jeopardize the availability of popular streaming services, if those services were subjected to considerable taxes by local jurisdictions across the country."