ORIGINAL
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`'
`FILED .
`Sugerior Court of Callflorma
`ounty of Los Ange es
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`JUL 08 2021
`arter, Exe
`[Ive Officer/Clerk of Court
`Sherri R.
`B
`- a.»
`D
`w
`Tanya
`epu ,
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`lemm
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`Y
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`SUPERIOR COURT OF THE STATE OF CALIFORNIA
`FOR THE COUNTY OF LOS ANGELES
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`CITY OF LANCASTER, CALIFORNIA
`individually and on behalf of all others
`similarly situated,
`
`Plaintiff,
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`V.
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`NETFLIX, INC. and HULU, LLC,
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`Defendants.
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`
`
`Case No. 21$TCV01881
`CLASS ACTION
`
`FAXED
`—
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`DEFENDANT NETFLIX, INC.’S REPLY
`IN SUPPORT OF DEMURRER TO
`PLAINTIFF’S COMPLAINT
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`Assigned to: Yvette M. Palazuelos
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`HEARING:
`Date: August 27, 2021
`Time: 10:00 AM
`Dept: 9
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`Action Filed: January 15, 2021
`Trial Date: None Set
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`LATHAMfl-WATKI N5”
`ATTORNEYS AT LAW
`Los Ausues
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`DEFENDANT NETFLIX. INC.’S REPLY IN
`SUPPORT OF DEMURRER
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`1
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`LATHAM & WATKINS LLP
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`Jean A. Pawlow (Bar No. 139451)
`2 Email: jean.pawlow@1w.com
`555 Eleventh Street, N.W., Suite 1000
`3 Washington, DC 20004
`Tel: 202-637-2200/F ax: 202-637-2201
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`4
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`Mary Rose Alexander (Bar NO' 143899)
`5 Email: mary.rose.a1exander@lw.com
`Robert C. Collins 111
`(Admitted Pro Hac Vice)
`Email: robert.collins@lw.com
`330 North Wabash Ave., Suite 2800
`Chicago, IL 6061 l
`Tel.: 312-876-7700/Fax: 312-993-9767
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`9 Michael A. Hale (Bar No. 319056)
`Email: michae1.hale.@lw.com
`355 South Grand Avenue, Suite 100
`Los Angeles, CA 90071-1560
`Tel.: 213-485-1234/Fax: 213-891-8763
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`12 Counselfor Defendant Netflix, Inc.
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`TABLE OF CONTENTS
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`Page
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`NETFLIX’S DEMURRER SHOULD BE SUSTAINED ................................................. 6
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`A.
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`B.
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`C.
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`D.
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`E.
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`F.
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`Plaintiff Does Not Have a Private Right of Action ................................................ 6
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`DIVCA Does Not Apply to Netflix. ...................................................................... 7
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`l.
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`2.
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`3.
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`Netflix Does Not Own, Operate, Use, or Occupy Assets In
`the Public Rights-of-Way. ......................................................................... 7
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`Netflix’s Streaming Service Is Not “Video Programming.” ...................... 9
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`Netflix’s Services Are Excluded Because Netflix’s Content
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`Is Only Available Over the Public Internet................................................ 9
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`As Applied, Plaintiff’s Action Violates the California Constitution. .................. 10
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`As Applied, DIVCA Violates the First Amendment and Fourteenth
`Amendments to the US. Constitution. ................................................................ l l
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`Federal Law Preempts Imposing Franchise Fees On Netflix. ............................. 13
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`As Applied, DIVCA Violates the Internet Tax Freedom Act
`(“ITFA”) .............................................................................................................. 15
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`G.
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`In the Alternative, This Court Should Refer the Case to the PUC ...................... 15
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`CONCLUSION ................................................................................................................ 15
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` II.
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`O\DOO\]O\
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`LATHAM&WATKI NSLL“
`ATTORNEYS AT LAW
`Les ANGELEs
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`DEFENDANT NETFLIX, INC.’S REPLY IN
`SUPPORT OF DEMURRER
`
`

`

`1
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`TABLE OF AUTHORITIES
`
`3
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`CASES
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`Page(s)
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` 2
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`4 AT&T Commc ’ns 0fthe Southwest, Inc. v. City ofAustin,
`5
`975 F. Supp. 928 (W.D. Tex. 1997), vacated as moot, 235 F.3d 241 (5th Cir. 2000) .............. 8
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`6 AT&T Commc ’ns of the Southwest, Inc. v. City of Dallas,
`52 F. Supp. 2d 756 (ND. Tex. 1998), vacated as moot, 243 F.3d 928 (5th Cir. 2001) ............ 8
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`7
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`Bell Atl.—Md., Inc. v. Prince George’s County,
`49 F. Supp. 2d 805 (D. Md. 1999), vacated & remanded, 212 F.3d 863 (4th Cir. 2000) ......... 8
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`8
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`9 Cincinnati v. Discovery Network,
`10
`507 U.S.410(1993) ................................................................................................................. 12
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`11 City ofChicago v. FCC,
`199 F.3d 424 (7th Cir. 1999), cert. denied sub nom., 531 US. 825 (2000) .............................. 8
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`12
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`City ofDallas v. FCC,
`165 F.3d 341 (5th Cir. 1999) ............................................................................................. 13, 14
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`13
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`14 City ofEugene v. FCC,
`15
`998 F.3d 701 (6th Cir. 2021) ................................................................................................... 14
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`16 City ofSan Buenaventura v. United Water Conservation Dist.,
`3Ca1. 5th 1191 (2017) ............................................................................................................. 10
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`17
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`18
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`Farmers Ins. Exch. v. Superior Ct.,
`826 P.2d 730 (Cal. 1992) ......................................................................................................... 15
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`19 Gentile v. State Bar ofNev. ,
`20
`501 US. 1030 (1991) ............................................................................................................... 13
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`21 Kentucky v. Netflix,
`No. 15-C1—01 117 (Ky. Cir. Ct. Aug. 23, 2016) ...................................................................... 7, 9
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`22
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`23
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`A/Ienotti v. City ofSeattle,
`409 F.3d 1113 (9th Cir. 2005) ................................................................................................. 13
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`24 NAACP v. Button,
`371
`.
`.415 1963 ................................................................................................................. 3
`25
`U S
`(
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`1
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`26 Nat ’l Endowmentfor the Arts v. Finley,
`524 US. 569 (1998) ................................................................................................................. 13
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`Pac. Bell Tel. Co. v. City of Walnut Creek,
`428 F. Supp. 2d 1037 (ND. Cal. 2006) ............................................................................. 11, 14
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`
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`3
`LATHAMaWATKINSLL»——*——__—_‘
`Anoauevs AT LAW
`DEFENDANT NETFLIX, INC.’S REPLY IN
`Los mamas
`SUPPORT OF DEMURRER
`
`

`

`Performance Mktg. Ass ’n v. Hamer,
`998 N.E.2d 54 (111. 2013) ......................................................................................................... 15
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`Preferred Comm ’cns. Inc. v. City ofLos Angeles,
`754 F.2d 1396 (9th Cir. 1985) ........................................................................................... 11, 12
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`Reed v. Town of Gilbert,
`576 US. 155 (2015) ................................................................................................................. 13
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`Sacramento Metro. Cable Television Comm ’n v. Comcast Cable Commc ’ns Mgmt., LLC,
`2020 WL 7425346 (ED. Cal. Dec. 18, 2020) ......................................................................... 1 1
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`Simon & Schuster, Inc. v. Members of the New York State Crime Victims Bd.,
`502 US. 105 (1991) ................................................................................................................. 11
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`Telesat Cablevision, Inc. v. City ofRiviera Beach,
`773 F. Supp. 383 (SD. Fla. 1991) ........................................................................................... 11
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`Time Warner Entertainment C0., LP. v. FCC,
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`93 F.3d 957 (DC. Cir. 1996) ..................................................................................................... 8
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`US. Postal Serv. v. Council of Greenburgh Civic Ass ’ns,
`453 U.S.114(1981) ................................................................................................................. 12
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`Wise v. Pac. Gas & Elec. Co. ,
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`91 Cal. Rptr. 2d 479 (Cal. Ct. App. 1999) ............................................................................... 15
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`47 U.S.C.
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`STATUTES
`
`§ 332 ......................................................................................................................................... 10
`§ 522(20) .................................................................................................................................... 9
`§ 541(b)(1) ............................................................................................................................... 14
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`California Public Utility Code
`§ 5800 et seq. ............................................................................................................................. 6
`§ 5830(1) ..................................................................................................................................... 7
`§ 5830(r) ..................................................................................................................................... 9
`§5830(s) .......................................................................................................................... 7, 8, 10
`§ 5840(a) .................................................................................................................................... 7
`§ 5840(i)(1) ................................................................................................................................ 7
`§ 5840(i)(2) ................................................................................................................................ 8
`§ 5840(q)(2)(B) .......................................................................................................................... 8
`§ 5860(i) ..................................................................................................................................... 6
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`LATHAM&WATK| NSMP
`ATTORNEYS AT LAW
`LOS ANGELES
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`4
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`DEFENDANT NETFLIX INC.’S REPLY IN
`SUPPORT OF DEMURRER
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`

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`1
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`CONSTITUTIONAL PROVISIONS
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`2 Cal. CONST.
`
`art. XIII C ................................................................................................................................. 10
`art. XIII C § 2 ........................................................................................................................... l 1
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`US. CONST.
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`amend.I .................................................................................................................... 6,11,12,13
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`amend. XIV .................................................................................................................... 6, 11, 13
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`ADMINISTRATIVE DECISIONS
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`In re Appropriate Frameworkfor Broadband Access to the Internet over Wireline Facilities,
`20 FCC Red. 14986 (2005) ...................................................................................................... 10
`
`In re Protecting and Promoting the Open Internet,
`30 FCC Red. 5601 .................................................................................................................... 10
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`Third Report and Order, In the Matter of Implementation ofSection 621 (a) (I) of the Cable
`Commc ’ns Policy Act of] 984 As Amended by the Cable Television Consumer Prot. &
`Competition Act of I 992,
`34 FCC Red. 6844 (Aug. 2, 2019) ........................................................................................... 14
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`14 Notice of Proposed Rulemaking, In the Matter ofPromoting Innovation & Competition in the
`Provision ofMultichannel Video Programming Distribution Servs. ,
`29 FCC Red. 15995 (2014) ........................................................................................................ 9
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`17 Clifford Holliday, “FiOS vs. U— Verse,” http://www.bbpmag.com/2010mags/aug—
`sepI 0/BBP_A ugZOI 0_Fios VSUverse.pdf (August/September 201 0) ........................................ 7
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`OTHER AUTHORITIES
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`HR. Rep. No. 98-934 (1984) ......................................................................................................... 14
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`LATHAMPWATKI N511»
`AW M W
`to. 1m
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`DEFENDANT NETFLIX INC.’S REPLY IN
`SUPPORT OF DEMURRER
`
`

`

`SUMMARY OF THE ARGUMENT
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`Plaintiff has not alleged that Defendant Netflix, Inc. (“Netflix”) physically occupies the
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`public rights-of-way. This indisputable fact alone is dispositive of Plaintiff’s Complaint. Indeed,
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`Plaintiff” s opposition (“Response”) confirms that the Digital Infrastructure and Video Competition
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`Act of 2006, Cal. Pub. Util. Code § 5800 et seq. (“DIVCA”), does not apply to Netflix. Netflix’s
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`Demurrer (“Demurrer”) should be sustained for each of the following independent reasons:
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`0 First, DIVCA does not grant Plaintiff a private right of action.
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`0 Second, DIVCA does not extend to Netflix’s Internet-based streaming services because:
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`(1)
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`Netflix does not install, use, maintain, or control any assets in the public rights-of—way; (2)
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`Netflix does not offer “video programming”; and (3) DIVCA specifically exempts Netflix’s
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`services because they are provided over the public Internet.
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`0 Third, as applied, Plaintiff’s action violates the California Constitution, which prohibits the
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`imposition of new taxes without voter consent.
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`0 Fourth, as applied, DIVCA violates the First and Fourteenth Amendments of the US.
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`Constitution, by impermissibly and discriminatorily restricting free speech.
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`0 Fifth, if DIVCA could be interpreted to cover Netflix, it would be preempted by federal law
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`limits on the ability of local franchise authorities to impose fees on companies like Netflix.
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`0 Sixth, Plaintiff‘s application of franchise fees violates the Internet Tax Freedom Act.
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`0 Finally, even if the Complaint stated a claim, the primary jurisdiction doctrine calls for
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`deferring to California’s Public Utilities Commission (“PUC”).
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`I.
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`NETFLIX’S DEMURRER SHOULD BE SUSTAINED
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`A.
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`Plaintiff Does Not Have a Private Right of Action.
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`Plaintiff concedes that DIVCA § 5860(i) is the only section that allows Plaintiff any
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`enforcement right. Resp. to Hulu’s Demurrer at 10. That right, however, is limited to the right
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`to “examine the business records of a holder of a state franchise,” and Plaintiff concedes that
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`Netflix does not hold a franchise. Comp]. )1 19. This limitation is appropriate and consistent
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`with the purpose of DIVCA; it respects the PUC’s role as “the sole franchise authority” (DIVCA
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`LATHAMa-WATKINSLU’
`ATTORNEYS AT LAW
`L05 ANGELES
`
`DEFENDANT NETFLIX, INC.’S REPLY IN
`SUPPORT OF DEMURRER
`
`

`

`1
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`2
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`§ 5840(a)) and allows local entities limited enforcement rights only after that authority has been
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`exercised. Plaintiff cannot pursue even the limited right of enforcement granted to it by the
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`3 California legislature, and the Court cannot infer a broader right of action than the legislature
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`expressly granted (see Hulu’s Demurrer at 17).
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`B.
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`DIVCA Does Not Apply to Netflix.
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`1.
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`Netflix Does Not Own, Operate, Use, or Occupy Assets In the Public
`Rights-of-Way.
`DIVCA was enacted in 2006 to allow facilities—based Internet service providers (“ISPs”)
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`like Verizon, and telephone companies like AT&T, to compete with cable companies without
`needing to negotiate a franchise agreement with each municipality in which the provider
`operated.1 The compromise reached by the California legislature was to allow these providers
`to obtain state franchises that authorized “the construction and operation of any network in the
`right-of-way,” while permitting local municipalities to exercise their traditional police powers
`to manage city streets. DIVCA § 5830(f).
`Unlike Verizon, AT&T, other ISPs, and cable companies, Netflix does not own, operate,
`use, or occupy assets in the public rights-of-way and does not deliver or provide its video content
`to its customers.
`instead, Netflix members, using their own personal devices, connect to the
`Internet through their ISPs to request content, and an ISP (not Netflix) delivers that content to the
`user over the ISP’s facilities. Kentucky v. Netflix, No. lS-CI-Ol 1 l7 (Ky. Cir. Ct. Aug. 23, 2016)
`at 12-15, attached as Exhibit 1 to Demurrer; Comp]. 1i l7; Resp. at 3. This fact is not in dispute.
`Plaintiff, however, contends that a franchise is necessary not only to own or operate the facilities
`through which video service is provided, but also “to provide video service.” Resp. at 4 (citing
`DIVCA § 5840(i)(])). While Plaintiff tries to divorce the concept of “providing video service”
`from the use of the public rights-of-way, DIVCA expressly limits “Video service”2 to services
`“provided through facilities located at least in part in public rights-of-way.” DIVCA § 5830(5).
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`1 This was the rationale for the reference in DIVCA § 5830(5) to “lntemet protocol or other
`technology,” referring to both Verizon’s “FiOS” technology as well as to AT&T’s “U-Verse”
`technology. See Clifford Holliday, “F105 vs. U— Verse,” http://www.bbpmag.com/2010mags/aug—
`sep] 0/BBP_Aug201 0_Fios VSUverse.pdf (August/September 2010).
`2 As explained below, Netflix does not provide “video service.”
`7
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`LATHAMOWATKINS‘LP
`ATTORNEYS AT LAW
`Los Amara:
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`DEFENDANT NETFLIX, INCRS REPLY IN
`SUPPORT OF DEMURRER
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`Plaintiff also ignores DIVCA §5840(i)(2), which provides that the franchise fee itself “is in
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`exchangefor” the “authority to use the public rights-of-way .
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`.
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`. in the delivery of video service.”
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`(emphasis added). DIVCA thus creates an express link between using the public rights-of-way
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`and the franchise fee.
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`The Federal Communications Commission (“FCC”) and federal courts around the country
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`have routinely and uniformly held that franchise fees cannot be imposed in circumstances such as
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`these because there is no requisite use of the right-of-way. See, e. g., City of Chicago v. FCC, 199
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`F.3d 424, 432-33 (7th Cir. 1999) (signal moving across leased cables did not constitute “use” of
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`the public rights-of-way), cert. denied sub nom., 531 US. 825 (2000); AT&T Commc’ns ofthe
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`Southwest,
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`Inc. v. City of Austin, 975 F. Supp. 928, 942-43 (WD. Tex. 1997) (a carrier’s
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`connectivity to a third-party network in the rights-of-way did not constitute “use” of the rights-of-
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`12 way), vacated as moot, 235 F.3d 241 (5th Cir. 2000); AT&T Commc ’ns ofthe Southwest, Inc. v.
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`13 City ofDallas, 52 F. Supp. 2d 756, 760-62 (ND. Tex. 1998) (wireless provider was not “using”
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`the rights-of-way by handing off calls to other carriers). vacated as moot, 243 F.3d 928 (5th Cir.
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`2001); Bell Ail-Md, Inc. v. Prince George 19 County, 49 F. Supp. 2d 805 (D. Md. 1999) (unless
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`company “physically impacts the public rights-of-way by installing, modifying, or removing
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`telecommunications lines and facilities, it is not ‘using’ the rights-of—way” and is not subject to a
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`franchise fee), vacated & remanded, 212 F.3d 863 (4th Cir. 2000).3
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`Oddly, Plaintiff cites DIVCA § 5840(q)(2)(B) for the proposition that DIVCA applies to
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`the delivery of video programming “through third-party wireline facilities” (Resp. at 4) when, in
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`fact, it supports Netflix’s position that physical access is required:
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`[I]fthe video service provider is leasing access to a network owned by a local entity,
`the local entity may set a franchise fee for access to [the local entity’s] network
`different from the franchise fee charged to a video service provider for access to
`the rights-of-way to install its own network.
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`3 Plaintiffpoints to Time Warner Entertainment Co., LP. v. FCC, 93 F.3d 957 (DC. Cir. 1996) to
`support its position that municipalities have the authority “to regulate use of the public rights-of-
`27 way for video distribution” (Resp. at 8), but the court in that case explained that franchises are
`required for physical occupancy of the rights-of-way: “[b]ecause [the cable system’s] cables must
`be laid in public rights-of-way and easements, cable operators must secure the necessary permits
`from local governments. Thus, their operations must be franchised.” 93 F.3d at 962.
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`8
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`LATHAMa-WATKINSLLP
`ATTORNEYS AT LAW
`Los ANGELES
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`DEFENDANT NETFLIX, iNC.)S REPLY 1N
`SUPPORT OF DEMURRER
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`LATHAMS‘WATKINSLW
`ATTORNEVS AT LAW
`LDS ANGELES
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`Plaintiff does not allege that Netflix is leasing Plaintiffs network and, as explained above, Netflix
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`is not accessing the rights-of-way to install its own network. DIVCA thus does not apply to the
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`Netflix service.
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`2.
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`Netflix’s Streaming Service Is Not “Video Programming.”
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`DIVCA also does not apply to Netflix for the separate and independent reason that
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`Netflix’s service is not “programming provided by, or generally considered comparable to
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`programming provided by, a television broadcast station” as required by DIVCA § 5830(r).
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`Demurrer at 16-17. While Plaintiff argues that virtually all video content is covered by DIVCA,
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`regardless of how the service is delivered, as long as the “quality” of the service is comparable to
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`broadcasting (Resp. at 6), DIVCA does not mention signal quality at all. Plaintiff ignores the
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`statutory text entirely, relying instead on a statement by the FCC that “improvements in streaming
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`technology” enable streaming video to be “comparable” to television programming under 47
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`U.S.C. § 522(20). Resp. at 6 (citing Notice of Proposed Rulemaking, In the Matter ofPromoting
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`Innovation & Competition in the Provision of Multichannel Video Programming Distribution
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`Servs., 29 FCC Red. 15995, 11 16 (2014)). The FCC, however, reached that conclusion in an
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`unrelated context—examining sources of authority to impose federal “net neutrality” requirements
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`on ISPs—which has nothing to do with whether streaming services should be subject to state
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`franchising requirements.4 Even if the technical quality of Netflix’s content is comparable to
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`broadcast television, the Netflix service is not comparable to television broadcast programming
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`with respect to either content or scheduling, which are the key characteristics of broadcast
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`television. Kentucky v. Netflix, at 13—15.
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`3.
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`Netflix’s Services Are Excluded Because Netflix’s Content Is Only
`Available Over the Public Internet.
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`DIVCA excludes video programming “provided as part of, and via, a service that enables
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`end users to access content, information, electronic mail, or other services offered over the
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`public Internet.” DIVCA § 5830(5) (emphasis added). Even if Netflix’s content constitutes
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`4 Plaintiff also cites to an unrelated dispute involving Netflix’s obligations regarding accessibility
`for the deaf community (Resp. at 6), which had nothing to do with franchise fees and was settled.
`9
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`DEFENDANT NETFLIX, INC.’S REPLY IN
`SUPPORT OF DEMURRER
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`

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`“video programming” (which it does not), it is provided by the ISP “as part of, and via” the
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`ISP’s “service that enables users to access content, information, electronic mail, or other services
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`offered over the .
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`.
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`. Internet.” Plaintiff‘s alternative argument that Netflix’s services are not
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`offered over the “public” Internet because the services are only offered to paying subscribers also
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`fails. What makes the lntemet “public” is that Internet access services are available to the
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`public. See In re Appropriate Frameworkfor Broadband Access to the Internet over Wireline
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`Facilities, 20 FCC Red. 14986 (2005) (adopting principles that “encourage broadband
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`deployment and preserve and promote the open and interconnected nature of the public
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`Internet”); 47 U.S.C. § 332 (distinguishing “commercial mobile service” and “private mobile
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`service” based on whether the service is available to a substantial portion of the public); In re
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`Protecting and Promoting the Open Internet, 30 FCC Red. 5601, 11 363 (finding that “broadband
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`Internet access service providers offer broadband lntemet access service ‘directly to the
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`public ). That content is password—protected or encrypted, stored on private servers, or made
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`available only to individuals with a subscription does not remove it from the public Internet.
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`Paying to watch the JetHaWks at the Lancaster Municipal Stadium, by analogy, does not make it
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`any less “public.” The “public” Internet exception in DIVCA thus applies.
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`C.
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`As Applied, Plaintiff’s Action Violates the California Constitution.
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`A charge is not a nontax “fee” under article XIII C unless it is both fixed in an amount that
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`is “no more than necessary to cover the reasonable costs of the governmental activity,” and “the
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`manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the
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`payor’s burdens on, or benefits received from,
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`the governmental activity.”
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`City of San
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`Buenaventura v. United Water Conservation Dist, 3 Cal. 5th 1 191, 1214 (2017). While Plaintiff
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`claims that the franchise fee is excluded from Article XIII C of the California Constitution because
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`the fee is “rent” for the “use” of public rights-of-way, it did not and cannot allege that Netflix
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`occupies the public rights-of-way. See generally, Compl. Netflix does not use any public rights—
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`of-way (supra Section [3.1) and Plaintiff does not allege that Netflix imposes any costs on
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`Plaintiff (and it does not). The exception to Article XIII C for the use or rental of government
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`property, thus, does not apply.
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`DEFENDANT NETFLIX, INC.’S REPLY IN
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`Plaintiff argues that Article XIII C § 2 only prohibits local governments from “imposing,
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`extending, or increasing” any general or special taxes without voter approval, and the California
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`legislature and not Lancaster is imposing, extending, or increasing the franchise fee in this case.
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`Plaintiff’s position has been rejected in Sacramento Metro. Cable Television Comm ’n v. Comcast
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`that while DlVCA authorizes localities to establish fees, it does not impose fees or mandate that
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`localities do so. Sacramento, 2020 WL 7425346 at *4.
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`D.
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`As Applied, DIVCA Violates the First Amendment and Fourteenth
`Amendments to the US. Constitution for Multiple Reasons.
`DlVCA, as applied by Plaintiff, violates core First Amendment principles that protect
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`'0 speakers like Netflix from discriminatory treatment and prior restraints on speech. See Demurrer
`H at 18-20; Hulu’s Demurrer at 13-14.
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`First, Plaintiff’s assertion that “this case does not involve a burden on speech at all” (Resp.
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`at 8) is wrong because the franchise fee Plaintiff seeks to impose burdens not only the distribution
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`of works protected by the First Amendment but also the affordability to California residents who
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`access them, because franchise fees can be passed on to subscribers. See Preferred Commc ’ns.
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`Inc. v. City of Los Angeles, 754 F.2d 1396, 1406 (9th Cir. 1985); Simon & Schuster, Inc. v.
`17 Members ofthe New York State Crime Victims Bd. , 502 US. 105, l 17 (1991) (taxing a percentage
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`of speech-derived income is a financial burden that disincentives speech).5
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`Second, Plaintiff’s failure to allege that Netflix owns or operates any facilities in the public
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`rights-of-way is conclusive with respect to the First Amendment. DIVCA, as applied by Plaintiff,
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`facilities in the public rights-of-way. Plaintiffclaims that Netflix and Hulu are required to receive
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`prior approval from the PUC before they can offer Video content in Lancaster (Compl. 11 18) but
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`5 Plaintiff’s cases rejecting First Amendment challenges to franchise fees paid by cable operators
`that install networks in the public rights-of-way recognize that such fees implicate speech. See,
`rag, Pac. Bell Tel. Co. v. City of Walnut Creek, 428 F. Supp. 2d 1037, 1051 (ND. Cal. 2006)
`(applying intermediate scrutiny); Telesat Cablevision, Inc. v. City ofRiviera Beach, 773 F. Supp.
`383, 407 (SD. Fla. 1991) (finding city had “provid[ed] adequate evidence that its fee approaches
`the reasonable market value of the rental of its rights-of-way”).
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`DEFENDANT NETFLIX, INC’S REPLY IN
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`Plaintiff does not seek to impose this restraint on other similarly situated speakers, such as those
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`that do not provide video content (such as Spotify and Audible) and those that provide video
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`content other than video programming (such as YouTube and The New York Times, which offers
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`video reporting). Compl.
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`1T 18. Plaintiff provides no justification for this prior restraint and
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`differential treatment.
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`Instead, Plaintiff’s First Amendment defense is limited almost exclusively
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`to a vague reference to “government regulatory authority over public property,” citing a laundry
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`list of govemment-property cases (Resp. at 9) that stand only for the unremarkable, undisputed
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`and irrelevant proposition that “the First Amendment does not guarantee access to property simply
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`because it is owned or controlled by the government.” US. Postal Serv. v. Council of Greenburgh
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`10 Civic Ass ’ns, 453 U.S. 1 14, 129 (1981). The government may impose franchise fees in exchange
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`for placing assets in public rights-of-way, but Netflix does not have any assets in the public
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`rights-of-way. See, e. g., Preferred Commc’ns. Inc, 754 F.2d at 1406 (First Amendment limits
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`franchising authority where there is no justification based on city’s legitimate interests in
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`“control[ling] the number of times its citizens must bear the inconvenience of having its streets
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`dug up”) (internal quotations omitted).
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`Third, Plaintiff is likewise incorrect that DlVCA, as applied by Plaintiff, is content-neutral.
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`Plaintiff singles out speakers whose content is allegedly “comparable to” broadcast television and
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`does not seek to burden the free speech rights of other speakers whose video, audio, or written
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`content is not “comparable to” broadcast television, but is disseminated using the same technology
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`(i.e., is requested by the subscriber and delivered by ISPs over the lSPs’ existing infrastructure).
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`This kind of content-based discrimination is squarely prohibited by the First Amendment.
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`In
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`of news racks to distribute “commercial” material on public property while continuing to permit
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`the distribution of “noncommercial” speech. The city justified the content-based ban based, in
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`part, on the need to reduce the “visual blight” caused by too many news racks. The court, however,
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`held that the distinction between commercial and noncommercial speech “bears no relationship
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`22 Cincinnati v. Discovery Network, 507 US. 410 (1993), for example, a city sought to ban the use
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`27 whatsoever” to the desire to improve the city’s esthetics.
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`Id. at 424. So too here. DIVCA, as
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`applied by Plaintiff, would distinguish between content that is comparable to broadcast television
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`DEFENDANT NETFLIX, INCRS REPLY IN
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`and content that is not, even though both types of content allegedly “use” the public rights-of—way
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`in the same way. This content-based distinction violates the First Amendment. See id at 424-26.
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`Fourth, the First Amendment and Fourteenth Amendment’s Due Process Clause protect
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`“speakers .
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`from arbitrary and discriminatory enforcement of vague standards.” Nat ’l
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`Endowmentfor the Arts v. Finley, 524 US. 569, 588 (1998). DIVCA, as applied, violates this
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`principle because it sets forth a standard that:
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`(1) does not adequately put entities subject to
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`DIVCA on notice; and (2) “lends itself to selective enforcement against unpopular causes,” as
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`Plaintiff seeks to do here by singling out Hulu and Netflix. See NAACP v. Button, 371 US. 415,
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`435 (1963). Contrary to Plaintiff’s assertion in its Response at 1 1, Netflix’s conduct does not
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`“plainly fall[] within the scope of DIVCA.” See supra Section I.B.l. Plaintiff’s approach also
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`leaves not just other streaming service providers, but also all other Internet content providers,
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`guessing as to whether DIVCA might be applied to them. This sort of breadth and uncertainty is
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`not permitted, because vague laws touching on expression create an “impermissible risk of
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`discriminatory enforcement.” Gentile v. State Bar ofNev., 501 U.S. 1030, 1051 (1991); see also
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`NAACP 371 US at 432 (“[S]tandards of permissible statutory vagueness are strict in the area of
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`free expression”); Finley, 524 US. at 588. The Supreme Court has “repeatedly rejected the
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`argument that discriminatory
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`treatment is suspect under the First Amendment only when the
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`legislature intends to suppress certain ideas.” Reed v. Town ofGilber