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`1 VICTOR JIH, State Bar No. 186515
`JOHN RAFAEL PEREZ, pro hac vice
`2 NAOMI R. STRAUSS, State Bar No. 323785
`RYAN S. BENYAMIN, State Bar No. 322594
`3 WILSON SONSINI GOODRICH & ROSATI
`4
`Professional Corporation
`633 West Fifth Street, Suite 1550
`Los Angeles, CA 90071—2027
`Telephone:
`(323) 210-2900
`Facsimile:
`(866) 974—7329
`Email:
`vjih@wsgr.com
`jrperez@wsgr.com
`nstrauss@wsgr.com
`rbenyamin@wsgr.com
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`BYFAX
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`7
`8
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`9 Attorneysfor Defendant Hulu LLC
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`SUPERIOR COURT OF THE STATE OF CALIFORNIA
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`COUNTY OF LOS ANGELES
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`CITY OF LANCASTER, CALIFORNIA,
`individually and on behalf of all others
`similarly situated,
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`PlaintiffS,
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`V.
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`Case No.: 21$TCVOl881
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`Complaint Served: January 23, 2021
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`DEFENDANT HULU, LLC’S REPLY
`BRIEF IN SUPPORT OF DEMURRER
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`NETFLIX INC and HULU LLC
`’
`'
`’
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`’
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`Hearing Date: August 27, 2021
`Time:
`10:00am
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`Defendants.
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`Department:
`Before:
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`9
`Hon. Yvette M. Palazuelos
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`CASE NO.: 2 1 STCV01881
` HULU’s REPLY BRIEF IN SUPPORT OF DEMURRER
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`

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`TABLE OF CONTENTS
`
`Egg
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`1.
`
`II.
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`INTRODUCTION ............................................................................................................... 1
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`DIVCA DOES NOT APPLY TO HULU—ONLY TO PROVIDERS THAT
`CONSTRUCT OR OPERATE NETWORKS IN THE PUBLIC RIGHTS-OF-
`WAY ................................................................................................................................... 2
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`A.
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`B.
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`C.
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`The City’s Interpretation Cannot Be Squared With The Text of the Statute .......... 2
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`The City’s Interpretation Contradicts The Legislature’s Stated Intent ................... 4
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`The City’s Application of DIVCA to Hulu is Blatantly Unconstitutional .............. 5
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`III.
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`DIVCA EXCLUDES VIDEO SERVICE PROVIDERS THAT STREAM VIDEO
`CONTENT OVER THE PUBLIC INTERNET .................................................................. 6
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`IV.
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`THE CITY HAS NO PRIVATE RIGHT OF ACTION UNDER DIVCA ......................... 7
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`V.
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`THE CITY CANNOT STATE A CLAIM FOR FRANCHISE FEES FROM HULU ....... 7
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`VI.
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`THE CITY’S APPLICATION OF DIVCA TO HULU VIOLATES ITFA ....................... 8
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`VII.
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`CONCLUSION ......................................................................... .......................................... 9
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`CASE No.2 2ISTCV01881
` HULU’s REPLY BRIEF IN SUPPORT OF DEMURRER
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`TABLE OF AUTHORITIES
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`CASES
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`EELS)
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`Animal Legal Defense Fund v. Mendes, 160 Cal. App. 4th 136 (2008) ............................................ 8
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`AT&T Communications ofthe Sw., Inc. v. City ofDallas, Tex., 52 F. Supp. 2d 756
`(ND. Tex. 1998) .................................................................................................................... 5
`
`AT&T Communications ofthe Sw., Inc. v. City ofAustin, Tx., 42 F. Supp. 2d 708
`(SD. Tex. 1998) ..................................................................................................................... 5
`
`Bantam Books, Inc. v. Sullivan, 372 US. 58 (1963) .......................................................................... 6
`
`Bd. ofSupervisors, Fairfax Cty. v. Caxcom, LLC, 104 Va. Cir. 248 (Va. Cir. Ct.
`2020) ....................................................................................................................................... 9
`
`City in Chattanooga v. Bellsouth Telecomms., Inc., 2000 Tenn. App. LEXIS 32
`(Term. Ct. App. 2000) ............................................................................................................ 9
`
`City ofChi. v. AT&TBroadhand, Inc, No. 02C 7517, 2003 WL 22057905 (ND.
`111. 2003) ................................................................................................................................. 9
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`Griswold v. Connecticut, 381 US. 479 (1965) .................................................................................. 5
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`Hedgepeth v. Tennessee, 215 F.3d 608 (6th Cir. 2000) ..................................................................... 8
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`Hough v. McCarthy, 54 Cal. 2d 273 (1960) ....................................................................................... 2
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`In re Hulu Privacy Litig, No. C 11-03764 LB, 2012 WL 328960 (N.D. Cal. 2012) ........................ 6
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`Intertainer, Inc. v. Hulu, LLC, 2012 US. Dist. LEXIS 198895 (CD. Cal. 2012) ............................. 6
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`Neb. Press Ass ’n v. Stuart, 427 US. 539 (1976) ............................................................................... 6
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`Phelps v. Stostad, 16 Cal. 4th 23, 32 (Cal. 1997) ............................................................................... 2
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`Qwest Corp. v. City ofSurprise, 434 F.3d 1176 (9th Cir. 2006) ....................................................... 8
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`Sandvig v. Barr, 451 F. Supp. 3d 73 (D.D.C. 2020) .......................................................................... 7
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`Santa Barbara County Taxpayers Association v. Board ofSupervisors for the
`County ofSanta Barbara (1989) 209 Cal. App. 3d 940 ....................................................4, 5
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`Stanley v. Georgia, 394 US. 557 (1969) ........................................................................................... 5
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`Winters v. New York, 333 US. 507 (1948) ........................................................................................ 5
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`STATUTES
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`Alameda County Code § 3.17.050 ..................................................................................................... 5
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`Cal. Gov’t Code § 53066 .................................................................................................................... 4
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` HULu’s REPLY BRIEF IN SUPPORT OF DEMURRER " CASE No.: 2 1 STCV01881
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`#WN
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`\IO\
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`Cal. Gov’t. Code § 53066(a) .............................................................................................................. 5
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`Cal. Gov’t. Code § 53066(e) .............................................................................................................. 5
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`59 Cal. Jur. 3d Telegraphs and Telephones §§ 6, 30 .......................................................................... 5
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`Cal. Pub. Util. Code § 2101 ............................................................................................................... 8
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`Cal. Pub. Util. Code § 5810 ............................................................................................................... 4
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`Cal. Pub. Util. Code § 5810(a)(1)(C) ............................................................................................. 3, 4
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`Cal. Pub. Util. Code § 5810(a)(4) ...................................................................................................... 4
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`Cal. Pub. Util. Code § 5830(t) ....................................................................................................... 2, 3
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`Cal. Pub. Util. Code § 5830(5) ................................................................................................... 2, 6, 9
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`Cal. Pub. Util. Code § 5840(i)(1) ....................................................................................................... 2
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`Cal. Pub. Util. Code § 5840(e)(1)(B)(iV) .......................................................................................... :3
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`Cal. Pub. Util. Code § 5840(k) ........................................................................................................... 2
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`Cal. Pub. Util. Code § 5840(q)(1) ...................................................................................................... 8
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`Cal. Pub. Util. Code § 5840(q)(2)(B) ................................................................................................. 3
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`Cal. Pub. Util. Code § 5860(i) ............................................................................................................ 7
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`Cal. Pub. Util. Code § 5860(a) ....................................................................................................... 8, 9
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`Cal. Pub. Util. Code § 5860(d) ........................................................................................................... 3
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`Cal. Pub. Util. Code § 5870 ............................................................................................................... 3
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`Cal. Pub. Util. Code § 5870(a) ........................................................................................................... 3
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`Cal. Pub. Util. Code § 5870(h) ........................................................................................................... 3
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`California Public Utilities Code ......................................................................................................... 1
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`Lancaster Mun. Code § 5.16.040(B) .................................................................................................. 5
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`Lancaster Mun. Code §§ 17.40.650, 17.40.660, 17.40.665-66, 17.40.668 ........................................ 9
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`MISCELLANEOUS
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`First Amendment ............................................................................................................................ 5, 6
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`HULU’s REPLY BRIEF IN SUPPORT OF DEMURRER
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`_ iii _
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`CASE No.2 21STCV01881
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`I.
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`INTRODUCTION
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`At its core, the dispute between the parties is a legal one: Should DIVCA be interpreted
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`expansively to apply to any video service that can be accessed by consumers using any existing
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`third—party infrastructure in the public rights-of-way or narrowly to apply to video service
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`providers that construct or operate their own networks in a city’s public rights-of-way?
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`There is no dispute Hulu does not construct or operate any facilities in the public rights-
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`of—way. Hulu instead relies on the public intemet. Hulu users can choose to access the intemet
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`however they wish—Hulu’s service works the same no matter what method its users choose to
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`connect. That could involve ISP infrastructure in the public rights-of-way (e. g., broadband) or
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`not (e.g., satellite, cellular, etc.). Even though Hulu’s service is agnostic to the type of intemet
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`connection, the City contends a franchise is required because “subscribers typically use a
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`broadband Internet connection.” Opp’n at 3. While that may be true, it is equally true for any
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`website a resident may access. Hulu no more uses the City’s public rights-of—way than CNN,
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`The Weather Channel, or any resident when they use Snapchat, Instagram, or TikTok.
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`The City’s position reduces down to a claim that Hulu must secure a franchise before it
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`can distribute video content on the intemet simply because resident subscribers my use a
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`broadband connection to access it and that connection may use the public rights-of-way. This
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`interpretation cannot be squared with the limiting language found throughout the statute. It is
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`also inconsistent with the stated legislative purpose. DIVCA replaced the city—by—city
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`franchising scheme with a centralized one administered by the state but did not otherwise change
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`the nature of the franchise. The City’s position, however, transforms the traditional franchise
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`regime into a broad, sweeping requirement on any website or app which even tangentially
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`provide videos, creating a blatantly unconstitutional system of prior restraint.
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`Even if the City’s interpretation were plausible (which it is not), the enforcement of
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`DIVCA is the responsibility of the California PUC and the Attorney General. There is no private
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`right of action. The City’s claim for fees also fails because the City never provided the required
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`notice. Even if it had, the City’s attempt to collect these fees discriminates against Hulu (in favor
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`of commercial mobile services), violates ITFA, and is thus preempted.
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`II.
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`DIVCA DOES NOT APPLY TO HULU—ONLY TO PROVIDERS THAT
`CONSTRUCT OR OPERATE NETWORKS IN THE PUBLIC RIGHTS-OF-WAY
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`A.
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`The Cig’s Interpretation Cannot Be Sguared With The Text of the Statute
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`All parties agree that “[i]t is unlawful to provide video service without a
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`franchise.”
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`Cal. Pub. Util. Code (“PUC”) § 5840(k). The term “video service” is a term-of-art which is
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`defined by the statute as “video programming services
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`provided through facilities located at
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`least in part in public rights-of-way without regard to delivery technology, including Internet
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`protocol or other technology.” Id. § 5830(s) (emphasis added).
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`The City isolates the phrase “provided through facilities” and seizes on the ambiguity
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`created because the phrase does not make clear whether it refers to facilities constructed and
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`operated by the provider itself or to any facilities. The problem with the City’s textual argument,
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`however, is that it interprets that phrase in isolation. The Court, however, must interpret the
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`statute as a whole. “[S]ignificance should be given to every word, phrase, sentence and part of
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`an act.” Phelps v. Stostad, 16 Cal. 4th 23, 32 (Cal. 1997). The Court “must, where reasonably
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`possible, harmonize statutes, reconcile seeming inconsistencies in them, and construe them to
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`give force and effect to all oftheir provisions.” Hough v. McCarthy, 54 Cal. 2d 273, 279 (1960).
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`The City’s interpretation of “provided through facilities” cannot be harmonized with the
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`rest of the statute. For one, DIVCA defines the franchise as the authorization “that authorizes the
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`construction and operation of any network in the right-of-way.” PUC § 5830(0 (emphasis
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`added). The City’s interpretation creates an inconsistency: Hulu would be required to obtain a
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`“construction and operation” franchise even though Hulu does not construct or operate facilities
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`in the rights-of-way. The City points to Section 5840(i)(1) requiring that the franchise contain a
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`“grant of authority to provide video service” itself, but this just expands the inconsistency.
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`Adopting the City’s view, Section 5840(i)(1) would conflict with Section 5830(0, which still
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`defines the franchise in terms of “construction and operation.”
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`If the City is right about DIVCA, then numerous provisions in the statute would have to
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`be revised to resolve inconsistencies or deleted as superfluous. For example:
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`[t]o promote
`.
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`The Legislature finds and declares .
`Section 5810gagglflC).
`competition, the state should establish a state-issued franchise authorization process
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`HULU’s REPLY BRIEF IN SUPPORT OF DEMURRER
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`_ 2 _
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`that allows market participants to use their networks and systems to provide video,
`voice, and broadband services to all residents of the state.
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`[T]he local entity may set a franchise fee for access to the
`Section 5840191121181.
`network different from the franchise fee charged to a Video service provider for
`access to the rights--of-way Mustaflits—ewn—network.
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`. that is
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`Section 58601d1. “[G]ross revenues” means all revenue actually received .
`derived from the operationmm to provide cable or video service
`within the jurisdiction of the local entity.
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`Section 58701 a1. The holder of a state franchise shall designate a sufficient amount
`of capacity emits—network to allow the provision of the same number of public,
`educational, and government access (PEG) channels, as are activated and provided
`by the incumbent cable operator.
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`Section 58701h1. Where technically feasible, the holder of a state franchise and an
`incumbent cable operator shall negotiate in goodfaith to interconnect their networks
`for the purpose of providing PEG programming
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`In its Opposition, the City points to Section 5840(q)(2)(B) but that provision does not
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`support its interpretation—it makes clear that, as to lessees, My “may set a franchise fee for
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`access to the network different from the franchise fee charged to a video service provider for
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`access to the rights—of-way to install its own network.” Id. § 5840(q)(2)(B). The provision
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`explains that any fee charged for accessing the cig’s network is different from DIVCA’s
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`franchise fee “charged to a video service provider for access to the rights-of-way to install its
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`own network.” Id. (emphasis added). DIVCA’s fee, thus, does not apply to the lease scenario
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`and the provision plainly does not support the City’s argument to remove the statute’s
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`requirement of the construction and operation of a network in the public rights-of-way.
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`Limiting the reach of DIVCA to providers that construct or operate networks in the
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`public rights-of-way does not, as the City contends, create a “technology” condition. DIVCA
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`remains technologically neutral. The franchise requirement does not depend on the type of
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`technology employed, but whether there is physical occupation of the rights-of-way.
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`1 The City may argue that the last two examples of PEG requirements in Section 5870 only apply
`to providers that have their own network. But that creates more problems. Section 5870 applies
`to any franchise “holder” without qualification. And Section 5840(e)(1)(B)(iv) requires all
`applicants to swear they “will provide PEG channels.”
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`Huru’s REPLY BRIEF IN SUPPORT OF DEMURRER
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`CASE No.: 21 STCV01881
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`B.
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`The Cig’s Interpretation Contradicts The Legislature’s Stated Intent
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`The City has no answer to the numerous references in the legislative history to a
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`provider’s own network. Dem. at 11—12. The City urges the Court to focus on the text of
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`DIVCA instead, but the text confirms the narrow legislative purpose.
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`Section 5810 explains the purpose of DIVCA to “establish a state-issued franchise
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`authorization process” instead of municipal franchises. PUC § 5810(a)(1)(C); see also id. §§
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`5 810(a)(4) (giving incumbents a choice), 5840(a) (displacing Cal. Gov’t Code Sections 53066 et
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`seq) Other than changing the franchising authority from each city to the state, DIVCA did not
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`otherwise change the nature of the franchise. The statute explicitly states that municipalities will
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`continue to receive “rent” for the continued use of the rights-of-way “similar to that which the
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`court found to be appropriate in Santa Barbara County Taxpayers Association v. Board of
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`Supervisorsfor the County ofSanta Barbara (1989) 209 Cal. App. 3d 940.” Id. § 5810(b). The
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`statute also states “the intent of the Legislature that the definition of gross revenues in this
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`division shall result in local entities maintaining their existing level of revenue.” Id. § 5810(d).
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`These statements of legislative intent conclusively reject the City’s attempt, through this
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`lawsuit, to impose a new and expanded franchise requirement. The City’s authority to require
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`any franchise stems from California Government Code Section 53066 et seq., but that provision
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`is limited to “the construction” of a community antenna television system or cable television
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`system. Cal. Gov’t Code § 53066(a), (e) (emphasis added). The traditional franchise has always
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`been understood as “the right to utilize public ways for the construction and maintenance of []
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`equipment.” 59 Cal. Jur. 3d Telegraphs and Telephones § 30, see also § 6.2 The Legislature’s
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`reference to Santa Barbara County Taxpayers Association confirms the narrow view that the
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`“franchise is a grant of possessory interest in public real property” and that “franchise fees are
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`2 The various city ordinances reflect this narrow authority. See, e.g, Lancaster Mun. Code
`§ 5.16.040(B) (“it shall be unlawful for any person to construct, install or operate a cable system
`in the city within any public way”), https://library.municode.com/ca/lancaster/codes/
`code_of_ordinances?nodeId=TlT5BULIRE_CH5.16FR; Alameda Cty. Mun. Code § 3.17.040
`(“The term ‘operation’ does not encompass or regulate the provision of services, but refers to
`activities affecting rights-of-way and other public property or easements subject to the
`jurisdiction of the county”), https://library.municode.com/ca/alameda_county/codes/
`code__of_ordinances?nodeld=TIT3BULIRE_CH3.17STVISEFR_ARTIIFE.
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`paid for the governmental grant of a relatively long possessory right to use land.” 209 Cal.
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`App. 3d at 949 (emphasis added). Transient use of existing facilities does not involve any
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`possessory interest, let alone a long one. The Legislature also intended to maintain the revenues
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`each city receives, not to change or increase them.
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`Courts construing similar statutes have maintained the traditional focus on parties that
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`own or operate their own facilities. The City’s attempt to distinguish these cases because they
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`dealt with the telecommunications industry rather than the intemet is unpersuasive. A T&T
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`Commc ’ns ofthe Sw., Inc. v. City ofAustin squarely addresses the City’s theory that
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`“transmit[ting] signals consisting of electrons and lightwaves, which will travel through copper
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`and fiber optic lines, cables, and link switches .
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`.
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`. constitute both a use and an occupancy of the
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`public rights-of-way.” 42 F. Supp. 2d 708, 711 (W.D. Tex. 1998). The court found that the
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`theory “borders on the absurd.” 1d. AT&T Commc ’ns 0fSw., Inc. v. City ofDallas reached the
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`same conclusion. 52 F. Supp. 2d 756, 761—62 (N.D. Tex. 1998).
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`C.
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`The Cifl’s Application of DIVCA to Hulu is Blatantly Unconstitutional
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`Although the City is dismissive of the constitutional issues, it never denies that Hulu’s
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`distribution of video content is protected by the First Amendment. See Winters v. New York, 333
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`US. 507, 509 (1948); Griswold v. Connecticut, 381 US. 479, 482 (1965). Nor does it deny its
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`residents’ “right to receive” that content. Stanley v. Georgia, 394 US. 557, 564 (1969).
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`Applying DIVCA to any distributor of video content simply because consumers may use
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`broadband connections to access the intemet creates a prior restraint where Hulu must first
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`obtain permission from the City before it can communicate with its residents. Prior restraints are
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`considered the “essence of censorship” and it is “generally, if not universally” recognized that
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`“the chief purpose” of the First Amendment is to prevent such restraints. Neb. Press Ass ’n v.
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`Stuart, 427 US. 539, 588—89 (1976). They are therefore presumptively unconstitutional. See
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`Bantam Books, Inc. v. Sullivan, 372 US. 58, 70 (1963).
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`The City claims it has the right to control access to public property. But the cases the
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`City cites all involve instances of physical access or occupation and a govemment’s interest in
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`preventing conflicting uses or harm to public property. Those interests do not apply to the use of
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`existing infrastructure to access the public intemet. The City’s argument goes too far. Under the
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`City’s argument, it could require prior permission before anyone uses the intemet, simply
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`because others might use a broadband connection to send or receive online information. The
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`City has articulated no possible government interest that can justify such a prior restraint.
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`III.
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`DIVCA EXCLUDES VIDEO SERVICE PROVIDERS THAT STREAM VIDEO
`CONTENT OVER THE PUBLIC INTERNET
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`The exclusion language in Section 5830(s) should remove all doubt that DIVCA was
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`never intended to apply to intemet streaming. The City claims that the exclusion applies only to
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`the provision of video programming “as part of .
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`.
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`. a service,” but not when the provision of
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`video programming is the entirety of the service. Opp’n at 6—7. This arbitrary part/whole
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`distinction serves no possible legislative purpose. And in any event, the Complaint admits that
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`Hulu’s video service is only its “primary” business. Compl. l} 6. Hulu does more than just
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`stream video; it also offers advertising services, viewing recommendations, and information
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`about the content it provides. See, e.g., In re Hulu Privacy Ling, No. C 11-03764 LB, 2012 WL
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`328960, at *7—8 (ND. Cal. Aug. 10, 2012) (subscribers use Hulu to set up accounts and establish
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`profiles); Intertainer, Inc. v. Hulu, LLC, N0. SACU 11-01208-CJC (RNBx), 2012 US. Dist.
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`LEXIS 198895, at *2—3 (CD. Cal. Jan. 4, 2012) (Hulu provides advertising services).
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`The City also claims that Hulu’s service is not “public” because the service requires log-
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`in credentials and a paid subscription. Opp’n at 7. But this argument erroneously focuses on the
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`“public” nature of the service as opposed to the network by which it is provided. See PUC
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`§ 5830(5). Whether Hulu restricts access to its video service does not affect whether those
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`services are delivered over the public intemet. By analogy, whether a person driving their
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`private vehicle locks the car doors or refuses entry by strangers does not affect whether the road
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`taken is a public road. DIVCA gives the example of “electronic mail.” Log-in credentials are
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`necessary precisely because e—mail is transmitted via the public intemet.
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`Sandvig v. Barr, 451 F. Supp. 3d 73 (D.D.C. 2020), does not say otherwise. Sandvig did
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`not discuss the meaning of the public intemet; it concerned whether particular content is public
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`or private for purposes of CFAA’s prohibition on unauthorized access. Id. at 84—86.
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` HULU’S REPLY BRIEF IN SUPPORT OF DEMURRER CASE No.: 21STCV01881
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`IV.
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`THE CITY HAS NO PRIVATE RIGHT OF ACTION UNDER DIVCA
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`The City misquotes Section 5860(i) to manufacture a private right of action for itself.
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`Opp’n at 10.
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`It does not even respond to the provision’s plain text: “[e]ither a local entity or the
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`holder may, in the event of a dispute concerning compensation under this section, bring an
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`action in a court of competent jurisdiction.” PUC § 5860(i) (emphasis added). The text
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`envisions only a limited right of action against holders of state authorization, which Hulu is not.
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`The City quickly pivots to an implied right of action theory.
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`It argues that it is simply
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`trying to enforce DIVCA’s statewide requirements and therefore, does not subvert the
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`Legislature’s intent. Opp’n at 10 n.18. But DIVCA itself suggests the exact opposite.
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`Precluding individual cities from enforcing DIVCA is fully consistent with its underlying
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`purpose, which was to displace municipal authority over franchising in favor of a centralized
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`state authority. Opp’n at 1; Dem. at 17 (explaining clear legislative intent to “seek the simplicity
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`and ease of a single state-issued franchise whose parameters are established in statute”).
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`In fact, enforcement of DIVCA is committed to the state through the California Public
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`Utilities Commission, which “shall see that the provisions of the Constitution and statutes of
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`[California] affecting public utilities .
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`.
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`. are enforced and obeyed, and that violations thereof are
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`promptly prosecuted and penalties due the State therefor recovered and collected.” PUC § 2101.
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`And “[u]pon the request of the commission, the Attorney General or the district attorney
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`shall
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`institute and prosecute actions.” Id. Allowing the City to sue interferes with this allocation of
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`responsibilities. See Animal Legal Defense Fund v. Mendes, 160 Cal. App. 4th 136, 143—44
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`(2008) (“an explicit and comprehensive legislative scheme for enforcement .
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`.
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`. demonstrates a
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`legislative intent that these laws not be enforceable through a private right of action”).
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`V.
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`THE CITY CANNOT STATE A CLAIM FOR FRANCHISE FEES FROM HULU
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`Even if DIVCA did apply to Hulu, the City’s claim for fees still fails for two reasons.
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`First, the statute unambiguously states that only “holders” of a state franchise must pay the
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`franchise fees. PUC § 5840(q)(l). The City’s only response is that following the text would
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`produce “an absurd and unreasonable result” wherein violators will be “rewarded with immunity
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`and dismissal of any lawsuit by a local government.” Opp’n at 9. Not true. If Hulu violates
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`HULU’S REPLY BRIEF IN SUPPORT or DEMURRER
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`- 7 -
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`CASE No.: 218TCV01881
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`DIVCA, then the Commission or Attorney General can seek compliance and impose penalties.
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`Denying the City a claim simply recognizes that enforcement authority lies with the state and
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`that any money paid for noncompliance goes to the state.
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`Second, the City concedes it never provided the notice required by Section 5860(a). The
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`City responds by pointing out Hulu never provided notice either. But nothing in the statute
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`conditions the City’s notice obligation on a notice from Hulu. The City should have given notice
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`once it made the decision to apply DIVCA to Hulu. Formal notice eliminates uncertainty over
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`whether a municipality intends to collect fees from a particular video service, and in turn
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`provides the service provider a clear basis to collect it from consumers. It prevents a situation
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`like this where the City does not charge Hulu under DIVCA for many years, changes its mind,
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`and then seeks the collection of unpaid franchise fees for several years in the past.
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`VI.
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`THE CITY’S APPLICATION OF DIVCA TO HULU VIOLATES ITFA
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`As Hulu explained in its demurrer, the “any charge imposed
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`[that] is not a fee”
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`language in ITFA adopts the federal common law distinction between taxes and fees. Dem. at
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`18. To determine which is present, the “predominant factor is the revenue’s ultimate use.”
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`Hedgepeth v. Tennessee, 215 F.3d 608, 612 (6th Cir. 2000). That a fee is imposed for a specific
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`privilege, service, or benefit is not determinative. Even such fees can be considered a tax if use
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`of the money is not restricted. See, e.g., Qwest Corp. v. City ofSurprise, 434 F.3d 1176,
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`1183— 84 (9th Cir. 2006) (“rental fees” for use of the city’s rights-of-way are taxes); City in
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`Chattanooga v. Bellsouth Telecomms., Inc, 2000 Tenn. App. LEXIS 32, *7—8, *13 (Tenn. Ct.
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`App. 2000) (“rent” charged to install cable in rights-of-way are taxes); Dem. at 18—20. With
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`respect to DIVCA, use of franchise fees is not restricted. PUC § 5860(a).
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`It is thus a tax.
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`There is also no merit to the argument that ITFA does not apply because the fee is
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`imposed on “gross revenue” instead of “transactions.” This is a false distinction because gross
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`revenues are derived from transactions. DIVCA defines taxable “gross revenue” as the revenue
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`“received by the holder of a state franchise .
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`.
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`. [for] provid[ing] cable or video service[s]” from
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`subscribers. See § 5860(d); Bd. ofSupervisors, Fairfax Cty. v. Caxcom, LLC, 104 Va. Cir. 248,
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`252 (Va. Cir. Ct. 2020) (ITFA applies to a “tax on gross receipts”); Cox Commc 'ns Hampton
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` HULU’s REPLY BRIEF IN SUPPORT OF DEMURRER - R -
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`CASE No.: ZlSTCV01881
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`Rds., L.L.C. v. King, 105 Va. Cir. 481, 489 (Va. Cir. Ct. 2020) (same); City ofChi. v. AT&T
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`Broadband, Inc, No. 02C 7517, 2003 WL 22057905, at *3—4 (ND. 111. Sept. 4, 2003) (same).
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`Plaintiffs application of the franchise fee to Hulu discriminates. The clearest instance
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`concerns commercial mobile service providers. The City claims that video services provided by
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`cell phone providers are not similar because they use “Wireless facilities.” Opp’n at 14. That
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`assertion is plainly false. The City’s ordinances themselves acknowledge that even commercial
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`mobile service providers may use wireline facilities in the rights-of-way. Lancaster Mun. Code
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`§§ 17.40.650, 17.40.660, 17.40.665-66, 17.40.668. But under the statute, there is no need to
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`even consider the facts. Mobile service providers are exempt from DIVCA even if they provide
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`the same “video programming services
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`through facilities located at least in part in public
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`rights-of-way.” PUC § 5830(5). The categorical exclusion discriminates.
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`VII. CONCLUSION
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`None of these problems arise if DIVCA is properly applied and narrowly construed. The
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`Court should grant Hulu’s demurrer and dismiss the Complaint in its entirety.
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`Dated: July 8, 2021
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`HULU’S REPLY BRIEF IN SU