EAST ST. LOUIS – Classifying video streamers as cable companies so that local government can tax them would warp Illinois cable law and produce absurd results, Netflix and other streamers argued in U.S. district court on Nov. 5.
Netflix and 11 other streamers moved to dismiss a suit attorney C.J. Baricevic filed for East St. Louis in June, and some of them wondered why he targeted them.
“The complaint only involves a dozen out of hundreds if not thousands of streaming services,” wrote attorney Helgi Walker of Washington wrote for five streamers.
Defendants predicted multiplication of taxation, claiming East St. Louis would collect from each of them if they all streamed what a cable company streamed.
Their motions laid out oddities they expect if East St. Louis prevails.
They claimed they’d have to prove financial and technical capacity to operate a cable system before they could hold the state license that cable companies hold.
They also claimed they’d have to employ local workers to respond to complaints; they’d have to stream community programs and public meetings and be required to send emergency alerts. They stated it’s not clear whether that’s feasible.
They also alleged defective logic, claiming the tax would apply to streaming through a landline but not to streaming through a mobile device.
Walker wrote that content could be subject to tax one day and not the next, merely because of which type of Internet connection a subscriber used.
Defendants also asserted procedural reasons for dismissing the suit.
They claimed the law provides for enforcement only through the attorney general and that East St. Louis hasn’t passed an ordinance to authorize the tax.
They also alleged First Amendment violation.
Baricevic, John Driscoll of San Juan, Puerto Rico, Zachary Howerton of Annapolis, Maryland, and Baricevic’s colleague Grey Chatham Jr. represent the city.
Their complaint names Netflix, Disney, Apple, Hulu, Warner Media, Amazon, CBS, You Tube, Curiosity Stream, Peacock, DirecTV, and Dish Network as defendants.
Motions to dismiss came from five directions.
“The far ranging implication of plaintiff’s theory is that any website or service that makes video content available online is potentially subject to franchise fees,” wrote Netflix counsel Mary Alexander of Chicago.
“These fees could be passed on to Illinois consumer in the form of higher monthly subscription fees, even though those services do not impose any costs on cities.”
Alexander claimed East St. Louis offered no facts supporting its claim that Netflix content is comparable to that of broadcast stations and cable companies.
She wrote that Netflix has no channels and doesn’t set a schedule.
She wrote that in 2007, legislators passed the state Cable and Video Competition Law to enhance infrastructure and increase entry by providers. Netflix, Amazon, and You Tube existed prior to passage of the law, and their omission from the law was not inadvertent.
She also wrote that district judges in Arkansas, Texas, California, and Kentucky dismissed similar suits in September and October.
Walker argued for Amazon, Apple, CBS, Peacock, and YouTube that suits around the country seek to distort laws and extract hundreds of millions from streamers.
“These lawsuits purport to squeeze streaming services into state legal frameworks that have never applied to them and were instead designed to regulate cable and communication companies that operate wire lines in public rights of way,” Walker wrote.
She wrote that extending the law to defendants would require them to comply with incompatible if not impossible requirements, and that license holders must possess technical qualifications to construct and operate a system, and streamers cannot provide those assurances.
She claimed it would be nonsensical to require streamers to provide secure boxes for return of equipment, as the law requires.
She claimed federal law would preempt any extension of Illinois law to streamers because the Internet is beyond the bounds of state regulation.
She claimed East St. Louis would burden protective speech and violate due process by imposing massive retroactive liability without fair notice.
She claimed high school games, video from newspapers and magazines, and educational video would potentially fall within the city’s interpretation.
“This is not what the General Assembly intended,” she wrote.
She wrote that they enacted the law to benefit consumers, not municipalities.
For Disney and Hulu, Darci Madden of St. Louis raised constitutional questions.
She claimed the tax would burden not only Hulu and Disney’s right to speak but also the right of Illinois residents to view such content.
She claimed application of cable law would result in “a naked system of prior restraint, a discriminatory tax, and a constitutionally excessive fee.”
“Prior restraints occur when a speaker needs prior government approval before they may speak,” she wrote.
She claimed a discriminatory tax would occur because the city demands fees from video content but not from music, literary content, or news.
She claimed the city would tax Hulu but not Snapchat or TikTok.
“Government regulation may not favor one speaker over another,” she wrote.
She claimed an excessive fee would occur because government may not charge fees for expressive activity unless the fees defray the expense of regulating the activity.
For Warner Media, Curiosity Stream, and DirecTV, Natalie Kussart of St. Louis claimed the law explicitly exempts video over the Internet.
She claimed the city’s definition would subject websites such as the Southern Illinoisan to the law, resulting in a windfall for local entities.
Dish counsel Jeffrey Schultz of Clayton, Mo. claimed East St. Louis didn’t allege that Dish owns or operates cables or anything else on or under its right of way.
He claimed the city didn’t allege that Dish used local rights of way any more than Wikepedia or any other website.
He claimed neither the state commerce commission nor any court ever applied the law to services not based on facilities.
Magistrate Judge Mark Beatty presides, but a district judge will preside if any party declines consent to magistrate jurisdiction.