Supreme Court of the United States · facts of this case..... 23 II. The Decision Below Conflicts With This Court’s Established Precedent..... 25 A. Competing in the same market

No. 14-_______

IN THE

Supreme Court of the United States________________

DIRECTV, LLC AND DISH NETWORK L.L.C.,Petitioners,

v.

COMMONWEALTH OF MASSACHUSETTS

DEPARTMENT OF REVENUE,

Respondent.________________

ON PETITION FOR A WRIT OF CERTIORARI TOTHE SUPREME JUDICIAL COURT OF

MASSACHUSETTS

PETITION FOR A WRIT OF CERTIORARI

Eric ShumskyRobert YablonORRICK, HERRINGTON

& SUTCLIFFE LLPColumbia Center1152 15th Street, NWWashington, DC 20005(202) 339-8400

E. Joshua RosenkranzCounsel of Record

Nicholas G. GreenRachel Wainer ApterORRICK, HERRINGTON &SUTCLIFFE LLP

51 West 52nd StreetNew York, NY 10019(212) [email protected]

Counsel for Petitioners

i

QUESTION PRESENTED

The dormant Commerce Clause forbids statesfrom enacting laws that discriminate against inter-state commerce except when a state can make therare showing that its law is necessary to serve a le-gitimate purpose. This core prohibition applies tolaws that differentiate among businesses that are“similarly situated”—that is, that compete in the rel-evant market, and thereby implicate the CommerceClause’s central concern of protecting a nationalmarket for commerce. Here, the Supreme JudicialCourt of Massachusetts (“SJC”) merged the “similar-ly situated” inquiry with the distinct inquiry intowhether the discrimination has been adequately jus-tified. It held that two businesses are not “similarlysituated,” even though they indisputably competehead-to-head, because Massachusetts has a reasona-ble justification for its discriminatory policy and thecompeting businesses have operational differences.The question presented is:

Does the threshold requirement that two busi-nesses be “similarly situated” for Commerce Clausepurposes depend on whether they directly competein the relevant market (which is how three circuitsand three state supreme courts analyze the issue), ordoes it instead encompass a wide-ranging inquiryinto the justifications for the law and operational dif-ferences (as four circuits and, now, one state su-preme court have held)?

ii

CORPORATE DISCLOSURE STATEMENT

The caption lists all of the parties to the proceed-ings before the Massachusetts Supreme JudicialCourt.

DIRECTV, LLC is a wholly owned, direct subsid-iary of DIRECTV Holdings LLC, a Delaware limitedliability company, which is a direct subsidiary of TheDIRECTV Group, Inc., a Delaware corporation; noneof these entities are publicly traded. The DIRECTVGroup, Inc., is a wholly owned, direct subsidiary ofDIRECTV, a Delaware corporation that is publiclytraded (NASDAQ: DTV).

DISH Network L.L.C. is a wholly owned subsidi-ary of DISH DBS Corporation, which is a whollyowned subsidiary of DISH Orbital Corporation,which is a wholly owned subsidiary of DISH Net-work Corporation. DISH Network Corporation haspublicly traded equity (NASDAQ: DISH) and DISHDBS Corporation has publicly traded debt.

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TABLE OF CONTENTSPage(s)

QUESTION PRESENTED ........................................ i

CORPORATE DISCLOSURE STATEMENT .......... ii

TABLE OF AUTHORITIES ......................................v

INTRODUCTION ..................................................... 1

OPINIONS AND ORDERS BELOW........................ 3

JURISDICTION........................................................ 3

CONSTITUTIONAL AND STATUTORYPROVISIONS INVOLVED....................................... 4

STATEMENT OF THE CASE.................................. 4

The Pay-TV Market, And TheEconomics Of In-State Vs. Out-Of-StateAssembly And Distribution............................ 4

Cable Secures Preferential TreatmentFrom The Massachusetts Legislature ........... 8

Procedural Background.................................. 9

REASONS FOR GRANTING THE PETITION ..... 12

I. The Lower Courts Are Hopelessly SplitAs To What Makes Two BusinessesSimilarly Situated ........................................ 15

A. Three circuits and three statesupreme courts have concludedthat competing in the samemarket is sufficient to establishthat businesses are similarlysituated. ............................................. 16

iv

B. Four circuits and a statesupreme court hold thatcompeting in the same market isnot sufficient to establish thatbusinesses are similarly situated...... 20

C. The split extends to the precisefacts of this case................................. 23

II. The Decision Below Conflicts With ThisCourt’s Established Precedent..................... 25

A. Competing in the same market issufficient to establish thatentities are similarly situated........... 27

B. The court below diluted both theinquiry into discrimination andthe strict scrutiny ofjustifications for discrimination........ 32

III. This Case Is The Ideal Vehicle ForResolving An Issue Of NationalImportance Affecting Many Industries ....... 34

CONCLUSION........................................................ 38

APPENDIX A

Decision of the Supreme Judicial Court ofMassachusetts (Feb. 18, 2015) ............................... 1a

APPENDIX B

Memorandum of Decision and Order of the SuperiorCourt, Suffolk County, Massachusetts (Nov. 21,2012) ...................................................................... 30a

v

TABLE OF AUTHORITIES

Page(s)Federal Cases

Alaska v. Arctic Maid,366 U.S. 199 (1961)........................................28, 29

Allstate Ins. Co. v. Abbott,495 F.3d 151 (5th Cir. 2007)................................22

Amerada Hess Corp. v. Dir., Div. ofTaxation, N.J. Dep’t of Treasury,490 U.S. 66 (1989)................................................14

Armco Inc. v. Hardesty,467 U.S. 638 (1984)..............................................26

Associated Indus., of Mo. v. Lohman511 U.S. 641 (1994)..............................................33

Bacchus Imports, Ltd. v. Dias,468 U.S. 263 (1984)..............................................29

Boston Stock Exch. v. State TaxComm’n,429 U.S. 318 (1977)..............................................30

Brown & Williamson Tobacco Corp. v.Pataki,320 F.3d 200 (2d Cir. 2003) ...........................22, 23

Cachia v. Islamorada,542 F.3d 839 (11th Cir. 2008)..............................19

vi

DIRECTV, Inc. v. Treesh,487 F.3d 471 (6th Cir. 2007)................................35

Family Winemakers of Cal. v. Jenkins,592 F.3d 1 (1st Cir. 2010) ..............................17, 18

Ford Motor Co. v. Texas Dep’t ofTransp.,264 F.3d 493 (5th Cir. 2001)..........................21, 22

Fort Gratiot Sanitary Landfill, Inc. v.Michigan Dep’t of Natural Res.,504 U.S. 353 (1992)..............................................19

Fulton Corp. v. Faulkner,516 U.S. 325 (1996)..............................................33

General Motors Corp. v. Tracy,519 U.S. 278 (1997)......1, 13, 16, 18, 28, 30, 31, 32

Gov’t Suppliers Consolidating Serv.,Inc. v. Bayh,975 F.2d 1267 (7th Cir. 1992)........................18, 19

Granholm v. Heald,544 U.S. 460 (2005)..................................14, 27, 30

Hunt v. Washington State Apple Adver.Comm’n,432 U.S. 333 (1977)..............................................19

Int’l Truck & Engine Corp. v. Bray,372 F.3d 717 (5th Cir. 2004)................................22

vii

Island Silver & Spice, Inc. v.Islamorada,542 F.3d 844 (11th Cir. 2008)..............................19

LensCrafters, Inc. v. Robinson,403 F.3d 798 (6th Cir. 2005)................................21

Lewis v. BT Inv. Managers, Inc.,447 U.S. 27 (1980)................................................30

Maine v. Taylor,477 U.S. 131 (1986)..............................................14

McKesson Corp. v. Div. of AlcoholicBeverages & Tobacco,496 U.S. 18 (1990)................................................36

Nat’l Ass’n of Optometrists & Opticiansv. Brown,567 F.3d 521 (9th Cir. 2009)..........................20, 21

New Energy Co. of Ind. v. Limbach,486 U.S. 269 (1988)........................................13, 14

Oregon Waste Sys., Inc. v. Dep’t ofEnvtl. Quality of State of Or.,511 U.S. 93 (1994)..........................................13, 33

Quill Corp. v. North Dakota,504 U.S. 298 (1992)..............................................13

United Haulers Ass’n v. Oneida-Herkimer Solid Waste Mgmt. Auth.,550 U.S. 330 (2007)..........................................1, 13

viii

West Lynn Creamery, Inc. v. Healy,512 U.S. 186 (1994)........................................14, 30

Westinghouse Elec. Corp. v. Tully,466 U.S. 388 (1984)..............................................26

Wine Country Gift Baskets.com v. Steen,612 F.3d 809 (5th Cir. 2010)................................22

State Cases

In re CIG Field Service Co.,112 P.3d 138 (Kan. 2005) ....................................16

DIRECTV, Inc. v. Levin,941 N.E.2d 1187 (Ohio 2010) ........................24, 35

DIRECTV, Inc. v. Roberts,No. M2013-01673-COA-R3-CV, 2015WL 899025 (Tenn. Ct. App. Feb. 27,2015), review denied, No. M2013-01673-SC-R11-CV (Tenn. S. Ct. June12, 2015). ..........................................................1, 24

DIRECTV, Inc. v. Roberts,No. 03-2408-IV (Ch. Tenn. June 21,2013).....................................................................35

DIRECTV, Inc. v. State,632 S.E.2d 543 (N.C. Ct. App. 2006)...................35

DIRECTV, Inc. v. State, Dep’t ofRevenue,Nos. 1D13-5444 & 1D14-0292,__So.3d__, 2015 WL 3622354 (Fl. Ct.App. June 11, 2015) .......................................23, 24

ix

DIRECTV, Inc. v. Wilkins,No. 03CVH06-7135 (Ohio Ct. C.P.,Franklin Cnty., Oct. 17, 2007) ............................35

Div. of Alcoholic Beverages & Tobacco v.McKesson Corp.,524 So. 2d 1000 (Fla. 1988), rev’d onother grounds, 496 U.S. 18 (1990).......................20

Smith v. New Hampshire Dep’t ofRevenue Admin.,813 A.2d 372 (N.H. 2002) ..............................16, 17

Constitutional Provisions

U.S. Const. Article I, § 8, cl. 3...............................4, 13

Federal Statutes

28 U.S.C. § 1257..........................................................3

47 U.S.C. § 152 n. .....................................................34

47 U.S.C. § 541(a)(2) ...................................................7

47 U.S.C. § 541b)(1) ....................................................7

47 U.S.C. § 542............................................................7

47 U.S.C. § 542(b)........................................................7

Telecommunications Act of 1996, Pub. L.No. 104-104, § 602, 110 Stat. 56, reprinted in 47U.S.C. § 152 note (1996) ...........................................34

x

State Statutes

Massachusetts General Law, c.64M, § 2....................4

Rules

Mass. R. App. P. 11(a)...............................................10

Other Authorities

H.R. Rep. No. 104-204 (1995) .....................................7

Leichtman Research Group, More ThanFive Of Every Six TV HouseholdsSubscribe To A Pay-TV Service(Sept. 2, 2014),http://tinyurl.com/p7o6ppe ..................................34

Telecommunications Regulation: Cable,Broadcasting, Satellite and the In-ternet § 13.02(1) (Matthew Bender,rev. ed.)...................................................................7

INTRODUCTION

The dormant Commerce Clause provides a criti-cal, constitutional, structural bulwark against stateeconomic parochialism. It does so by prohibiting “dif-ferential treatment of in-state and out-of-state eco-nomic interests that benefits the former and burdensthe latter.” United Haulers Ass’n v. Oneida-HerkimerSolid Waste Mgmt. Auth., 550 U.S. 330, 331 (2007)(internal quotation marks omitted). But, as multipleJustices have recognized, the dormant CommerceClause has been a source of persistent confusion.Nowhere is that confusion more evident than in thedecision below.

This petition should be considered in tandemwith a companion petition that will be filed shortlyin DIRECTV, Inc. v. Roberts, No. M2013-01673-COA-R3-CV, 2015 WL 899025, at *1 (Tenn. Ct. App.Feb. 27, 2015), review denied, No. M2013-01673-SC-R11-CV (Tenn. S. Ct. June 12, 2015). Together, thesecases provide an excellent opportunity to bring need-ed clarity to an important aspect of dormant Com-merce Clause doctrine that has severely divided thelower courts. Specifically, this Court held in GeneralMotors Corp. v. Tracy that a “threshold” requirementof a dormant Commerce Clause claim is that the dif-ferently regulated entities be “similarly situated,”519 U.S. 278, 299 (1997), i.e., that they compete inthe relevant market. After all, the dormant Com-merce Clause seeks to protect a free market for na-tional competition, and if the entities do notcompete, the Clause has little to say. Here, however,the Massachusetts Supreme Judicial Court (SJC)repeated an error that has divided the lower courts.

2

As part of what should have been a modest, thresh-old inquiry into whether cable and satellite providerscompete—and in the face of undisputed evidencethat these entities do compete, fiercely and direct-ly—the court undertook a free-wheeling discussion of“the nuances of the divergence between the ways inwhich the cable and satellite companies are treated,examined in light of the differences between theways in which these two types of company do busi-ness.” Petition Appendix (“Pet. App.”) 25a. But thoseconsiderations are relevant, if at all, to justifyingdiscrimination that is found to exist. Accordingly,they must satisfy strict scrutiny. By importing thesefactors into the threshold similarly situated analysis,the court effectively read that scrutiny out of theconstitutional analysis.

In so ruling, the Massachusetts Supreme Judi-cial Court has deepened an existing 6-4 split aboutwhat makes businesses similarly situated under thedormant Commerce Clause. On one side, three cir-cuits and three state supreme courts correctly holdthat entities are similarly situated so long as theydirectly compete in the relevant market. On the oth-er side, four circuits, and now one state supremecourt, do not treat direct competition as enough; in-stead, they import an array of other considerations—claimed differences in the affected businesses’ meth-ods of operation, their regulatory burdens, and eventhe state’s purported justification for the law.

Thus, in some parts of the country, a state candifferentiate between competing products or produc-ers in a manner that advantages the local economy—and will be insulated from Commerce Clause scruti-

3

ny so long as it can point to some difference betweenthe favored and disfavored competitors. In otherparts of the country, the same law will be properlyinvalidated as impermissible parochialism. In Mas-sachusetts the answer will depend on whether aclaim is brought in state court or in the federal courtacross the street.

The confusion extends even to the precise factspresented by this case: The SJC and the TennesseeCourt of Appeals hold that cable and satellite pro-viders are not similarly situated, whereas the Flori-da Court of Appeals holds that they are. Thispersistent confusion is contrary to the very purposeof the dormant Commerce Clause, which is to ensurenational commercial markets. This Court’s interven-tion is required to clarify a basic element of this coreconstitutional protection.

OPINIONS AND ORDERS BELOW

The decision of the Supreme Judicial Court ofMassachusetts is reported at 25 N.E.3d 258, and re-printed at Pet. App. 1a. The Memorandum of Deci-sion and Order of the Superior Court, SuffolkCounty, Massachusetts is unpublished, and reprint-ed at Pet. App. 30a.

JURISDICTION

The Supreme Judicial Court of Massachusettsissued its decision on February 18, 2015. On April24, 2015, Justice Breyer extended the deadline forfiling this petition to and including June 18, 2015.This Court has jurisdiction under 28 U.S.C. § 1257.

4

CONSTITUTIONAL AND STATUTORYPROVISIONS INVOLVED

The Commerce Clause of the United States Con-stitution, U.S. Const. art. I, § 8, cl. 3, provides:

The Congress shall have Power ... [t]o regu-late Commerce ... among the several States.

Massachusetts General Law, c.64M, § 2, provides inrelevant part:

An excise is hereby imposed upon the pro-vision of direct broadcast satellite service toa subscriber or customer by any directbroadcast satellite service provider in anamount equal to 5 per cent of the directbroadcast satellite service provider’s grossrevenues derived from or attributable tosuch customer or subscriber.

STATEMENT OF THE CASE

The Pay-TV Market, And The Economics Of In-State Vs. Out-Of-State Assembly And Distribu-tion

Massachusetts residents have two basic choiceswhen it comes to purchasing a pay-TV subscription.They can choose a cable provider, like Comcast, or adirect broadcast satellite provider, like PetitionersDIRECTV and DISH Network. Critically importanthere, it is undisputed that cable and satellite provid-ers “compete in the market for video programmingservices.” Pet. App. 3a. Both offer TV programmingpackages to suit different budgets and tastes, includ-

5

ing local broadcast stations, basic channels (such asCNN and ESPN), premium channels (such as HBOand Showtime), and pay-per-view movies and events.Id. at 3a-4a. Cable and satellite both negotiate withTV programmers to obtain distribution rights. Bothuse retailers, the Internet, and call centers to sellpay-TV packages to customers. Both dedicate chan-nels to public, educational, and governmental pro-gramming. Both provide customers with equipmentto receive and convert programming signals into con-tent that can be viewed on a TV set. Both rely ontechnicians to install and service that equipment. Id.35a-36a.

And ultimately, the image that appears on asubscriber’s screen is identical, regardless of whichpay-TV provider the subscriber chooses. It is notsurprising, therefore, that customers view cable andsatellite TV as fungible. As the SJC acknowledged,customers in this competitive marketplace “typicallychoose between cable and satellite on the basis ofconsiderations such as price, customer service, re-ception quality, and program offerings.” Id. at 4a.

There is, however, a critical difference betweencable and satellite providers: “the methods by whichthey assemble and deliver programming to their cus-tomers.” Id. Cable providers gather and assemblepackages of TV programming at 60 digital produc-tion facilities, called “headends,” which are locatedwithin Massachusetts. These buildings are bustlingwith employees and surrounded by satellite dishes.Once programming signals are assembled at theheadends, cable providers deliver them to their cus-tomers’ homes via “more than 30,000 miles of fiber-

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optic and coaxial” cables, which are “laid in trenchesor hung from utility poles” in Massachusetts’ publicrights-of-way. Id. at 34a-35a.

Satellite providers, in contrast, gather and as-semble TV programming into packages at digitalproduction facilities that are located outside Massa-chusetts—in Wyoming, Arizona, Colorado, and Cali-fornia. Id. at 32a. After assembling programmingpackages, satellite providers beam them to satellitesorbiting the Earth, which then direct those signals tosmall satellite dishes that sit on or next to custom-ers’ homes. Id. Not a foot of cable in Massachusettsis used to transmit the programming from the digitalplants to the subscribers’ homes.

Although these differences in assembly and dis-tribution may not matter much to Massachusettsconsumers, who see the same TV programs eitherway, they matter a great deal to state and local gov-ernments. As the SJC explained: “The methods ofassembly and delivery used by cable and satellite re-sult in different impacts on the Commonwealth’seconomy. From 2006 to 2010, the cable companiesspent more than $1.6 billion in Massachusetts, in-cluding investments in headend facilities, cable net-works, and vehicles.” Id. at 5a. Cable providers alsoemploy some 5,500 people in Massachusetts to as-semble programming packages at headends, and toconstruct, operate, and maintain their network ofcables. Id.

Not just anyone may dig up the public streetsand lay cables. In order to “construct[] … a cable sys-tem over public rights-of-way, and through ease-

7

ments,” a cable provider must obtain a franchisefrom local governments. 47 U.S.C. § 541(a)(2) &(b)(1); 1 Telecommunications Regulation: Cable,Broadcasting, Satellite and the Internet § 13.02(1)(Matthew Bender, rev. ed.) (“[A] cable franchise isthe grant by a city to a private entity of the authori-ty to construct and operate, for the profit of thegrantee, a system of wires along or under the city’sstreets for transmission of television signals.”). Inexchange, local governments charge “franchise fees”of up to 5% of revenues “from the operation of thecable system.” 47 U.S.C. § 542(b). In any given year,cable companies pay some $60 million in franchisefees to cities and towns in Massachusetts. Pet. App.38a.

Satellite providers, however, do not “construct[]… cable system[s] over public rights-of-way, andthrough easements.” Accordingly, they do not obtainfranchises from local governments, and do not payfranchise fees. 47 U.S.C. §§ 541(a)(2)&(b)(1), 542; seePet. App. 38a; H.R. Rep. No. 104-204, pt. 1, at 125(1995) (“[S]atellite service is a national rather thanlocal service” and “do[es] not require the use of pub-lic rights-of-way, or the physical facilities or servicesof a community.”). Instead, satellite providers “payfees to the Federal government for the right to locatetheir satellites in outer space and to use certaintransmission frequencies.” Pet. App. 5a-6a.

Similarly, because satellite providers rely on out-of-state infrastructure to assemble and deliver pay-TV, they do not generate economic activity in theCommonwealth comparable to Cable. While they“spend millions annually on employment, assembly,

8

and distribution,” id. at 38a, they “hire relatively fewemployees in Massachusetts.” Id. at 5a. Instead,their “expenditures … are concentrated primarily ontheir out-of-State uplink centers” in Wyoming, Ari-zona, Colorado, and California. Id.

Cable Secures Preferential Treatment FromThe Massachusetts Legislature

Chafing at the competitive advantage satelliteenjoyed by virtue of its superior distribution technol-ogy, the cable industry turned to the legislature toput a thumb on the scale of competition. In 2008, theNew England Cable & Telecommunications Associa-tion (“NECTA”) lobbied the Massachusetts legisla-ture to impose an excise tax on the satellite industry.The message was pure protectionism. It argued forpreferential treatment on the theory that cable pro-viders “have large fulltime workforces, investment ininfrastructure and dozens of physical locationsthroughout the state, all of which contribute to statetax coffers,” whereas “the largest satellite providershave no employee base, infrastructure, or physicalplant in the Commonwealth.” Joint Appendix of theRecord on Appeal, filed in the Massachusetts Su-preme Judicial Court (“JA”) 1573 (emphasis omit-ted). Cable stressed that “[t]he cable televisionindustry employs thousands in Massachusetts, hascall centers in Massachusetts and supports the mu-nicipalities. The satellite industry does none of this.”JA 1575 (emphasis omitted). Cable complained, “De-spite selling their services here, [satellite TV compa-nies] give almost nothing back to Massachusetts.They don’t even employ people here!” JA 1578 (em-phasis omitted). Cable also told legislators that what

9

it euphemistically called “tax parity legislation” wasneeded to bring “video broadcast industry fees andtaxes into line” and “compensate” for the fact thatsatellite providers did not pay franchise fees. JA1573. Ultimately, in the face of the cable industry’sextensive lobbying, JA 1581-83, the legislature im-posed an excise tax of 5% on satellite TV providers,and no comparable tax on cable providers, JA 1586-87.

The satellite-only excise tax had precisely thedesired effect: In this intensely price-sensitive mar-ket, the additional cost has increased Cable’s shareof the Massachusetts pay-TV market, and reducedsatellite’s share. JA 1571. In other words, the differ-ential tax has boosted the pay-TV providers that as-semble and distribute their programming packagesin the Commonwealth, at the expense of the pay-TVproviders that assemble, and distribute their pro-gramming packages from, out of state.

Procedural Background

Petitioners DIRECTV and DISH Network filedsuit in 2010, alleging that the satellite-only excisetax violates the dormant Commerce Clause by dis-criminating against interstate commerce in its pur-pose and practical effects. The trial court enteredsummary judgment for the Department of Revenue(“Department”). It first held, as a “threshold” matter,that cable and satellite companies are not “similarlysituated” because they have “different structures,methods of operation, and regulatory obligations.”Pet. App. 48a. The trial court further concluded that“[t]he fact that cable and satellite providers are not

10

similarly situated effectively sidelines any concernover the purpose behind their differential tax treat-ment.” Id. at 55a. The court nonetheless found theevidence of discriminatory intent to be “unconvinc-ing.” Id.

The satellite providers sought direct review inMassachusetts’ highest court, which directly reviewstrial court decisions only under certain exceptionalcircumstances.1 The satellite providers argued thatall of those exceptional criteria were met—and theDepartment agreed.2 Recognizing the importance ofthe issue, the SJC granted review.

The SJC upheld the tax, even though it assumed“that the cable companies and the satellite compa-nies represent in-State and out-of-State interests,

1 See Mass. R. App. P. 11(a):

[A]ny party … may apply… for direct appellatereview, provided the questions presented by theappeal are: (1) questions of first impression ornovel questions of law which should be submittedfor final determination to the Supreme JudicialCourt; (2) questions of law concerning theConstitution of the Commonwealth or questionsconcerning the Constitution of the United Stateswhich have been raised in a court of theCommonwealth; or (3) questions of such publicinterest that justice requires a finaldetermination by the full Supreme JudicialCourt.

2 See Appellants DIRECTV, LLC and DISH NetworkL.L.C.’s Unopposed Application for Direct Appellate Review,No. DAR-22287 (Mass. filed Feb. 20, 2014); Ltr. from Pierce O.Cray, Asst. Att’y Gen., to Clerk of Court, Mass. SupremeJudicial Ct. (Mar. 3, 2014).

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respectively.” Id. at 13a. Despite that fact, the courtheld that “the excise tax is not discriminatory be-cause the cable and satellite companies are not simi-larly situated.” Id. at 12a-13a. To reach thisconclusion, the court held that “competing in thesame market is not sufficient to conclude that enti-ties are similarly situated.” Id. at 11a, n.10 (internalquotation marks omitted).

Instead, to assess whether cable and satelliteproviders are similarly situated within the meaningof the dormant Commerce Clause, the court engagedin a lengthy, freewheeling discussion of “the nuancesof the divergence between the ways in which the ca-ble and satellite companies are treated, examined inlight of the differences between the ways in whichthese two types of company do business.” Id. at 25a.Without explaining how any of the following factorsrelate to the threshold similarly situated inquiry, thecourt concluded:

Local franchise fees paid by cable companiesare not “rent” for the use of public rights-of-way. Instead, they are “statutorily authorizedtax payments” for the “privilege of doingbusiness with local consumers.” It thereforewas fair to impose a similar statewide tax onsatellite providers. Id. at 14a-17a.

Satellite companies are actually benefited bythe excise tax, the court reasoned, becausewhile cable companies must pay franchisefees to “each of the localities in which theyoperate,” satellite companies pay the excisetax only to the Department. Id. at 18a-19a.

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Moreover, the court said, cable companies aresubject to various local obligations that satel-lite providers are not. Id. at 20a-21a.

To the extent that satellite providers “wereable to show some [overall] discrepancy be-tween the amounts charged to them and tothe cable companies … this discrepancywould be permissibly attributable to im-portant differences between the cable andsatellite industries.” Id. at 21a. For example,cable companies are “subject to an extensivescheme of Federal regulation,” while satelliteproviders are not. Id. at 23a-24a.

Despite holding that cable and satellite compa-nies were not similarly situated, the SJC also wenton to conclude that the satellite-only excise tax wasnot “discriminatory in its purpose.” Pet. App. 25a. Itreasoned that “the excise tax is understood mostnaturally as an element of a balanced scheme of tax-ation that imposes corresponding burdens, differentin nuanced and rational ways, on the cable and sat-ellite companies.” Id. at 27a. This was so, the courtexplained, because “before the 2010 appropriationsact was passed, the satellite companies paid no taxcorresponding to the franchise fees paid by cablecompanies.” Id. at 28a-29a (noting that the excisetax “expand[ed] the [5%] franchise fee to include sat-ellite companies”).

REASONS FOR GRANTING THE PETITION

The Commerce Clause grants Congress the pow-er “[t]o regulate Commerce … among the several

13

States.” U.S. Const. art. I, § 8, cl. 3. It thereby im-pliedly prohibits the states from discriminating inways that amount to “economic protectionism.” NewEnergy Co. of Ind. v. Limbach, 486 U.S. 269, 273-274(1988). “In this context, ‘discrimination’ simplymeans differential treatment of in-state and out-of-state economic interests that benefits the former andburdens the latter.”’ United Haulers Ass’n, 550 U.S.at 331 (quoting Oregon Waste Sys. v. Dep’t of Envtl.Quality, 511 U.S. 93, 99 (1994)). This prohibition iscalled the “dormant” or “negative” CommerceClause. Quill Corp. v. North Dakota, 504 U.S. 298,309 (1992) (internal quotation marks omitted). In atypical case alleging discrimination against inter-state commerce, a business objects that it is beingtreated differently from other businesses, and as-serts that the discriminatory treatment has the pur-pose or practical effect of favoring the local economy.The Court has segmented the analysis of such aclaim into three distinct inquiries.

The first, which is most directly relevant here, iswhether the favored and disfavored businesses are“similarly situated.” Tracy, 519 U.S. at 299. TheCourt has recognized that this “threshold” inquiryhas “more often than not itself remained dormant” inthis Court’s cases, id., because it is so easily satis-fied. When the issue has surfaced, the Court has fo-cused squarely on whether the favored anddisfavored businesses compete directly in a relevantmarket.

Second, the Court asks whether the differentialtreatment amounts to discrimination against inter-state commerce. When, as here, the challenged stat-

14

ute does not state explicitly that in-state businessesare favored over out-of-state businesses (facial dis-crimination), a disfavored business can prevail bydemonstrating that the statute has the practical “ef-fect of unduly burdening interstate commerce” orthat it is infected by “a discriminatory intent” toachieve that end. Amerada Hess Corp. v. Dir., Div. ofTaxation, N.J. Dep’t of Treasury, 490 U.S. 66, 75(1989). This element demands “a sensitive, case-by-case analysis of purposes and effects.” West LynnCreamery, Inc. v. Healy, 512 U.S. 186, 201 (1994).

Only after a plaintiff demonstrates discrimina-tion does the third inquiry come into play: The stat-ute is invalid unless the state can overcome “thestrictest scrutiny,” Maine v. Taylor, 477 U.S. 131,144 (1986) (internal quotation marks omitted)—namely, by establishing that the discrimination “ad-vances a legitimate local purpose that cannot be ad-equately served by reasonable nondiscriminatoryalternatives.” Granholm v. Heald, 544 U.S. 460, 489(2005) (internal quotation marks omitted). Thestate’s burden of proving “such justification [is]high.” New Energy Co. of Ind., 486 U.S. at 278.

In dismissing Petitioners’ claim at the thresholdsimilarly situated inquiry, the Massachusetts courtdid not focus simply on whether the cable and satel-lite TV providers compete. It embarked instead onan unbounded inquiry into the different “tax obliga-tions” and burdens of cable and satellite providers;the “ways in which they are collected and calculat-ed”; “characteristics of the cable and satellite com-panies’ respective methods of operation”; and “the

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different regulatory regimes to which they are sub-ject.” Pet. App.2a.

This Court should review this case, and the com-panion case out of Tennessee, for three reasons: (I)the courts below have contributed to a growing andentrenched split on what it means to be “similarlysituated”; (II) the Massachusetts court’s treatment ofthis threshold element conflicts with decisions of thisCourt; and (III) how courts treat this “similarly situ-ated” element is an important issue, not only for crit-ical competition in the pay-TV market but acrossnumerous industries, particularly at a time wheninnovative businesses are using technology to com-pete with entrenched local interests.

I. The Lower Courts Are Hopelessly Split AsTo What Makes Two Businesses SimilarlySituated.

The lower courts are deeply divided, 6-5, overwhat makes businesses similarly situated for Com-merce Clause purposes. Three circuits and threestate high courts treat businesses as similarly situ-ated so long as they simply compete in the relevantmarket. In stark contrast, four circuits, joined nowby the Massachusetts Supreme Judicial Court, holdthat competing in the relevant market is not suffi-cient to make businesses similarly situated. Instead,these courts assess whether businesses are similarlysituated based on their methods of operation, regula-tory responsibilities, the state’s justification for thediscrimination, and a grab-bag of other factors. Onlythis Court can resolve these squarely conflicting ap-proaches.

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A. Three circuits and three state supremecourts have concluded that competingin the same market is sufficient to es-tablish that businesses are similarlysituated.

The First, Seventh, and Eleventh Circuits, to-gether with the highest courts of Kansas, NewHampshire, and Florida have correctly concludedthat “[e]ntities are ‘substantially similar’ or ‘similar-ly situated’ … when they compete against one an-other in the same market.” Smith v. New HampshireDep’t of Revenue Admin., 813 A.2d 372, 377 (N.H.2002) (citing Tracy, 519 U.S. at 299).

Multiple state supreme courts explicitly holdthat “similarly situated” simply means competing inthe relevant market. In In re CIG Field Service Co.,the Kansas Supreme Court considered “the thresh-old question of whether” interstate and intercountynatural gas gathering systems were “similarly situ-ated” to intracounty natural gas gathering systems.112 P.3d 138, 146 (Kan. 2005). After reviewing Tra-cy, the court held that the “essential” inquiry waswhether the systems “serve the same market.” Id. Inother words, does the allegedly discriminatory tax“affect[] the systems’ economic choices in competitivemarkets”? Id. The issue was highly disputed by theparties’ competing experts, and the Board of TaxAppeals found that the systems did compete. Id. at147. The Kansas Supreme Court concluded that sub-stantial evidence supported that factual finding, andtherefore concluded that the systems were similarlysituated. Id.

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The New Hampshire Supreme Court reasonedsimilarly in Smith, which involved a tax exemptionfor interest and dividends earned on investments inNew Hampshire banks. Because the “in-state banksand out-of-state non-bank investment sources” had“different investment products,” the court held thatthere was a “threshold question whether the [enti-ties] are indeed similarly situated for constitutionalpurposes.” 813 A.2d at 376-77. After analyzing Tra-cy, the court observed that “[e]ntities are ‘substan-tially similar’ or ‘similarly situated’ for CommerceClause purposes when they compete against one an-other in the same market.” Id. at 377 (citing Tracy).The court then reviewed the evidence introduced attrial and concluded that substantial evidence sup-ported the trial court’s factual finding that “invest-ment products from out-of-state non-banks do notcompete in the same market with investment prod-ucts from New Hampshire banks.” Id. at 381.

The First Circuit adopted this approach when itconsidered the validity of a state statute that gavepreferential treatment to “small” wineries (definedas those producing fewer than 30,000 gallons of wineper year) over “large” wineries (which produced morethan 30,000 gallons per year). Family Winemakers ofCal. v. Jenkins, 592 F.3d 1, 4 (1st Cir. 2010). Bothsmall and large wineries competed in “a single[,] alt-hough differentiated” wine market. Id. at 13. Yetthere were obvious differences between the two:Large wineries generally specialized in “high-volume, lower-cost wines,” of which they producedmillions of gallons per year. And small wineries gen-erally specialized in “low-volume, higher-quality,higher-priced boutique wines,” which were produced

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with “a relatively small quantity of grapes.” Id. at 6.Even the federal government imposed different taxeson wineries based on their size. Id. at 15-16 & n.18.

The First Circuit might have concluded, as theSJC did below, that these differences meant the dis-parately regulated entities were not similarly situat-ed. But it did not. Instead, the First Circuitconcluded that small wineries—including all Massa-chusetts wineries—were “similarly situated” to largewineries, all of which were located “outside Massa-chusetts.” Id. at 5, 10 (citing Tracy). It went on tohold that the law discriminated in effect by “signifi-cantly alter[ing] the terms of competition betweenin-state and out-of-state wineries to the detriment ofthe out-of-state wineries.” Id. at 11. Only then didthe First Circuit address whether the discriminatorylaw was justified. The court ultimately held that theCommonwealth failed to meet its “heavy burden ofshowing that the statute is nonetheless constitution-al because it serves a legitimate local purpose thatcannot be attained through reasonable non-discriminatory alternatives.” Id. at 17-18.

The Seventh Circuit takes the same approach. Itstruck down an Indiana “backhaul ban” that, as apractical matter, raised the cost of transporting out-of-state waste into Indiana but left “Indiana-generated municipal waste” unaffected. Gov’t Sup-pliers Consolidating Serv., Inc. v. Bayh, 975 F.2d1267, 1270-73, 1278-79 (7th Cir. 1992) (internal quo-tation mark omitted). Even though Indiana wastewas generally transported in “traditional, dedicatedgarbage trucks,” and interstate waste was generallytransported by hauling goods from the Midwest to

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the East Coast and then hauling trash back in non-dedicated trucks, the court held that Indiana gar-bage truck owners were the “[in-state] counterparts”of interstate waste transporters, and compared thetreatment of the two. Id. at 1278-79 (internal quota-tion marks omitted; alteration in original). Becausethe law ‘“raise[d] the costs of doing business’ for out-of-state entities, ‘while leaving those of their in-statecounterparts unaffected,”’ the court held that the lawdiscriminated in practical effect. Id. at 1279 (quotingHunt v. Washington State Apple Adver. Comm’n, 432U.S. 333, 351 (1977)).

It was only after the Seventh Circuit found thatthe law discriminated in practical effect that it con-sidered the State’s justification for the law, in orderto determine whether the law “further[ed] healthand safety concerns that [could not] be adequatelyserved by nondiscriminatory alternatives.” Id. (quot-ing Fort Gratiot Sanitary Landfill, Inc. v. MichiganDep’t of Natural Res., 504 U.S. 353, 367 (1992)).

For its part, the Eleventh Circuit treated chainrestaurants as similarly situated to local mom-and-pop restaurants in a case involving an ordinancethat banned chain restaurants. Cachia v. Islamora-da, 542 F.3d 839, 840-41 (11th Cir. 2008). Despiteobvious operational differences between the two, thecourt struck down the law, concluding that the ordi-nance’s “prohibition of restaurants operating underthe same name, trademark, menu, or style is not ev-enhanded in effect, and disproportionately targetsrestaurants operating in interstate commerce.” Id. at843; see also Island Silver & Spice, Inc. v. Islamora-da, 542 F.3d 844 (11th Cir. 2008).

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Finally, the Florida Supreme Court did the samewhile invalidating a state law that gave preferentialtax treatment to distillers of citrus and sugarcane,both commonly grown in Florida. Div. of AlcoholicBeverages & Tobacco v. McKesson Corp., 524 So. 2d1000, 1002 (Fla. 1988), rev’d on other grounds, 496U.S. 18 (1990). The citrus and sugarcane distillerswere obviously not identical to “manufacturers anddistributors of [other] alcoholic beverages”—consumers even viewed citrus and sugar alcohol as“less desirable” than other alcohol manufactured outof state. Id. at 1008. But because the manufacturerswere all in “direct competition,” the court comparedtheir treatment, and concluded that “the challengedtax preference scheme [unconstitutionally] strip[ped]away from manufacturers and distributors of thosebeverages the competitive and economic advantageswhich naturally flow from marketing beverageswhich are considered superior by the public.” Id.

B. Four circuits and a state supreme courthold that competing in the same marketis not sufficient to establish that busi-nesses are similarly situated.

Like the Massachusetts court below, four circuitshave held that “competing in the same market is notsufficient to conclude that entities are similarly situ-ated” for Commerce Clause purposes. Nat’l Ass’n ofOptometrists & Opticians v. Brown, 567 F.3d 521,527 (9th Cir. 2009). These courts hold that “a busi-ness entity’s structure,” the way the business is reg-ulated, and even the justification for the state law,are “material characteristic[s] for determining if en-tities are similarly situated.” Id.

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For example, in Brown the Ninth Circuit heldthat “opticians are not similarly situated to optome-trists and ophthalmologists,” even though they“compete[] in the same market for the sale of eye-wear.” Id. at 525-27. The court concluded that thechallenged laws “sought to protect optometrists andophthalmologists as heath care professionals frombeing affected by subtle pressures from commercialinterest,” and that it “must give deference to theState’s choice to protect its citizens in this way.” Id.at 526. It then listed the ways in which opticians dif-fered from optometrists and ophthalmologists: regu-latory differences, and “different responsibilities,different purposes, and different business struc-tures.” Id. at 527-28.

The Sixth Circuit held likewise in LensCrafters,Inc. v. Robinson, concluding that optical stores likeLenscrafters were not similarly situated to optome-trists, despite competing “for the same customers inthe same market for retail eyewear.” 403 F.3d 798,803-04 (6th Cir. 2005). It did so because “[u]nlike re-tail optical stores, licensed optometrists are health-care providers and, as such, have unique responsibil-ities and obligations to their patients that are notshared by optometric stores.” Id. at 804. This conclu-sion was further influenced by the court’s view of thejustification for the law: “to protect optometry fromcommercialism.” Id. at 803.

The Fifth Circuit repeatedly has concluded thatconsiderations other than competition suffice to re-move regulated businesses from the protection of thedormant Commerce Clause. For example, in FordMotor Co. v. Texas Department of Transportation,

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that court found that the State’s interest in protect-ing against vertical integration meant that inde-pendent auto dealers were not similarly situated toauto manufacturers who own car dealerships—eventhough they indisputably competed against one an-other in the used car market. 264 F.3d 493, 498, 501-02 (5th Cir. 2001); see also Allstate Ins. Co. v. Abbott,495 F.3d 151, 154, 157 (5th Cir. 2007) (auto body re-pair shops owned by insurance companies not simi-larly situated to independent repair shops); WineCountry Gift Baskets.com v. Steen, 612 F.3d 809, 820(5th Cir. 2010) (out-of-state wine retailer not similar-ly situated to in-state wine retailers); Int’l Truck &Engine Corp. v. Bray, 372 F.3d 717, 725-26 (5th Cir.2004) (truck manufacturers not similarly situated toin-state dealers).

The Second Circuit adopted this same approachin concluding that not all cigarette retailers weresimilarly situated, despite head-to-head competitionin the retail market. See Brown & Williamson To-bacco Corp. v. Pataki, 320 F.3d 200, 215-16 (2d Cir.2003). There, a New York statute prohibited retail-ers from shipping cigarettes directly to New Yorkcustomers, but allowed brick-and-mortar stores tosell cigarettes in person, and to deliver up to 800cigarettes to a New York customer using their owndelivery vans. Id. at 214-15. Although the law clearlyadvantaged in-state brick-and-mortar retailers, theSecond Circuit refused to consider whether this wasa discriminatory effect. Instead, it concluded thatout-of-state retailers were not similarly situated toin-state brick-and-mortar retailers—they were onlysimilarly situated to “non-brick-and-mortar sellerswho ship cigarettes directly to New York consumers

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following purchases made by Internet, telephone, ormail order.” Id. at 215-16; see also id. at 212-13.

These cases stand in clear conflict with the nu-merous authorities that properly treat entities com-peting in the relevant market as similarly situated,notwithstanding operational and regulatory differ-ences, or arguments purporting to justify the dis-criminatory regime. The natural result of thedecision below, and courts aligned with it, is that ex-cept when companies are carbon copies—which theyrarely will be—states may adopt laws distinguishingamong them, free entirely from Commerce Clausescrutiny.

C. The split extends to the precise facts ofthis case.

Courts have even divided on the precise questionof whether cable and satellite companies are similar-ly situated for Commerce Clause purposes. Most re-cently, a Florida appellate court held that cable andsatellite providers are similarly situated becausethey “operate in the same market and are directcompetitors within that market.” DIRECTV, Inc. v.State, Dep’t of Revenue, Nos. 1D13-5444 & 1D14-0292, __So.3d__, 2015 WL 3622354, at *4 (Fla. Dist.Ct. App. June 11, 2015). Acknowledging that cableand satellite providers “differ in the deployment oftechnology, the need for local infrastructure, and theadditional services offered,” the court held that thosedifferences did not prevent them from being similar-ly situated for Commerce Clause purposes. Rather,“mere differences in how a service is provided is notenough to overcome the fact that the companies

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compete in the same market and sell virtually iden-tical products at retail.” Id.; see also DIRECTV, Inc.v. Levin, 941 N.E.2d 1187, 1201 (Ohio 2010) (Brown,C.J., dissenting) (cable and satellite providers aresimilarly situated because they “unquestionablycompete”).

On the other side, the SJC and a Tennessee ap-pellate court have concluded that cable and satelliteproviders are not similarly situated. See Pet. App.12a-13a; DIRECTV, Inc. v. Roberts, No. M2013-01673-COA-R3-CV, 2015 WL 899025, at *11, reviewdenied, No. M2013-01673-SC-R11-CV (Tenn. S. Ct.June 12, 2015). But even they have disagreed on therationale. As the companion petition will explain, theTennessee court did not base its conclusion on anyfree-wheeling discussion of operational differencesbetween cable and satellite, or the supposed fairnessof a satellite-only tax. Indeed, it acknowledged that“[o]perational differences can be, and in this caseare, linked to geography.” Id. at *7. Instead, accord-ing to the Tennessee court, cable and satellite pro-viders are not similarly situated because “[c]ableproviders are heavily regulated by the federal gov-ernment, while satellite providers are minimallyregulated.” Id. at *10 (internal quotation marksomitted).

Thus, in Massachusetts and Tennessee, lawsthat discriminate against satellite providers are im-mune from dormant Commerce Clause scrutiny atthe gate, because cable and satellite providers aredeemed not substantially similar, and the protec-tions of the dormant Commerce Clause are thereforenot triggered. Meanwhile, in Florida, the Commerce

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Clause is alive and well. There, a satellite-only tax isproperly subject to scrutiny (and, indeed, was struckdown) because the exact same pay-TV providers,competing in the exact same market, are understoodto be similarly situated. This makes a mockery of thedormant Commerce Clause, which was intended topreserve a national market for competition. It alsoconflicts with this Court’s precedents, as we discussnext.

II. The Decision Below Conflicts With ThisCourt’s Established Precedent.

The three discrete inquiries of a dormant Com-merce Clause discrimination claim described above(at 13-14) have different content because they servedifferent purposes and carry different burdens ofproof. The proper way to conduct the analysis is totreat each inquiry separately.

Step one: Cable and satellite TV are similarlysituated for the simple reason that it is undisputedthat they compete—vigorously and directly—in thesame market for the same customers. They are di-rect “competitors in the [pay-TV] industry,” compet-ing “with one another and with each other for pay-TV subscribers in Massachusetts and throughout theUnited States.” JA 1552. Because cable and satelliteTV providers compete vigorously in the one and onlymarket to which the differential sales tax applies,the undisputed facts compel a conclusion that cableand satellite providers are similarly situated.

Step two: Next, the analysis turns to whetherthe differential treatment of cable and satellite

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amounts to discrimination against interstate com-merce—i.e., whether it has the purpose or the practi-cal effect of favoring the local economy at theexpense of the national economy or the economies ofother states. In this regard, the Court repeatedly hasheld that a law discriminates if it has the purpose orpractical effect of rewarding the business that buildfacilities or conducts certain activities within thestate over those that build their facilities or performthe same activities outside the state. For example, alaw has a discriminatory effect if it provides a taxbreak based on whether a company manufacturesproducts within the state, see Armco Inc. v. Hard-esty, 467 U.S. 638, 642 (1984), or uses distributionfacilities within the state, Westinghouse, Elec. Corp.v. Tully, 466 U.S. 388, 402-07 (1984). Massachu-setts’ satellite-only tax is a classic example of suchdiscrimination. It has the practical effect of reward-ing the business that builds its digital manufactur-ing plants within the Commonwealth over those thatbuild similar facilities in other states; and it favorsthe business for which distribution entails layingthousands of miles of cable within the Common-wealth over the business whose distribution is con-ducted from outside the state. The SJCacknowledged as much, assuming “that the cablecompanies and the satellite companies represent in-State and out-of-State interests, respectively.” Pet.App. 13a.

Similarly, a tax has a discriminatory purpose tothe extent it was motivated by the desire to rewardbusinesses that have “large fulltime workforces, in-vestment in infrastructure and dozens of physicallocations throughout the state, all of which contrib-

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ute to state tax coffers” and burden the businesseswith “no employee base, infrastructure, or physicalplant in the Commonwealth.” JA 1573 (emphasisomitted).

Step three: Having demonstrated that the satel-lite-only tax is discriminatory, a heavy burden thenshifts to the Department to demonstrate why thediscrimination is the only adequate means of ad-vancing legitimate state interests. See Granholm,544 U.S. at 489. To the extent that the Departmentdefends on the ground that the satellite-only tax isnecessary to compensate for other tax disparities,the Department has the burden of proving that thediscriminatory tax fits within the strict confines ofthe compensatory tax doctrine, which Massachu-setts’ tax does not (and the Department has not evenargued that it does).

The court below erred in concluding that stepone—the similarly situated analysis—goes beyondthe question of competition. Infra § II.A. In incorpo-rating other factors into the threshold inquiry, thecourt converted the threshold analysis into a mish-mash of elements that bypasses the inquiry into dis-crimination and dilutes strict scrutiny. Infra § II.B.

A. Competing in the same market is suffi-cient to establish that entities are simi-larly situated.

The Massachusetts Supreme Judicial Court de-parted from this Court’s precedents when it conclud-ed that “competing in the same market is notsufficient to conclude that entities are similarly situ-

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ated.” Pet. App. 11a, n.10 (internal quotation marksomitted). Competition has always been the criticalinquiry at the threshold. That is why this thresholdinquiry has “more often than not itself remaineddormant” in this Court’s cases. Tracy, 519 U.S. at299.

The point of the threshold inquiry is to advancethe “fundamental objective” of the dormant Com-merce Clause, which is to “preserv[e] a nationalmarket for competition undisturbed by preferentialadvantages conferred by a State upon its residentsor resident competitors.” Id. States threaten that na-tional market when they distinguish between com-peting products in ways that favor their ownparochial economic interests. No such threat ariseswhen states differentiate between products or pro-ducers that do not compete. In that circumstance,interstate markets are not distorted, and “eliminat-ing the tax or other regulatory differential would notserve the dormant Commerce Clause’s fundamentalobjective.” Id. Thus, all a court needs to ascertain atthe threshold is whether the favored and disfavoredbusinesses compete in the relevant market.

More than 50 years ago, the Court drew exactlythat line in Alaska v. Arctic Maid before determiningwhether there was “discrimination in favor” of onecompetitor “and against” another. 366 U.S. 199, 204(1961). The case involved a tax on freezer ships. Thefreezer-ship owners argued that they were improper-ly taxed at a higher rate than local fish processors.The Court refused to compare the two because “[t]hefreezer ships do not compete with those who freezefish for the retail market.” Id. Rather, the freezer

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ships’ “competitors are the Alaskan canners.” Id. TheCourt therefore compared the tax on freezer ships tothe tax imposed on Alaskan canners, and found noadvantage in favor of the local canners. Id.

In keeping with this principle, this Court hashad no trouble finding the threshold element satis-fied based on even a minimal level of competition inthe relevant market. A good example is Bacchus Im-ports, Ltd. v. Dias, 468 U.S. 263 (1984). Hawaiisought to boost its local economy by granting a taxexemption to fruit wines and okolehaho, a type ofbrandy distilled from the root of a Hawaiian shrub.Id. at 265. This amounted to discrimination in prac-tical effect, since the exemption “applie[d] only to lo-cally produced beverages.” Id. at 271. The Stateargued that the benefited products were not situatedsimilarly to the burdened ones, because local fruitwine did not meaningfully compete with out-of-statebeer and spirits. Id. at 268-69. The Court disagreed,holding that the relevant question was simply“whether competition exists between the locally pro-duced beverages and foreign beverages.” Id. at 269(emphasis added). The Court explained that thereneed only be “some competition between the locallyproduced exempt products and nonexempt productsfrom outside the State” for the law to run afoul of theCommerce Clause. Id. at 271.

Other cases have invalidated statutes that treat-ed direct competitors differently without ever evenquestioning that the competitors were similarly sit-uated for Commerce Clause purposes. Implicit in allof these cases is an understanding that competitionbetween the benefitted and burdened businesses suf-

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fices to trigger Commerce Clause scrutiny. E.g., Bos-ton Stock Exch. v. State Tax Comm’n, 429 U.S. 318,330-31 (1977) (comparing tax treatment of sales onthe New York Stock Exchange with sales on compet-ing out-of-state exchanges); West Lynn Creamery,512 U.S. at 193-94 (comparing treatment of “highercost Massachusetts dairy farmers” with their com-petitors—“lower cost dairy farmers in other States”);Granholm, 544 U.S. at 466-67 (comparing treatmentof in-state and out-of-state wineries); Lewis v. BTInv. Managers, Inc., 447 U.S. 27, 42 (1980) (compar-ing treatment of out-of-state bank holding companieswith competing in-state bank holding companies). Inmost of these cases—and certainly in Bacchus—theState could easily have argued along the lines of theMassachusetts decision here: that the operationswere different or that the discrimination was justi-fied in the name of parity.

More importantly, the decision below flatly con-flicts with Tracy. That decision concerned an Ohiolaw that granted an exemption from the State’s gen-eral sales and use taxes for natural gas sold by pub-lic utility companies but not for natural gas sold byother marketers. 519 U.S. at 282. The Court ex-plained that when a law differentiates between “al-legedly competing entities” that “provide differentproducts … there is a threshold question whetherthe companies are indeed similarly situated for con-stitutional purposes.” Id. at 299. “This is so,” theCourt noted, “for the simple reason that the differ-ence in products may mean that the different enti-ties serve different markets, and would continue todo so even if the supposedly discriminatory burdenwere removed.” Id. The Court continued: “If in fact

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that should be the case, eliminating the tax … wouldnot serve the dormant Commerce Clause’s funda-mental objective of preserving a national market forcompetition.” Id.

Applying that test and citing Arctic Maid, theCourt observed that there was no competition be-tween natural gas marketers and public utilities inthe utilities’ “core” market—residential consumers ofnatural gas—because natural gas marketers simplydid not, and could not, serve individual residents. Id.at 301-02. So as to that “captive” residential market,“competition would not be served by eliminating anytax differential as between sellers, and the dormantCommerce Clause has no job to do.” Id. at 303. How-ever, the marketers and utilities did compete in aseparate “noncaptive” market—bulk natural gaspurchasers like General Motors. Id. at 303. There-fore, “the question raised by this case,” the Courtasked, is “[s]hould we accord controlling significanceto the noncaptive market in which they compete, orto the noncompetitive, captive market in which thelocal utilities alone operate?” Id. at 303-04. Based ona variety of case-specific factors, the Court ultimate-ly decided “to give the greater weight to the captivemarket,” and thus to treat the entities “as dissimi-lar” for Commerce Clause purposes. Id. at 304.

Tracy is therefore critical here, but not in theway the court below thought. Tracy embraces the es-tablished rule that competition is the touchstone ofwhether two entities are similarly situated. It con-firms the common-sense proposition that “in the ab-sence of actual or prospective competition betweenthe supposedly favored and disfavored entities in a

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single market there can be no local preference … towhich the dormant Commerce Clause may apply.”Id. at 300. Conversely, when the entities do competein the relevant market, the Commerce Clause’s“fundamental objective of preserving a nationalmarket for competition” is at play, id. at 299, and theentities are similarly situated.

B. The court below diluted both the in-quiry into discrimination and the strictscrutiny of justifications for discrimina-tion.

Instead of focusing its similarly situated analysison competition, the court below assessed “the broad-er context” to conclude that the Commonwealth hadacceptable reasons for enacting the satellite-only tax.These reasons included that Cable paid local fran-chise fees for “the privilege of doing business withlocal consumers,” and that satellite companies couldfairly be made to pay for that privilege as well, Pet.App. 14a-17a; that satellite companies could notshow that their total obligations were more burden-some than Cable’s, and that if they could, “this dis-crepancy would be permissibly attributable toimportant differences between the cable and satelliteindustries,” id. at 20a-21a; and that cable and satel-lite providers are subject to “divergent regulatory re-gimes,” id. at 24a.

In importing these considerations from the mer-its into the threshold analysis, the court below effec-tively pretermitted any meaningful analysis ofwhether an enactment is discriminatory, as well aswhether it can nevertheless be constitutionally justi-

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fied. This approach replaces this Court’s clear andsimple threshold test with an unprincipled inquirythat allows each judge to decide whether to bless astatute—at the threshold—based on his or her owngut instinct as to whether the differential treatmentis good policy.

Moreover, the court below flipped all the burdensfor justifying discrimination. Instead of requiring theDepartment to “sho[w] that [the discriminatory re-gime] advances a legitimate local purpose that can-not be adequately served by reasonablenondiscriminatory alternatives,” Oregon Waste Sys.,Inc., 511 U.S. at 100-101 (first alteration in original),the court indulged a free-wheeling inquiry that re-volved around whether the overall regime felt fair orreasonable. It failed to hold the Department to thestrict requirements of the compensatory tax doc-trine, on which the Department bore a heavy bur-den. See, e.g., Fulton Corp. v. Faulkner, 516 U.S.325, 331-32, 344 (1996). The court below evadedthese essential requirements by importing notions ofrough equity into the threshold similarly situatedinquiry, and requiring the satellite providers toprove that “their obligations are more burdensomethan those of the cable companies,” including the“value of the in-kind services that cable companiesprovide to local governments.” Pet. App. 21a. Inshort, the court conducted an “amorphous inquirythat involves balancing incommensurate burdensimposed on disparate activities,” Associated Indus.,of Mo. v. Lohman, 511 U.S. 641, 655 n.5 (1994), aninquiry utterly at odds with what the Court has re-quired.

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III. This Case Is An Ideal Vehicle For ResolvingAn Issue Of National Importance AffectingMany Industries.

The issues in this case directly affect the 84% ofhouseholds across the country that subscribe to someform of pay-TV service.3 Until the 1990s, Cable had amonopoly on the market for pay-TV. Without compe-tition, cable providers had no incentive to improveservice, innovate, or keep prices down. In response toa bitter consumer uprising, Congress stepped in tofoster competition from satellite TV. See Telecom-munications Act of 1996, Pub. L. No. 104-104, § 602,110 Stat. 56, 144 (1996), reprinted in 47 U.S.C. § 152note.

Needless to say, Cable was not pleased. Over thepast decade, the cable industry has lobbied state leg-islatures to enact satellite-only tax schemes like theone at issue here. Many states have rebuffed Cable’sefforts to protect its turf by raising satellite provid-ers’ costs of doing business. Government, they haverecognized, should not be in the business of enactinglegislation designed to shield local economic inter-ests from competition. Other states have acceded,and enacted variations of the differential pay-TV taxat issue here—and every year, cable lobbyists urgemore to follow suit.

The satellite providers have challenged each ofthese taxes as violating the Commerce Clause, and

3 See Leichtman Research Group, More Than Five Of EverySix TV Households Subscribe To A Pay-TV Service (Sept. 2,2014), http://tinyurl.com/p7o6ppe.

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judges have divided on their constitutionality. Mostrecently, a Florida appellate court struck down Flor-ida’s discriminatory tax scheme. Other judges wouldhave done the same, including trial courts in Ten-nessee and Ohio, as well as the Chief Justice of theOhio Supreme Court in a vigorous dissent. See Lev-in, 941 N.E.2d 1187 (Brown, C.J. dissenting); DI-RECTV, Inc. v. Roberts, No. 03-2408-IV (Ch. Tenn.June 21, 2013); DIRECTV, Inc. v. Wilkins, No.03CVH06-7135 (Ohio Ct. C.P., Franklin Cnty., Oct.17, 2007). Other courts have affirmed the constitu-tionality of these laws on a variety of different bases.See DIRECTV, Inc. v. Treesh, 487 F.3d 471 (6th Cir.2007); Levin, 941 N.E.2d 1187 (majority opinion);DIRECTV, Inc. v. State, 632 S.E.2d 543 (N.C. Ct.App. 2006). These erroneous rulings artificially tiltthe playing field in favor of Cable and its associatedlocal economic interests, to the detriment of pay-TVconsumers and innovation in the pay-TV market.The Court’s review is necessary to preserve the com-petitiveness of this critical industry, and the diversi-ty of views, technological advancement, andimproved product offerings that competitiveness inthis vital market generates.

The stakes are equally high for industries acrossthe economy. The cases discussed above illustratehow the question presented affects nearly every im-aginable sector—from cars to eyeglasses; from mu-nicipal waste to alcoholic beverages. Under the SJC’sconception of the Commerce Clause, the modest,threshold “similarly situated” requirement will rare-ly be satisfied—entities are nearly always distin-guishable in some way or another—and interstate

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markets will be left largely unprotected from dis-criminatory laws.

The decision below and those like it pose an es-pecially grave threat to innovators seeking to chal-lenge established competitors. In numerousindustries, new entrants are using new technologiesto serve customers from afar, often more efficientlyand with less local infrastructure. Today, using Am-azon, one can purchase everything from chocolatepudding to a new wardrobe without ever setting footin a grocery store or a mall. And using iTunes or aKindle, people can purchase their favorite music andbooks without patronizing the local CD or book store.While these new ways of doing business benefit thenational economy as whole, they also threaten en-trenched businesses, making innovators a naturaltarget for protectionist legislation. Under the ap-proach adopted below, such laws are insulated fromCommerce Clause review whenever the State canpoint to some difference between the favored anddisfavored companies, or some reason for treatingthem differently. Until the division of authority isresolved, these businesses face the risk that a state,at the behest of local interests, may counter their in-novation with special burdens.

These uncertainties are problematic for state leg-islators and regulators as well. They need to knowwhich laws are permissible and which ones are im-permissible. The need for clarity is especially com-pelling in the context of discriminatory taxes. If astate is wrong, it may be required to refund millionsof dollars in taxes, many years after the funds werecollected and spent. See, e.g., McKesson Corp. v. Div.

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of Alcoholic Beverages & Tobacco, 496 U.S. 18, 31-32(1990) (remedy for Commerce Clause violation is atax refund).

There is no reason to await further percolation,and compelling reasons not to. This Court’s prece-dent is well-established; Tracy is more than two dec-ades old. Four circuits have concluded, some onmultiple occasions, that competing in the relevantmarket does not make entities similarly situated,placing disparate tax and regulatory treatment be-yond the scope of the Commerce Clause. Three othercircuits and multiple state high courts disagree. Andthe exact same companies, competing in the exactsame market, are similarly situated in Florida, butare not similarly situated in Tennessee or Massa-chusetts. In short, dormant Commerce Clause doc-trine is a terrible mess and is only getting messier.This Court’s guidance is crucial for getting the doc-trine in order.

Finally, this case provides an excellent vehiclefor reviewing these issues. The decision below wasrendered by a state high court on the basis of an ex-tensive summary judgment record. The central factsare largely undisputed, and therefore squarely raisethe question of law that has divided courts aroundthe country. And, especially in tandem with thecompanion Tennessee petition, it presents the issuesquarely and thoroughly for the Court’s considera-tion.

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CONCLUSION

For the foregoing reasons, the Court shouldgrant the petition for a writ of certiorari; or, in thealternative, grant the companion petition in DI-RECTV v. Roberts and hold this petition.

Respectfully submitted,

E. Joshua RosenkranzCounsel of Record

ORRICK, HERRINGTON &SUTCLIFFE LLP

51 West 52nd StreetNew York, NY 10019(212) [email protected]

Date: June 18, 2015

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APPENDIX A

SUPREME JUDICIAL COURT OFMASSACHUSETTS, SUFFOLK

DIRECTV, LLC, & another1 v. DEPARTMENT OFREVENUE.

SJC-11658

November 4, 2014, Argued

February 18, 2015, Decided

Opinion

LENK, J.

General Laws c. 64M, § 2, imposes a five percent excise tax on video programming delivered bydirect broadcast satellite (tax). The plaintiffs are twocompanies that provide services subject to the tax(satellite companies). They brought a complaint fordeclaratory and injunctive relief in the SuperiorCourt, alleging that the tax violates the commerceclause of the United States Constitution.2 Thesatellite companies contend that the tax

1 Dish Network L.L.C.

2 The companies that provide video programming delivered bydirect broadcast satellite (satellite companies) also arguedbelow that the excise tax violates their right to equalprotection. They do not pursue this claim on appeal.

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discriminates against interstate commerce, both inits effect and in its purpose, by disfavoring them ascompared with those companies that provide videoprogramming via cable (cable companies). Thesatellite and cable companies that operate inMassachusetts are all incorporated andheadquartered in other States; the satellitecompanies argue, however, that the cable companiesrepresent in-State interests inasmuch as their in-State commercial operations are substantiallygreater than those of the satellite companies.

A Superior Court judge granted summaryjudgment in favor of the defendant, the Departmentof Revenue (department). The satellite companiesappealed, and we allowed their application for directappellate review.

We conclude that summary judgment waswarranted. The cable companies and the satellitecompanies are subject to similar tax obligations,which differ primarily in the ways in which they arecollected and calculated. These differences aregrounded in important characteristics of the cableand satellite companies’ respective methods ofoperation, and in the different regulatory regimes towhich they are subject. The satellite companies thushave raised no genuine issue as to the facts materialto their claim of discrimination against interstatecommerce, and the department is entitled tojudgment as a matter of law.3

3 We acknowledge the amicus briefs submitted by PublicKnowledge, the Satellite Broadcasting and Communications

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1. Facts. We summarize the undisputed factsimportant to our analysis, focusing on the nature ofthe video programming industry; the similaritiesand differences between the methods of operationused by the participants in this industry, namelycable companies and satellite companies; thesecompanies’ respective economic impacts onMassachusetts; their respective tax obligations; andthe changes to those obligations introduced by theLegislature in 2010.

a. The video programming industry. Theservice that permits customers to view a variety ofvideo channels on their television sets is known asmulti-channel video programming. The satellitecompanies compete in the market for videoprogramming services primarily with cablecompanies, including Comcast Corporation(Comcast) and Charter Communications Inc. VerizonCommunications, Inc. (Verizon), a telephonecompany, participates in this market as well. All ofthe major participants in the market for videoprogramming services, including Verizon, areincorporated and headquartered outside ofMassachusetts.

The cable companies and the satellitecompanies both offer several programming packages.These packages generally include local broadcasts,

Association, and the National Association of Wine Retailers onbehalf of the satellite companies; and the briefs by the NationalGovernors Association, the Multistate Tax Commission, andthe New England Cable and Telecommunications Associationon behalf of the Department of Revenue.

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basic cable channels, premium cable channels, pay-per-view movies and events, and on-demandprogramming. Customers typically choose betweencable and satellite on the basis of considerationssuch as price, customer service, reception quality,and program offerings.

b. Methods of operation. The methods ofoperation used by the cable and satellite companiesoverlap substantially. Both types of companypurchase the rights to distribute programming fromcontent providers. Both designate certainpercentages of their channel capacity to public,educational, and government programming.4 Bothadvertise their services using television, billboards,mail, newspapers, and the Internet. Both lease someequipment, such as set-top boxes (which convertsignals for viewing on television sets) and recordingdevices, to their subscribers.

The cable companies and the satellitecompanies differ, however, in the methods by whichthey assemble and deliver programming to theircustomers. The cable companies assemble theirprogramming in local facilities known as “headends.”There are approximately sixty headends inMassachusetts. At the headends, programmingsignals are gathered by satellite dishes and fiberoptics equipment. These signals are then processed,packaged, and delivered to customers’ homes

4 See note 16, infra.

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through networks of cables laid on the ground orhung from buildings and poles.5

The satellite companies, by contrast, collect,process, and package their programming at “uplinkcenters.” Each of the satellite companies has twoprimary uplink centers nationally. These uplinkcenters are located outside Massachusetts.Programming signals are transmitted from theuplink centers to satellites orbiting the earth, andthen relayed to small receiver dishes mounted on ornear customers’ homes. The satellite companiesmaintain small, intermittently-staffed “collectionfacilities,” which gather content from local broadcaststations and transmit it to the uplink centers.

c. Economic impact. The methods of assemblyand delivery used by cable and satellite result indifferent impacts on the Commonwealth’s economy.From 2006 to 2010, the cable companies spent morethan $1.6 billion in Massachusetts, includinginvestments in headend facilities, cable networks,and vehicles. As of 2010, the cable companiesemployed approximately 5,500 people inMassachusetts.

The satellite companies, on the other hand,hire relatively few employees in Massachusetts.Their expenditures on facilities and equipment areconcentrated primarily on their out-of-State uplinkcenters. The satellite companies also pay fees to the

5 Telephone companies like Verizon Communications, Inc., usesimilar technology.

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Federal government for the right to locate theirsatellites in outer space and to use certaintransmission frequencies.

d. Tax obligations. Both the cable companiesand the satellite companies are subject to realproperty taxes in Massachusetts, and both paypersonal property taxes on possessions located in theCommonwealth. They both pay State income taxes,and they collect and remit sales tax on certaintransactions.

The cable companies, in addition, pay“franchise fees” to local governments. The rates ofthese fees are determined in negotiated agreements.Under Federal law, franchise fees may be no higherthan five per cent of a cable company’s gross revenuefrom the provision of cable services. See 47 U.S.C. §542(b) (2012). Typically, the fees charged inMassachusetts are three to five per cent of grossrevenue. Local governments also usually impose anadditional fee on cable companies, at an average rateof 1.09% of gross revenue, dedicated to supportingpublic, educational, and government programming.In addition to these fees, cable companies ordinarilyare required by local governments to (a) provideservices, facilities, and equipment for the use ofpublic, educational, and governmental channels; (b)deliver free video programming services to municipalbuildings, schools, and libraries; and (c) meet certainservice quality and customer service requirements.6

6 The agreements between the local governments and thecompanies that provide video programming via cable (cablecompanies) also typically require that the companies set aside

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A Federal statute prohibits the imposition of anysuch fees or taxes on the satellite companies at thelocal level, but it permits the taxation of the satellitecompanies by the States. See TelecommunicationsAct of 1996 § 602, P.L. 104–104, 110 Stat. 144(reprinted in notes following 47 U.S.C. § 152 [2012])(Telecommunications Act).

e. Changes introduced in 2010. The Actmaking appropriations for the fiscal year 2010,7 St.2009, c. 27 (2010 appropriations act), introduced twosignificant changes to the scheme of taxation thatgoverns the video programming industry. First, the2010 appropriations act established the excise tax.See St. 2009, c. 27, § 61, enacting G. L. c. 64M. Theexcise tax is imposed upon the satellite companies ata rate of five per cent of their gross revenues derivedfrom the provision of video programming inMassachusetts. See G. L. c. 64M, §§ 1, 2. Thesatellite companies pass on the cost of the excise taxto their customers. See G. L. c. 64M, § 3.8

channels for public, educational, and governmentalprogramming. These obligations apparently augment therequirement of Federal law that the cable companies designatea percentage of their channel capacity to public-orientedprogramming. See note 16, infra.

7 The full title of the act is “An Act making appropriations forthe fiscal year 2010 for the maintenance of the departments,boards, commissions, institutions and certain activities of theCommonwealth, for interest, sinking fund and serial bondrequirements and for certain permanent improvements.”

8 The cable companies also pass on the cost of the franchise feesto their customers.

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The 2010 appropriations act also imposed apersonal property tax on “[p]oles, undergroundconduits, wires and pipes of telecommunicationscompanies.” St. 2009, c. 27, § 25, amending G. L. c.59, § 18. “[T]elecommunications companies” aredefined to include “cable television, [I]nternetservice, telephone service, data service and any othertelecommunications service providers.” Id. Inessence, this provision increased the personalproperty tax liability of the cable and telephonecompanies, but not of the satellite companies (whichdo not use poles, wires, and the like).

2. Legal framework. a. Summary judgment.We review a grant of summary judgment de novo.See Federal Nat’l Mtge. Ass’n v. Hendricks, 463Mass. 635, 637, 977 N.E.2d 552 (2012); 81 SpoonerRd., LLC v. Zoning Bd. of Appeals of Brookline, 461Mass. 692, 699, 964 N.E.2d 318 (2012). Summaryjudgment is appropriate “if the pleadings,depositions, answers to interrogatories, andresponses to requests for admission . . . , togetherwith the affidavits, if any, show that there is nogenuine issue as to any material fact and that themoving party is entitled to a judgment as a matter oflaw.” Mass. R. Civ. P. 56 (c), as amended, 436 Mass.1404 (2002). The evidence in the record must beviewed “in the light most favorable to the nonmovingparty.” Surabian Realty Co. v. NGM Ins. Co., 462Mass. 715, 718, 971 N.E.2d 268 (2012), quotingFuller v. First Fin. Ins. Co., 448 Mass. 1, 5, 858N.E.2d 288 (2006). We “need not rely on therationale cited and ‘may consider any groundsupporting the judgment.’” District Attorney for N.Dist. v. School Comm. of Wayland, 455 Mass. 561,

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566, 918 N.E.2d 796 (2009), quoting Augat, Inc. v.Liberty Mut. Ins. Co., 410 Mass. 117, 120, 571N.E.2d 357 (1991).

b. The dormant commerce clause. Thecommerce clause provides that “Congress shall havePower…to regulate commerce with foreign nations,and among the several [S]tates, and with the IndianTribes.” Art. I, § 8, cl. 3 of the United StatesConstitution. The United States Supreme Court has“long interpreted the commerce clause as an implicitrestraint on [S]tate authority, even in the absence ofa conflicting [F]ederal statute.” United Haulers Assnv. Oneida–Herkimer Solid Waste Mgmt. Auth., 550U.S. 330, 338, 127 S.Ct. 1786, 167 L.Ed.2d 655(2007) (collecting cases). This implicit restraint isknown as the “dormant” commerce clause. See id.

A State tax is permissible under the dormantcommerce clause if it “[1] is applied to an activitywith a substantial nexus with the taxing State, [2] isfairly apportioned, [3] does not discriminate againstinterstate commerce, and [4] is fairly related to theservices provided by the State.” Complete AutoTransit, Inc. v. Brady, 430 U.S. 274, 279, 97 S.Ct.1076, 51 L.Ed.2d 326 (1977). See American TruckingAss’ns v. Michigan Pub. Serv. Comm’n, 545 U.S. 429,438, 125 S.Ct. 2419, 162 L.Ed.2d 407 (2005). Thesatellite companies’ challenge to the excise tax islimited to the third of these requirements, namelythe prohibition on discrimination against interstatecommerce.

c. Discrimination against interstate commerce.The ban on discrimination against interstate

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commerce is rooted in the “principle that oureconomic unit is the Nation, which alone has thegamut of powers necessary to control of theeconomy.” Oregon Waste Sys., Inc. v. Department ofEnvtl. Quality of Or., 511 U.S. 93, 98, 114 S.Ct.1345, 128 L.Ed.2d 13 (1994) (Oregon Waste), quotingH.P. Hood & Sons v. Du Mond, 336 U.S. 525, 537 –538, 69 S.Ct. 657, 93 L.Ed. 865 (1949). The dormantcommerce clause seeks to prevent economic“Balkanization,” Bacchus Imports, Ltd. v. Dias, 468U.S. 263, 276, 104 S.Ct. 3049, 82 L.Ed.2d 200 (1984),and to protect “an area of free trade among theseveral States.” Boston Stock Exch. v. State TaxComm’n, 429 U.S. 318, 328, 97 S.Ct. 599, 50 L.Ed.2d514 (1977), quoting McLeod v. J.E. Dilworth Co., 322U.S. 327, 330, 64 S.Ct. 1023, 88 L.Ed. 1304 (1944).

In the context of the dormant commerceclause, “‘discrimination’ simply means differentialtreatment of in-[S]tate and out-of-[S]tate economicinterests that benefits the former and burdens thelatter.” Oregon Waste, 511 U.S. at 99, 114 S.Ct. 1345,114 S.Ct. 1345.9 The concept of “discrimination” alsoimplicitly assumes “a comparison of substantially

9 Notwithstanding the stated simplicity of this test, the UnitedStates Supreme Court has recognized that its “case-by-case”approach to the dormant commerce clause “has left ‘much roomfor controversy and confusion and little in the way of preciseguides to the States.’” Westinghouse Elec. Corp. v. Tully, 466U.S. 388, 403, 104 S.Ct. 1856, 80 L.Ed.2d 388 (1984), quotingBoston Stock Exch. v. State Tax Comm’n, 429 U.S. 318, 329, 97S.Ct. 599, 50 L.Ed.2d 514 (1977). See also E. Chemerinsky,Constitutional Law, Principles and Policies, § 5.3 at 444 – 445(4th ed. 2011).

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similar entities.” General Motors Corp. v. Tracy, 519U.S. 278, 298, 117 S.Ct. 811, 136 L.Ed.2d 761(1997).10

A statute may be discriminatory on its face, inits effect, or in its underlying purpose. See AmeradaHess Corp. v. Director, Div. of Taxation, 490 U.S. 66,75, 109 S.Ct. 1617, 104 L.Ed.2d 58 (1989) (AmeradaHess); Chemical Waste Mgmt., Inc. v. Hunt, 504 U.S.334, 344 n.6, 112 S.Ct. 2009, 119 L.Ed.2d 121 (1992).The burden to show discrimination againstinterstate commerce rests on the party challengingthe validity of a statute. See Hughes v. Oklahoma,441 U.S. 322, 336, 99 S.Ct. 1727, 60 L.Ed.2d 250(1979); Family Winemakers of Cal. v. Jenkins, 592

10 In General Motors Corp. v. Tracy, 519 U.S. 278, 299, 117S.Ct. 811, 136 L.Ed.2d 761 (1997), the United States SupremeCourt determined that the entities involved were dissimilarlysituated because they “serve[d] different markets.” Relying onthe analysis of Tracy, the satellite companies argue that anyentities that serve the same market are necessarily similarlysituated. But the conceptual prerequisite that entities must be“substantially similar” in order for discrimination to occur alsomay be undermined by other types of differences. Thus,“competing in the same market is not sufficient to concludethat entities are similarly situated.” National Ass’n ofOptometrists & Opticians LensCrafters, Inc. v. Brown, 567 F.3d521, 527 (9th Cir. 2009). See Amerada Hess Corp. v. Director,Div. of Taxation, 490 U.S. 66, 78, 109 S.Ct. 1617, 104 L.Ed.2d58 (1989) (Amerada Hess) (differential treatment permissiblewhen it “results solely from differences between the nature of[entities’] businesses, not from the location of their activities”);Philadelphia v. New Jersey, 437 U.S. 617, 626 – 627, 98 S.Ct.2531, 57 L.Ed.2d 475 (1978) (differential treatment permissibleif “there is some reason, apart from . . . origin, to treat [entities]differently” [emphasis supplied]).

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F.3d 1, 9 (1st Cir. 2010). If this burden is carried, thediscriminatory law is “virtually per se invalid.”Department of Revenue of Ky. v. Davis, 553 U.S. 328,338, 128 S.Ct. 1801, 170 L.Ed. 2d 685 (2008), citingOregon Waste, 511 U.S. at 99, 114 S.Ct. 1345, 114S.Ct. 1345.11

3. Analysis. a. Discriminatory effect. Thesatellite companies argue that the excise taxdiscriminates against interstate commerce in itseffect by disadvantaging the satellite companies andbenefiting the cable companies. The departmentresponds, first, that the cable companies and thesatellite companies do not represent in-State andout-of-State interests, respectively. The departmentargues also that the excise tax is not discriminatorybecause the cable and satellite companies are notsimilarly situated.

11 [N]ondiscriminatory regulations that have only incidentaleffects on interstate commerce are valid unless ‘the burdenimposed on such commerce is clearly excessive in relation tothe putative local benefits.’” Oregon Waste Sys., Inc. v.Department of Envtl. Quality of Or., 511 U.S. 93, 99, 114 S.Ct.1345, 128 L.Ed.2d 13 (1994), quoting Pike v. Bruce Church,Inc., 397 U.S. 137, 142, 90 S.Ct. 844, 25 L.Ed.2d 174 (1970).The satellite companies do not contend that the excise tax failsthis test. Conversely, a discriminatory statute may be upheld if“the State has no other means to advance a legitimate localpurpose.” United Haulers Ass’n v. Oneida–Herkimer SolidWaste Mgmt. Auth., 550 U.S. 330, 338-339, 127 S.Ct. 1786, 167L.Ed.2d 655 (2007), citing Maine v. Taylor, 477 U.S. 131, 138,106 S.Ct. 2440, 91 L.Ed.2d 110 (1986). The Department ofRevenue has not argued that the excise tax satisfies thisrequirement.

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For the reasons we describe, we adopt thelatter argument. In so doing, we follow the othercourts that have considered and rejected the satellitecompanies’ challenges to the laws of other States.See Directv, Inc. v. Treesh, 487 F.3d 471 (6th Cir.2007) (Treesh I), cert. denied, 552 U.S. 1311, 128S.Ct. 1876, 170 L.Ed.2d 746 (2008); DIRECTV, Inc.v. State, 178 N.C. App. 659, 632 S.E.2d 543 (2006);DIRECTV, Inc. v. Levin, 128 Ohio St. 3d 68, 941N.E.2d 1187 (2010), cert. denied, 133 S.Ct. 51 (2012).We assume for purposes of our analysis, whileappreciating the weighty arguments to the contrary,that the cable companies and the satellite companiesrepresent in-State and out-of-State interests,respectively.12

12 As to this issue, compare Freedom Holdings, Inc. v. Spitzer,357 F.3d 205, 218 (2d Cir. 2004) (“For dormant [c]ommerce[c]lause purposes, the relevant ‘economic interests’ . . . areparties using the stream of commerce, not those of the stateitself”), with Westinghouse Elec. Corp. v. Tully, 466 U.S. at 403-404, 104 S.Ct. 1856 (discussing cases in which “the Courtstruck down state tax statutes that encouraged thedevelopment of local industry by means of taxing measuresthat imposed greater burdens on economic activities takingplace outside the State than were placed on similar activitieswithin the State”); Lewis v. BT Inv. Managers, Inc., 447 U.S.27, 42 n.9, 100 S.Ct. 2009, 64 L.Ed.2d 702 (1980)(“discrimination based on the extent of local operations is itselfenough to establish the kind of local protectionism we haveidentified”); and Philadelphia v. New Jersey, 437 U.S. at 627,98 S.Ct. 2531 (“The Court has consistently found parochiallegislation … to be constitutionally invalid, whether theultimate aim of the legislation was to assure a steady supply ofmilk …, or to create jobs by keeping industry within the State…, or to preserve the State’s financial resources from depletionby fencing out indigent immigrants” [citations omitted]).

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i. The broader context. The excise tax appliesto satellite companies only. Our analysis must not be“divorced,” however, from the broader context of theact; we are required to consider the regulatoryscheme “as a whole.” See West Lynn Creamery, Inc.v. Healy, 512 U.S. 186, 201, 114 S.Ct. 2205, 129L.Ed.2d 157 (1994) (West Lynn Creamery). AccordDIRECTV, Inc. v. Tolson, 513 F.3d 119, 122 (4th Cir.2008) (Tolson); Zenith/Kremer Waste Sys., Inc. v.Western Lake Superior Sanitary Dist., 572 N.W.2d300, 304 (Minn. 1997), cert. denied, 523 U.S. 1145,118 S.Ct. 1857, 140 L.Ed.2d 1105 (1998). See alsoMinneapolis Star & Tribune Co. v. MinnesotaComm’r of Revenue, 460 U.S. 575, 589 n.12, 103S.Ct. 1365, 75 L.Ed.2d 295 (1983) (United StatesSupreme Court “evaluat[es] the relative burdens ofdifferent methods of taxation” in commerce clausecases). As described supra, both the cable companiesand the satellite companies are subject to corporateincome taxes, sales taxes, real property taxes, andpersonal property taxes. The cable companies are, inaddition, subject to obligations in money and inservices to local governments.

The satellite companies suggest that the cablecompanies’ obligations toward local governmentsshould play no part in our analysis of the ways inwhich the two types of company are treated. In thesatellite companies’ view, these obligations aremerely “rent” payments imposed on cable companieson the basis of the use that they, but not the satellitecompanies, make of public spaces. We do not agree.

The localities’ power to charge franchise feesas to cable companies but not satellite companies

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flows, not from the localities’ ownership of publicproperty, but from statutory provisions. A Federalstatute provides that, subject to certain limitations,“any cable operator may be required . . . to pay afranchise fee.” 47 U.S.C. § 542(a) (2012). Theimposition of such fees is facilitated by aMassachusetts statute that prohibits theconstruction or operation of any cable system “in anycity or town . . . without first obtaining . . . a writtenlicense from each city or town.” G. L. c. 166A, § 3.Franchise fees and related obligations are, in thissense, not rent payments, but rather statutorilyauthorized tax payments. See Tolson, 513 F.3d at123, 125-126 & n.3 (holding that cable franchise feesare “taxes” for purposes of Tax Injunction Act, 28U.S.C. § 1341 (2012), and explaining that “a sumfixed for the privilege of doing business” is unlike“[a] per-pole charge levied . . . for the use of [a] city’stelegraph poles”).

Correspondingly, cable companies do notobtain leases or other property rights in return fortheir franchise fees. What they do receive in returnare special privileges. See Tolson, 513 F.3d at 126n.3 (“Taxpayers . . . often receive something of valuein exchange for their taxes”). In the Superior Courtproceedings, the satellite companies recognized thatthe privileges granted in exchange for franchise feesare “the privilege of doing business in a locality and .. . the rights to access public-rights-of-way in alocality.” See 47 U.S.C. § 522(9) (2012) (franchisepermits “construction” or “operation” of cablesystem); Treesh I, 487 F.3d at 480 (Kentucky cable

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franchises provided “the right to conduct businessand use local rights-of-way”).13

Because of the method by which they delivertheir programming, the satellite companies do notneed to access public rights-of-way. The privilege ofdoing business with local consumers, on the otherhand, is one that benefits the satellite companies noless than the cable companies. Consequently, if notfor the Telecommunications Act’s prohibition on theimposition of local taxes on satellite services, thesatellite companies “certainly could have been”subjected “to the tangled regime of local taxation andfranchise fees” that applies to cable companies. SeeTreesh I, 487 F.3d at 481. Namely, by way of astatute akin to G. L. c. 166A, § 3, the Legislaturecould have forbidden the provision of video servicesby satellite without a license from a local authority.Cf. Commissioner of Corps. & Taxation v.Metropolitan Life Ins. Co., 327 Mass. 582, 584,99 N.E.2d 866 (1951) (excise tax on insuranceimposed “for the privilege of doing business in thisCommonwealth”).

13 At his deposition, a representative of CharterCommunications Inc. defined a franchise fee as “a fee toauthorize [the company] to do business in [a] community,” paidas compensation both for “using the public right-of-way” and for“being authorized to provide the service to customers.” Arepresentative of Comcast Corporation (Comcast) testified thata franchise agreement “allow[s] [Comcast] to operate within[an] area by selling its products and services.” Therepresentative agreed that the right to use public rights-of-wayis “one component of a franchise.”

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In our analysis of whether the cable andsatellite companies are subjected to “differentialtreatment . . . that benefits the former and burdensthe latter,” Oregon Waste, 511 U.S. at 99, 114 S.Ct.1345, we therefore consider the fact that each ofthese types of company is subject to uniqueobligations in connection with the privilege of sellingvideo programming services to Massachusettsconsumers.

ii. Differences between the obligations of thecable and satellite companies. The cable companies’local obligations and the excise tax imposed on thesatellite companies are different in two ways. First,the cable companies’ obligations are collectedpiecemeal by an assortment of local authorities,whereas the satellite companies pay the entirety ofthe excise tax to the department. Second, the cablecompanies’ local obligations are made up of severalcomponents determined via negotiations with eachlocality, including franchise fees, additionalpayments to support public-oriented programming,and services in kind. The excise tax, on the otherhand, is set at a uniform, flat rate.

These differences in the manners in which thecable and satellite companies are treated do notamount to actionable discrimination if they do notimpose a greater burden on the satellite companies.See Oregon Waste, 511 U.S. at 99, 114 S.Ct.1345.These differences also are not discriminatory if theyare rooted in meaningful differences between the twotypes of company. See Tracy, 519 U.S. at 298, 117

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S.Ct. 811.14 We conclude that, on the summaryjudgment record, the satellite companies have “noreasonable expectation” of proving a discriminatoryeffect; there is thus no genuine issue of material fact,see HipSaver, Inc. v. Kiel, 464 Mass. 517, 522, 984N.Ed.2d 755 (2013) (HipSaver), quotingKourouvacilis v. General Motors Corp., 410 Mass.706, 716, 575 N.E.2d 734 (1991), and the departmentis entitled to judgment as a matter of law.

A. Method of collection. We examine first thedivergent manners by which payments for theprivilege of doing business in Massachusetts arecollected from cable and satellite companies,respectively. As previously described, the excise taxis collected in its entirety by the department,whereas the cable companies owe varyingobligations to each of the localities in which theyoperate. This instance of differential treatment,

14 The bare existence of differences between the satellite andcable companies would not alone defeat allegations ofdiscrimination, because a statute does not “need to be draftedexplicitly along [S]tate lines in order to demonstrate itsdiscriminatory design.” Amerada Hess, 490 U.S. at 76, 109S.Ct. 1617. Differences between entities render regulationnondiscriminatory only if they represent substantive reasons totreat the entities differently, rather than proxies forgeographical distinctions. See West Lynn Creamery, Inc. v.Healy, 512 U.S. 186, 201, 114 S.Ct. 2205, 129 L.Ed.2d 157(1994) (West Lynn Creamery), quoting Best & Co. v. Maxwell,311 U.S. 454, 455-456, 61 S.Ct. 334, 85 L.Ed. 275 (1940) (“Thecommerce clause forbids discrimination, whether forthright oringenious. In each case it is our duty to determine whether thestatute under attack, whatever its name may be, will in itspractical operation work discrimination against interstatecommerce”).

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rather than burdening the satellite companies, isadvantageous to them. The excise tax provides astreamlined method of collection, far lesscumbersome than the cable companies’ assortment oflocal obligations.

Congress conferred this benefit on the satellitecompanies by design in the Telecommunications Act.Section 602(a) of that statute states that “[a]provider of … satellite service shall be exempt from… any tax or fee imposed by any local taxingjurisdiction on direct-to-home satellite service.” 110Stat. at 144. The phrase “tax or fee” is defined toinclude a number of different types of taxes,including any “privilege tax” and any “fee that isimposed for the privilege of doing business.”Telecommunications Act § 602(b)(5), 110 Stat. at145. On the other hand, the same section states thatit “shall not be construed to prevent taxation of aprovider of … satellite service by a State.” Telecom-munications Act § 602(c). 110 Stat. at 145.

The decision to excuse the satellite companiesfrom burdensome dealings with local authorities wasrooted in the characteristics of their operations.“Congress’s intent ... was not to spare the [satellite]providers from taxation as such, but to sparenational businesses with little impact on localresources from the administrative costs and burdensof local taxation.” DirecTV, Inc. v. Treesh, 290S.W.3d 638, 643 (Ky. 2009), cert. denied, 558 U.S.1111, (2010) (Treesh II). This objective was explainedon the floor of the House of Representatives byCongressman Henry Hyde:

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“[Satellite companies] utilize satellitesto provide programming to theirsubscribers in every jurisdiction. Topermit thousands of local taxingjurisdictions to tax such a nationalservice would create an unnecessaryand undue burden on the providers ofsuch services .... The power of theStates to tax this service is not affectedby [Telecommunications Act §] 602.”

142 Cong. Rec. H1145, H1158 (Feb. 1, 1996). See W.Hellerstein, State Taxation ¶4.25[1][1] (3d ed. 2014)(“Congress was concerned with burdening [satellite]providers with the requirement of complying withtaxes in thousands of local taxing jurisdictions. Thiswas the rationale for preempting local, but not[S]tate, taxing authority” [emphasis in original]). Insum, the divergent methods by which payment forthe privilege of doing local business is collected fromthe cable and satellite companies are bothadvantageous to the satellite companies and rootedin the different operational methods employed by thetwo types of company.

B. Method of calculation. We turn to thedifferent methods by which the obligations of thecable and satellite companies are calculated.Whereas the satellite companies’ services are subjectto a flat tax rate of five percent of gross revenues,the cable companies’ obligations are composed of (a)franchise fees, running to approximately three tofive per cent of gross revenues; (b) additional fees,used to support public-oriented programming,averaging 1.09% of gross revenues; (c) services,

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facilities, and equipment for the use of public,educational, and governmental channels; (d) freevideo programming services delivered to municipalbuildings, schools, and libraries; and (e)requirements imposed by local governmentsconcerning service quality and customer service. Onthe basis of these facts, the satellite companies donot have a “reasonable expectation” of proving thattheir obligations are more burdensome than those ofthe cable companies.15 See HipSaver, 464 Mass. at522, 984 N.E.2d 755. This is particularly so giventhat no affidavits or other evidence has beensubmitted that might shed light on the value of thein-kind services that cable companies provide to localgovernments.

Moreover, even if the satellite companies wereable to show some discrepancy between the amountscharged to them and to the cable companies,respectively, this discrepancy would be permissiblyattributable to important differences between thecable and satellite industries, some of which we havealready discussed.

15 Implicit in the satellite companies’ argument is theassumption that because they, unlike the cable companies, donot use local rights-of-way, the Legislature is required toimpose a heavier tax burden on the cable companies. Asexplained by the United States Court of Appeals for the SixthCircuit, however, “States and local government are under nomandate to charge for the use of local rights-of-way; this isreadily apparent from the fact that not every road is a toll road..... The provision of access to the [S]tate infrastructure free ofcharge is an acceptable option that the [S]tate may exercise.”Directv, Inc. v. Treesh, 487 F.3d 471, 479 (6th Cir. 2007), citingWest Lynn Creamery, 512 U.S. at 199 n.15, 114 S.Ct. 2205.

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For one, franchise fees are, as noted, cappedby Federal law at five per cent of gross revenue. See47 U.S.C. § 542(b) (2012). Massachusetts law doesnot require that cable’s franchise fees be any lower.It follows that if the cable companies’ obligations tolocal governments amount to a lighter burden thanthe satellite companies’ excise tax, this discrepancyresults from certain localities’ consent to reducefranchise fees from the statutory maximum. In thissense, any benefit to the cable companies resultsfrom the fact that they are required, unlike thesatellite companies, to negotiate separatearrangements with an array of local governments. Inturn, this difference between the treatment of thecable and satellite companies is rooted, as we haveexplained, in the different nature of thesebusinesses, namely in the fact that the cablecompanies, unlike the satellite companies, cannotavoid interface with local governments. See TreeshII, 290 S.W.3d at 643.

As the department argues, another differencebetween the cable and satellite companies’ respectiveoperations would support the imposition of asomewhat lower tax rate on cable. This differencelies in the respective regulatory regimes to which thetwo types of company are subject.

When the technology for satellite provision ofvideo programming became available in the 1980s,the Federal government “concluded that the publicinterest is best served by a flexible regulatoryapproach.” 2 D.L. Brenner, M.E. Price, & M.I.Meyerson, Cable Television and Other NonbroadcastVideo, Law and Policy, § 15:5 (2014). Accordingly,

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the satellite industry was subjected to “regulatoryrequirements [that are] minimal .… This approachallows [satellite] operations to experiment withservice offerings and methods of financing. Few rulesexist.” Id. See 2 C.D. Ferris & F.W. Lloyd,Telecommunications Regulation: Cable,Broadcasting, Satellite, and the Internet¶ 20.04[5][b], at 20-9 (rev. ed. 2014).

Cable, on the other hand, a veteran industrywith well-established methods of operation, has longbeen subject to an extensive scheme of Federalregulation. See 1 C.D. Ferris & F.W. Lloyd,Telecommunications Regulation: Cable,Broadcasting, Satellite, and the Internet ¶5.04[1], at5-5 (rev. ed. 2014) (discussing development of cablein 1940s and 1950s); id. at ¶5.04[3][b], at 5-7 (rev.ed. 2014) (discussing origins of cable regulation in1960s). Among other things, cable companies mustcomply with standards concerning the technicaloperation and signal quality of their programming.See 47 U.S.C. § 544(e) (2012); 47 C.F.R. §§ 76.601-76.640 (2013). They are subject to minimumstandards for office hours, telephone availability,installations, outages, service calls, and billing. See47 U.S.C. § 552(b) (2012); 47 C.F.R. § 76.309 (2013).They are required to enable their customers toreceive emergency information. See 47 U.S.C.§ 544(g) (2012). They must provide subscribers witha device that permits the subscribers to limit accessto certain channels, see 47 U.S.C. § 544(d)(2) (2012),and they may be forbidden by localities to provideaccess to channels that carry obscene content. See 47U.S.C. § 544(d)(1) (2012).

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In addition, the rates for the provision of basiccable services are determined by Federalregulations, unless the Federal CommunicationsCommission finds that these services are subject to“effective competition.” See 47 U.S.C. § 543(a)(2)(2012); 47 C.F.R. §§ 76.901-76.990 (2013). Cablecompanies may not discriminate between different“tiers” of subscribers in the provision ofprogramming offered on a per-channel or per-program basis. See 47 U.S.C. § 543(b)(8)(A) (2012).With some exceptions, cable companies are requiredto operate a geographically uniform rate structure.See 47 U.S.C. § 543(d) (2012).16

The divergent regulatory regimes that governthe cable and satellite companies’ respectiveoperations are relevant to the selection of the taxobligations to which these companies are subjected.Cf. Tracy, 519 U.S. at 295-297, 300-301 (consideringregulatory obligations of local utility companies);National Ass’n of Optometrists & OpticiansLensCrafters, Inc. v. Brown, 567 F.3d 521, 526-527(9th Cir. 2009) (considering regulatory obligations ofoptometrists and ophthalmologists). The rate of theexcise tax permissibly may allow for the fact that

16 In addition, cable companies are required to devote a greaterpercentage of their channel capacity to public, educational, andgovernment programming than satellite companies are. See 47U.S.C. §§ 335, 531, 534, 535 (2012). Compare 1 C.D. Ferris &F.W. Lloyd, Telecommunications Regulation: Cable,Broadcasting, Satellite, and the Internet ¶ 7.15[2], at 7-40 (rev.ed. 2014), with 2 C.D. Ferris & F.W. Lloyd,Telecommunications Regulation ¶ 20.4[6][c], at 20-11 (rev. ed.2014).

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satellite companies do not bear the additionalregulatory burdens imposed on cable companies. TheLegislature also permissibly may wish to support theprovision of cable services, in order to ensure thatthis regulated product remains available toMassachusetts consumers. See Treesh I, 487 F.3d at481 (Kentucky may have sought to support viabilityof cable “for reasons entirely unrelated togeography—for example, that cable providers oftenprovide [I]nternet access as well, that cableproviders are more likely to provide public accesschannels, etc.”).

In summary, given the nuances of thedivergence between the ways in which the cable andsatellite companies are treated, examined in light ofthe differences between the ways in which these twotypes of company do business, the satellitecompanies have no reasonable expectation of provingthat the excise tax discriminates against interstatecommerce in its effect. See HipSaver, 464 Mass. at522, 984 N.E.2d 755. No genuine issue of materialfact was presented, therefore, and the departmentwas entitled to judgment as a matter of law.

b. Discriminatory purpose. The satellitecompanies contend also that the excise tax isunconstitutional because it is discriminatory in itspurpose. This argument relies almost entirely onlobbying materials prepared on behalf of the cable

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industry.17 For instance, a letter sent by cablelobbyists to members of the Legislature read, in part:

“Satellite TV companies have longenjoyed a one-way relationship withMassachusetts, selling their servicehere but giving almost nothing back.Unlike cable companies, satelliteproviders pay no personal property orreal estate taxes.... Nor do satellitecompanies make investments in theeconomy or community, as cableproviders do. Comcast alone, forexample, employs more than 5,000people in Massachusetts who collectmore than $336 million in salary andbenefits.”

The satellite companies assert that lobbying effortsof this nature indicate that the excise tax wasintended to reward the cable companies for theircontributions to the Commonwealth’s economy. Weconclude that the summary judgment record doesnot support a reasonable expectation that adiscriminatory purpose could be proved. SeeHipSaver, 464 Mass. at 522, 984 N.E.2d 755.

17 The satellite companies point also to the testimony of a high-ranking satellite company executive who asserted at depositionthat he had been told by members of the Legislature that theywould vote for the excise tax, at least in part, because of thecable industry’s “significant local presence.” Like the SuperiorCourt judge, we ascribe little significance to this vaguetestimony.

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“It is well settled that a statute is presumed tobe constitutional, and every rational presumption infavor of its validity is to be made.” Cote-Whitacre v.Department of Pub. Health, 446 Mass. 350, 367, 844N.E.2d 623 (2006). See Commonwealth v. King, 374Mass. 5, 16, 372 N.E.2d 196 (1977). For the reasonspreviously explained, the excise tax is understoodmost naturally as an element of a balanced schemeof taxation that imposes corresponding burdens,different in nuanced and rational ways, on the cableand satellite companies. The burden of establishingthat the statute was motivated not by this legitimategoal, but rather by a discriminatory purpose, isnecessarily difficult to carry. See Treesh I, 487 F.3dat 480 (affirming dismissal of discrimination claimwhere, “[w]hile a purpose of the [statute] might havebeen to aid the cable industry rather than thesatellite industry ... there were clearly many otherpurposes,” including “collecting taxes from thepreviously untaxed, burgeoning satellite industry”).

The evidence offered by the satellitecompanies does not suffice to carry this burden. Inthe context of statutory interpretation, we havecautioned against “confus[ing] the intention of theprivate proponents of legislation with the intentionsof the legislative body that enacted the statutorychange, to the extent we may ascertain them. Theyare not necessarily the same.” Commonwealth v.Ray, 435 Mass. 249, 257 n. 15, (2001). The UnitedStates Supreme Court similarly has explained that:

“Legislative history is problematic evenwhen the attempt is to draw inferencesfrom the intent of duly appointed

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committees of the [Legislature]. Itbecomes far more so when we consultsources still more steps removed ... andspeculate upon the significance of thefact that a certain interest groupsponsored or opposed particularlegislation.”

Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 120,121 S.Ct. 1302, 149 L.Ed.2d 234 (2001), citing Kellyv. Robinson, 479 U.S. 36, 51 n. 13, 107 S.Ct. 353, 93L.Ed.2d 216 (1986). We cannot assume, in otherwords, that the Legislature embraced the reasonsexpressed by private interests, such as lobbyists forthe cable companies, merely because those interestsadvocated vocally for a statute.18

Moreover, the lobbying materials identified bythe satellite companies also make repeated referenceto the goal of “tax parity.” Written testimony by acable industry executive before a committee of theLegislature stated, for instance, that the excise taxwould “ensure[ ] that the overall level of taxation isequal among video providers, so that allmultichannel video providers operate on a levelplaying field…. Tax parity ensures fair competitionand true consumer choice.” Other communicationsstressed that, before the 2010 appropriations act waspassed, the satellite companies paid no taxcorresponding to the franchise fees paid by cable

18 A representative of DIRECTV, LLC acknowledged at hisdeposition that his company does not know whether the cablecompanies’ lobbying materials had an impact “on anyindividual legislator” or “on the Legislature as a whole.”

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companies. A letter to legislators from the NewEngland Cable and Telecommunications Associationstated that the excise tax would create a“competitively neutral tax policy for the delivery ofvideo signals,” and described the tax as “expandingthe [five per cent] franchise fee to include satellitecompanies.” These facts further weaken thesuggestion that the Legislature was motivated bysympathy for in-State interests as such.

The conclusion that the excise tax was notintended to confer a special disadvantage on thesatellite companies is reinforced by the context inwhich the tax was enacted. As mentioned, inaddition to creating the excise tax, the 2010appropriations act also imposed a personal propertytax on “[p]oles, underground conduits, wires andpipes of telecommunications companies.” St. 2009, c.27, § 25, amending G.L. c. 59, § 18. This provisionincreased Comcast’s annual tax obligations byapproximately $5.1 million. It also resulted, in 2010,in a tax assessment of approximately $29.8 millionagainst Verizon. Verizon employs approximately9,500 people in Massachusetts, 4,000 more than thecable companies. These facts support the conclusionthat the excise tax was not intended to discriminateagainst interstate commerce, but rather was part ofan effort to increase, across the board, the amount oftax revenue collected from the video programmingindustry.

Judgment affirmed.

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APPENDIX B

COMMONWEALTH OF MASSACHUSETTS

SUFFOLK, ss. SUPERIORCOURT CIVILACTIONNO: 10-0324-BLS1

DIRECTV, LLC and DISH NETWORK, L.L.C.

v.

THE COMMONWEALTH OFMASSACHUSETTS, DEPARTMENT OF

REVENUE

MEMORANDUM OF DECISION AND ORDERON PLAINTIFFS DIRECTV, LLC AND DISH

NETWORK L.L.C.’S MOTION FOR SUMMARYJUDGMENT, DEFENDANT’S CROSS-MOTION

FOR SUMMARY JUDGMENT, ANDDEFENDANT’S MOTION TO STRIKE

CERTAIN OF PLAINTIFFS’ STATEMENT OFMATERIAL FACTS FOR NONCOMPLIANCE

WITH RULE 56(e)

In this action the plaintiffs, DIRECTV, LLCand DISH NETWORK, L.L.C. challenge theconstitutionality of G.L. c. 64M, §1 et seq., the so-called “satellite tax,” as violating the CommerceClause of the United States Constitution and theEqual Protection Clauses of the United States andMassachusetts Constitutions. Now before the Courtare cross-motions for summary judgment, and thedefendant’s motion to strike certain statements of

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material fact. Both sides agree—as, on the recordbefore me, do I—that the issues can be decided as amatter of law.

For the following reasons, the plaintiffsmotion for summary judgment is DENIED; thedefendant’s motion for summary judgment isALLOWED; and the defendant’s motion to strike isDENIED as moot.

BACKGROUND

The record reveals the following facts, whichare largely undisputed. Pay television (“pay-TV”), ormulti-channel video programming, provides thesubscriber with multiple shows, movies, sportingevents, news channels, and more. Massachusettsresidents wishing to subscribe to pay-TV typicallyhave two options. They can order their service from acable provider that assembles its programmingpackages in Massachusetts and distributes themthrough a local cable infrastructure (“cable TV”).1 Asan alternative, they can order the service through aprovider that assembles its programming packagesoutside Massachusetts and beams its signals directlyto subscribers’ homes by way of orbiting satellites(“satellite TV”).

1 The major cable providers are Comcast Corporation andCharter Communications, Inc., which are cable televisionproviders, and Verizon Communications Inc. which is a wire-line telephone company. Verizon is not meaningfully differentfrom the cable companies in terms of local assembly andground-based distribution of Verizon pay-TV service.

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Plaintiff DIRECTV is a limited liabilitycompany headquartered in El Segundo, California.Plaintiff DISH is a limited liability companyheadquartered in Englewood, California. Bothplaintiffs offer pay-TV programming to customers inMassachusetts and throughout the United States viasatellite. Satellite TV uses uplink centers to gather,merge, and encrypt television programming signals.DIRECTV’s uplink centers are in Cheyenne,Wyoming, and Gilbert, Arizona; DISH’s are nearCastle Rock, Colorado, and Los Angeles, California.Each uplink center has its own “farm” of satellitedishes, studio equipment, and staff of trainedemployees. At the uplink, centers, content signalsare gathered, local advertising is inserted, and theprogramming packaged.

Satellite TV programming signals are thentransmitted from the uplink centers to satellites thatreside in geostationary orbit 22,300 miles above theEarth’s atmosphere. From these satellites in space,the programming signals are transmitted directly tosatellite TV customers, who receive the signals byway of a receiving dish mounted on or located neartheir homes. To gather local TV signals—that is,those from local broadcast stations such as WBZ orWHDH—the plaintiffs maintain local collectionfacilities in Massachusetts. These local collectionfacilities typically consist of a single room or closetcontaining receivers and antennas that gathercontent from local broadcast stations, and transmitthat content via fiber-optic cables leased fromtelecommunications service providers inMassachusetts to their uplink centers west of theMississippi. The fiber-optic cables that the plaintiffs

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lease for this purpose are also used by other personstransmitting data at the same time.

During the time frame at issue in this case,January 1, 2006 through December 31, 2010,DIRECTV had local collection facilities in fourMassachusetts cities; DISH had them in threeMassachusetts cities. These local collection facilitiesare maintained by DIRECTV or DISH employeesand/or by independent contractors. Because theytypically consist of only a small room or closet, theyare not staffed on a daily basis.

Both plaintiffs use authorized local retailers tosell their products and services to Massachusettssubscribers. They also sell products and services atthe Massachusetts stores of national retailers, suchas Best Buy, Sears, BJ’s Wholesale Club, and Kmart,with whom they have distribution agreements.2

From January 1, 2007 through July 1, 2009,DIRECTV contracted with Halstead Com-munications and Multiband Corporation, each ofwhich has employees in Massachusetts, forinstallation, maintenance, and/or repair services forthose DIRECTV subscribers in Massachusetts. DISHcontracted with Prime Service Center, which hasemployees in Massachusetts, for similar services du-ring the same period.

DISH also used its subsidiary, DISH NetworkServices, LLC, for installation, maintenance and

2 Each plaintiff had distribution agreements with differentretailers.

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repair. DISH Network Services had 176 employeesin Massachusetts in 2006, 207 in 2007, 188 in 2008,178 in 2009, and 141 in 2010. From January 1, 2006,through December 31, 2010, DISH Network Servicesleased facilities in Massachusetts, which it used tostore office equipment and vehicles used forinstallation and repair. For that period, bothplaintiffs paid a yearly personal property tax inMassachusetts.

The plaintiffs spend millions of dollarsannually on assembly and distribution, largely onsatellites located in outer space and at their uplinkcenters. They also pay for the right to locate theirsatellites in outer space and transmit their signalsthrough the air using certain frequencies. These feesare paid to the federal government, not toMassachusetts or its local governments.

Cable TV providers, by contrast, use ground-based facilities, thousands of miles of cable, andthousands of Massachusetts-based employees todistribute their programming. All such programmingmust pass through terrestrial distribution points inMassachusetts called “headend” facilities, typicallybuildings of between 3000 and 4000 square feet.3

Large satellite dishes, usually between five andseven feet in diameter and located outside theheadend buildings, gather the cable programming

3 In 2010, for example, cable TV providers operated andmaintained more than 60 headend facilities in Massachusettsoperated by a staff of trained employees. These providers alsoused contractors to build and install new equipment in thefacilities.

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signals from the airwaves and transmit them tohundreds of receivers located inside the buildings.Once inside the buildings, these signals aremodulated, local advertising is inserted, and thecable programming is assembled into differentpackages.

Those packages are then distributed to cableTV subscribers through thousands of miles of fiber-optic and/or coaxial cable that is laid in trenches orhung from utility poles.4 The signals travel through“trunk” lines located several feet underground andthen distributed through “hubs” and “nodes” into“feeder” lines. Hubs and nodes are physical buildingsor cabinet devices that are maintained on aneighborhood-by-neighborhood basis. Ultimately,cable TV signals reach each subscriber’s homethrough a “drop” line running from the feeder line.This network of cables, hubs, nodes, and trunk,feeder, and drop lines are all located, under or aboveground, in Massachusetts.

Technologies and physical facilities aside,there is no dispute that both satellite TV and cableTV operate in a similar manner and provide pay-TVservice in a similar way. Both offer a variety ofprogramming packages. Both offer local broadcaststations. Both offer basic cable channels, such asCNN, ESPN and C-SPAN. Both offer premium cablechannels such as HBO and Showtime. Both offer

4 In 2011, cable TV providers used more than 30,000 miles offiber-optic and coaxial wire to distribute programming toMassachusetts customers, and used independent contractorsfor some aspects of construction.

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pay-per-view movies and events. Both offer on-demand programming services. Both offer musicchannel services. Both secure rights to distributeoriginal programming from content providers. Bothadvertise their services through the internet,television, direct mail, newspaper circulars, andbillboards.

Additionally, both cable TV and satellite TVuse call centers to respond to new customers andexisting customer inquiries. Both lease equipment tosubscribers, such as set-up boxes and digitalrecording devices. Both use employees and indepen-dent contractors for installation, maintenance, andrepair. Both pay Massachusetts taxes on theirpersonal property located within the Common-wealth, such as the set-up boxes and DVR devices.They pay corporate income taxes to Massachusetts,and collect and remit sales taxes on qualifying sale-purchase transactions in Massachusetts. Bothdesignate a certain percentage of their channelcapacity to public access, educational andgovernment programming. The parties do notdispute that the services are virtually identical, andthat customers view them as similar andsubstitutable. They agree that the typicalMassachusetts customer selects a service based onprice, customer service, reception quality, and thebreadth and types of programming offered.

The major players on both sides of thecontroversy are large interstate enterprises:DIRECTV is a corporation chartered in Californiaand headquartered in Segundo; DISH is chartered inColorado and headquartered in Englewood; Comcast

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is a Delaware corporation whose principal place ofbusiness is in Pennsylvania, and (as of 12/31/09)operated cable systems in 39 states; and CharterCommunications is a Delaware corporation,headquartered in Missouri, and operates in 27states.5

The major difference, and for the purposes ofthese motions the only relevant difference, betweensatellite TV and cable TV is the method by which thesignals are assembled and distributed to customers.The former uses satellites located in outer space; thelatter uses headends and an extensive web ofground-based equipment and cables all located inMassachusetts. The parties do not dispute that thesedifferent assembly and distribution systemstranslate into substantially different economicfootprints in Massachusetts. From 2006 to 2010,Massachusetts major cable companies spent morethan $1.66 billion on capital improvements, $303.3million in 2010 alone, including investments inheadend facilities, cable network, vehicles, andcustomer equipment. In 2010, major Massachusettscable companies employed almost 5000 people in theCommonwealth, with a combined payroll of $357million. The household spending of these employeescontributed an additional $274.4 million in economicactivity and supported more than 1,800 additionaljobs in other industries in Massachusetts.

5 The parties’ stipulation stops here, but it is judiciallynoticeable that the other major cable companies (Verizon, CoxCommunications, Time Warner Cable, and RCN) likewise areheadquartered outside of Massachusetts and have substantialregional or national footprints.

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The different assembly and distributionsystems also translate into different revenuestreams for local governments. To place cables underor above ground, and to provide cable services tocustomers in a particular locality, cable companiesmust secure permission from local governments, inexchange for which they pay franchise fees to thosemunicipalities in which they operate. The typicalfranchise fee is 3-5% of gross revenue from sales tosubscribers within any given area. In 2010 thisresulted in more than $63.3 million in revenue forcities and towns in Massachusetts. In addition to thefees, the typical, non-exclusive, franchise agreementrequires that the cable TV provider meet certainobligations, including: meeting service quality andcustomer service standards; setting aside channelsfor public, educational, and governmental channels;providing services, facilities, and equipment tolocalities to support those channels; and providingfree service to municipal buildings, schools, andlibraries. Massachusetts municipalities also imposean average charge of 1.09% above the franchise feefor the financial support of public, educational, andgovernment programming.

Satellite TV, on the other hand, hires farfewer employees; does not invest billions of dollars tobuild, service, or maintain facilities inMassachusetts; does not bargain for rights-of-way orpay franchise fees to local governments; and has noobligations to the local municipality similar to thoseof cable TV. While satellite TV providers still spendmillions annually on employment, assembly, anddistribution, that money is spent primarily at theproviders’ uplink centers, all located outside

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Massachusetts. The plaintiffs do hire independentcontractors in Massachusetts to maintain theircollection facilities and for installation, maintenance,and repair of their equipment.

The New England Cable & Telecom-munications Association (“NECTA”) is a regionaltrade association that represents the interests ofsubstantially all the private cable companies inMassachusetts. Beginning in 2008, NECTA startedlobbying for the imposition of an excise tax onsatellite TV providers to achieve tax parity withcable TV companies. NECTA representativesinundated legislators with written materials and in-person meetings, and NECTA’s president PaulCianelli, made statements to the press and thepublic to the effect that the satellite TV providersenjoyed a special tax exemption. In early June, 2009,NECTA created a website designed to engendersupport for the tax. Comcast joined NECTA’scampaign.

The thrust of NECTA’s argument was thatcable companies paid franchise fees, while satellitedid not, and that cable also paid substantiallygreater real and personal property taxes to localgovernment than satellite; there was therefore whatcable repeatedly called a “tax parity” issue.6 Some ofthe communications also mentioned the cable

6 Some of NECTA’s lobbying materials refer to the measure asthe “Massachusetts Tax Equalization Act.” Satellite, mean-while, was urging legislators to “Support Fair Taxation in theVideo Marketplace” by “Reject[ing] Senate Bill 1314.” (Jt. App.Ex. 47, 54)

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companies had a large real estate footprint andemployed thousands locally, see supra, whereas thesatellite companies had almost no real estate inMassachusetts and far fewer local employees.

On or about January 14, 2009, SenatorMichael Morrissey filed Senate Bill 1314, whichinitially proposed a 5% excise tax on both cable andsatellite providers, but allowed cable companies tooffset the tax with a credit for property taxes andfranchise fees. Cianelli drafted the language forSenate Bill 1314, with the help of NECTA’s outsidecounsel. At a hearing before the Joint Committee onRevenue on April 9, 2009, Cianelli proposed anamendment that would impose the 5% tax only onsatellite companies, not on cable companies. Arepresentative from the Satellite Broadcasting andCommunications Association testified in opposition.Senate Bill 1314 was never voted out of theCommittee.

Earlier, in July, 2008, the Legislature hadauthorized the formation of the Special Committeeon Municipal Relief as a joint bipartisan effort of theSenate and the House of Representatives to promotefiscal stability in the Commonwealth. NECTAlobbied members of the Special Committee torecommend the excise tax on their report to theLegislature. The Special Committee held a publichearing on December 3, 2008.

On May 8, 2009, the Special Committeereleased a report with recommendations, as well asdraft legislation, that would impose a 5% excise taxon both cable and satellite TV providers, and allowed

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a credit for cable TV companies for franchise fees.Lobbyists for NECTA and Comcast then campaignedto change the language of the proposed excise tax sothat it applied only to satellite TV providers. On May21, 2009, the Senate passed an amendment to theHouse Bill making appropriations for fiscal year2010 that imposed an excise tax of five percent ofgross revenues of satellite TV providers, but notcable TV providers.

Members of the Committee of Conferencefinalized the details and submitted theappropriations bill, HB 4129, to a vote by the Houseand Senate. HB4129 included the 5% excise tax onsatellite TV. The Legislature passed the bill on June19, 2009, and Governor Patrick signed the FY 2010General Appropriation Act, St. 2007, c. 27, into lawon June 29, 2009, with the satellite tax as one ofmany outside sections. See id., §61 (“FY 2010Appropriations Act”). The tax was codified as G.L. c.64M, Taxation of Direct Broadcast Satellite Service.7

7 General Laws c. 64M, § 2, the pertinent statutory provision, isentitled “Excise on direct broadcast satellite service; rate; timeof payment” and reads as follows:

An excise is hereby imposed upon the provisionof direct broadcast satellite service to asubscriber or customer by any direct broadcastsatellite service provider in an amount equal to5 per cent of the direct broadcast satelliteservice provider’s gross revenues derived fromor attributable to such customer or subscriber.A direct broadcast satellite service providershall pay the excise to the commissioner at thetime provided for filing the return required bysection 16 of chapter 62C.

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Between August 2, 2009, and November 30, 2010, itgenerated approximately $16,972,698 in revenue forthe Commonwealth.

The plaintiffs filed their Amended Complaintin this case on April 1, 2011, seeking a declaratoryjudgment to the effect that G.L. c. 64M, §1 et seq.violates the Commerce Clause of the United StatesConstitution (Count I); the Equal Protection Clauseof the United States Constitution (Count II); and theEqual Protection Clause of the MassachusettsConstitution (Count II). The gist of their CommerceClause argument is that the imposition of the taxhas a discriminatory effect in that it protects andenhances the Massachusetts economy at the expenseof interstate competition. They further argue thatthe Legislature enacted the excise tax with adiscriminatory purpose; that is, to reward cable TVproviders for their local economic activities and topenalize satellite TV providers for failing to investand operate in the Commonwealth. The tax, theplaintiffs contend, confers an unfair advantage oncable companies and a competitive disadvantage onsatellite companies, and is excessive in relation tothe local benefits bestowed by the cable providers.

With respect to their equal protection claims,the plaintiffs take the position that the satellite-onlytax serves no legitimate public purpose and thatthere is no rational basis for discrimination betweensatellite TV and cable TV. The only purpose of thedifferential treatment, according to the plaintiffs, isto serve the parochial economic interests of localcable companies and government entities. They seek,in addition to a declaratory judgment, a permanent

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injunction against the enforcement of the statute anda refund of taxes already paid.

Defendant Department of Revenue(“Department”) first responds that there is noviolation of the Commerce Clause where satellite TVand cable TV are not similarly situated. In thatrespect, the Department points out that the twosectors have different technologies, equipment,regulatory responsibilities, and fiscal obligations tolocal government. That satellite TV and cable TV arenot similarly situated, the Department argues,disposes of the plaintiffs’ claim of unlawfuldiscrimination against interstate commerce.Furthermore, the Department contends that theplaintiffs’ have failed to adduce sufficient evidencethat the Legislature purposefully discriminatedagainst satellite TV, where the clear purpose of theact was revenue generation at a time of fiscalconstraint, not economic protectionism. As to theplaintiffs equal protection claim, the Departmentasserts that the tax statute has a fair and rationalrelationship to the Legislature’s efforts to raise stateand local revenue. Finally, the Department arguesthat there can be no refunds absent a requestbrought before the Appellate Tax Board through thestatutory abatement process.

DISCUSSION

Summary judgment is appropriate where,viewing the evidence in the light most favorable tothe non-moving party, all material facts have beenestablished and the moving party is entitled tojudgment as a matter of law. Cabot Corp. v. AVX

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Corp., 448 Mass. 629, 636-637 (2007); Mass. R. Civ.P. 56(c). “The moving party must establish that thereare no genuine issues of material fact, and that thenonmoving party has no reasonable expectation ofproving an essential element of its case.” Miller v.Mooney, 431 Mass. 57, 60 (2000). See also Pederson v.Time, Inc., 404 Mass. 14, 16-17 (1989). When partiesfile cross-motions for summary judgment, the courtadopts what has been described as a “Janus-like”dual perspective to view the facts for purposes ofeach motion through the lens most favorable to thenonmoving party. Allstate Ins. Co. v. Occidental Int’l,Inc., 140 F.3d 1, 2 (1st Cir. 1998). Each of the movingparties bears the burden of affirmativelydemonstrating the absence of a triable issue as to itsrespective claim. Lev v. Beverly Enterprises-Massachusetts, Inc., 457 Mass. 234, 237 (2010).

1. The Commerce Clause

Article 1, §8, cl. 3. of the United States Con-stitution expressly authorizes Congress to regulatecommerce among the states. The Commerce Clauseis more than an affirmative grant of power, however;it also has a “negative sweep,” known as the“dormant” or “negative” Commerce Clause, by which“[a] State is ... precluded from taking any actionwhich may fairly be deemed to have the effect ofimpeding the free flow of trade between States.”8

8 This construction is not universally embraced, even in highplaces, but it is the law of the land. See General Motors Corp. v.Tracy, 519 U.S. 278, 312-13 (1997) (Scalia, J., concurring) andcases cited.

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Complete Auto Transit, Inc. v. Brady, 430 U.S. 274,278 n.7 (1977).

“The paradigmatic example of a lawdiscriminating against interstate commerce is theprotective tariff or customs duty, which taxes goodsimported from other States, but does not tax similarproducts produced in State.” West Lynn Creamery v.Healy, 512 U.S. 186, 193 (1997). The dormantCommerce Clause sweeps more broadly than this,however, and generally

prohibits economic protectionism—thatis, regulatory measures designed tobenefit in-state economic interests byburdening out-of-state competitors ....Thus, state statutes that clearlydiscriminate against interstatecommerce are routinely struck down…unless the discrimination isdemonstrably justified by a valid factorunrelated to economic protectionism.

Id. at 192 (invalidating order by MassachusettsDepartment of Agriculture imposing monetaryassessment on fluid milk, two-thirds of which wasproduced out of state, and distributing the proceedsto Massachusetts dairy farmers).

A dormant commerce clause challengerequires “a sensitive, case-by-case analysis of thepurposes and effects” of a regulatory measure “‘todetermine whether the statute under attack,whatever its name may be, will in its practicaloperation work discrimination against interstate

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commerce.’” Id. at 201 (citation omitted).Discrimination “simply means differential treatmentof in-state and out-of-state economic interests thatbenefits the former and burdens the latter.” OregonWaste Sys. v. Department of Envtl. Quality, 511 U.S.93, 99 (1994) (striking down surcharge for disposal ofsolid waste generated out of state).

A statute may discriminate against out-of-state interests in any of three ways: (1) it may bediscriminatory on its face; (2) it may have adiscriminatory effect; or (3) it may have adiscriminatory intent.9 See Amerada Hess Corp. v.Director, Division of Taxation, New Jersey Dep’t ofthe Treasury, 490 U.S. 66, 75 (1989). The burden ofestablishing unlawful discrimination is upon theparty challenging the validity of the statute.Lenscrafters, Inc. v. Robinson, 403 F.3d 798, 803 (6th

Cir. 2005). A law that discriminates in favor of in-state business and against its out-of-state, butotherwise similarly situated, competition is “virtuallyper se invalid,” and will survive only if it “advances alegitimate local purpose that cannot be adequatelyserved by reasonable nondiscriminatoryalternatives.” Kentucky Dept. of Rev. v. Davis, 553U.S. 328, 338 (2008) (upholding state income taxexemption for interest earned municipal bonds of in-state, but not out-of-state, issuers). “Absentdiscrimination for the forbidden purpose, however,‘the law will be upheld unless the burden imposed on[interstate] commerce is clearly excessive in relation

9 The plaintiff do not argue that the satellite tax statute isdiscriminatory on its face, and the Court agrees.

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to the putative local benefits.’” Id. at 338-339(citation omitted).

The purpose of the commerce clause is not torelieve those engaged in interstate commerce fromtheir just share of the state tax burden, even thoughit increases the cost of doing business. See, e.g.,Western Live Stock v. Bureau of Revenue, 303 U.S.250, 254 (1938). Nor are states prohibited from“structuring their tax systems” in anondiscriminatory manner “to encourage the growthand development of intrastate commerce andindustry.” Boston Stock Exchange v. State TaxComm’n, 429 U.S. 318, 336-337 (1977) (sustainingchallenge to New York law imposing a greater taxburden on out-of-state securities sales than salesconducted within New York); see also West LynnCreamery, 512 U.S. at 199 n.15 (“it is undisputedthat States may try to attract business by creatingan environment conducive to economic activity”).

In this case, the satellite providers maintainthat the Satellite Service Tax discriminates againstinterstate commerce in both effect and purpose.

A. Discriminatory Effect

“Conceptually, of course, any notion ofdiscrimination assumes a comparison ofsubstantially similar entities.” General Motors Corp.v. Tracy, 519 U.S. 278, 299 (1997) (“Tracy”). Thethreshold question in making a determination as todiscrimination, therefore, is “whether the companiesare indeed similarly situated for constitutionalpurposes.” Id.; see Lenscrafters, 403 F.3d at 804. The

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plaintiffs argue that, because they operate in thesame market as cable TV providers, and are thuscompetitors, they are similarly situated forconstitutional purposes. The Department argues thatbecause satellite and cable have different structures,methods of operation, and regulatory obligations,they are not similarly situated. The Department hasthe better of the argument.

Tracy was a challenge to the application ofOhio’s general sales and use tax to interstate naturalgas transmission companies, where local distributioncompanies (“LDCs”) were exempt. The court observedthat LDCs were heavily regulated territorialmonopolies, burdened by “a typical blend oflimitation and affirmative obligation.” Each LDC wasrequired to submit annual forecasts of supply anddemand; to “comply with a range of accounting,reporting and disclosure rules”; to obtain PUCpermission before it could issue securities or enterinto certain contracts; to submit to detailedregulation of rates, termination of service, andbackup supply; and to serve all members of thepublic in its geographic territory withoutdiscrimination. 519 U.S. at 295-97.

The fact that the local utilities continueto provide a product consisting of gasbundled with the services and pro-tections summarized above, a productthus different from the marketers’unbundled gas, raises a hurdle forGMC’s[10] claim that Ohio’s differential

10 General Motors Corporation, a large consumer of natural gasfor its manufacturing plants in Ohio, purchased nearly all of it

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tax treatment of natural gas utilitiesand independent marketers violates our“virtually per se rule of invalidity” pro-hibiting facial discrimination againstinterstate commerce.

Id. at 297-98. That the two business modelscompeted, to a degree, for the same customers did notmean that the state could not differentially tax theirproducts. To the contrary, the court saw this asreason for concern that equating the highly regulatedLDCs, for tax purposes, with the comparativelyunregulated interstate marketers could “affect[] theoverall size of the JDCs’ customer base,” therebydegrading their ability “to serve the captive marketwhere there is no such competition.” Id. at 307.

The plaintiffs rely in large part on BacchusImports, LTD v. Dias, 468 U.S. 263 (1984); FamilyWinemakers of California v. Jenkins, 592 F.3d 1 (1stCir. 2010); and Island Silver & Spice, Inc. v.Islamorada, 542 F.3d 844 (11th Cir. 2008) to supporttheir contention that cable TV and satellite TV aresimilarly situated and so must be identically taxed.In all three of these cases, however, the courtsconcluded that the discriminatory statute orregulation was based entirely on protectionistdistinctions between in-state and interstatebusinesses. See Amerada Hess, 490 U.S. at 77 anddiscussion, infra.

directly from independent out-of-state marketers. 519 U.S. at285.

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In Bacchus, the United States Supreme Courtheld [sic] the Hawaii excise tax on liquor because itexempted okelehao and fruit wines. “Okelehao is abrandy distilled from the root of the ti plant, anindigenous shrub of Hawaii,” and pineapple winewas also manufactured locally. 468 U.S. at 265.There was clear legislative history demonstratingthat the reason for the tax exemptions was “‘toencourage and support the establishment of a newindustry” within Hawaii. Id. at 271. The tax exem-ption was thus discriminatory in both purpose andeffect.

Similarly, in Family Winemakers, the FirstCircuit struck down as discriminatory aMassachusetts statute that allowed only “small”wineries to obtain a license that allowed them to shipwine in three ways: directly to consumers, throughwholesalers, or through retail distribution. 592 F.3dat 4. “Large” wineries, by contrast, had to choosebetween applying for a license that allows them todistribute their product directly to consumers, ordistribute wine exclusively through wholesalers; theycould not do both. Id. All wineries in Massachusettsare “small,” in that they produce less than 30,000gallons of grape wine annually11; there are no “large”wineries in Massachusetts. Id. The Court held thatthe gallonage cap changed the competitive balance soas to benefit significantly the Massachusettswineries and burden significantly the out-of-statewineries, and that “[t]he advantages afforded to

11 There was legislative history suggesting that the exemptionfor non-grape fruit wine was inserted to prevent a particularMassachusetts winery from exceeding the 30,000 gallon limit.

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‘small’ wineries bear little relation to the marketchallenges caused by the relative sizes of thewineries.” Id. at 5. Added to this, as in Bacchus, wascompelling evidence of a protectionist purpose.12 Thismade the law “‘virtually per se invalid,” salvageableonly upon a showing that “‘it advances a legitimatelocal purpose that cannot be adequately served byreasonable nondiscriminatory alternatives.’” Id. at18-19, quoting Kentucky Department of Revenue v.Davis, 128 S. Ct. at 1808.

In Island Silver, a town ordinance restrictedso-called “formula” retailers (large retail chains) to acertain square footage and frontage, limited so as tobe incompatible with the large area that thesenationally branded retailers require. 542 F.3d at 846.The effect was to prevent the plaintiff, a local mixeduse retailer, from selling its real estate to a developerplanning to establish a Walgreen’s drugstore on thesame footprint. Id. at 845. The Eleventh Circuit heldthat the provision was subject to heightened scrutinybecause it effectively eliminated all new interstateretailers. Id. at 846-847. Although the purportedpurpose of the law—preserving a small towncharacter—was deemed “legitimate” in theory, thenumber of existing chain stores and dearth of historic

12 The statute replaced an earlier vision which explicitly madethe combined-distribution license available only to in-statewineries, and had recently been ruled unconstitutional. Thesponsor of the new legislation explained to the General Courtthat “‘with the limitations that we are suggesting in thelegislation, we are really still giving an inherent advantageindirectly to the local wineries.’” 592 F.3d at 12-13. See also thepreceding footnote.

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structures in the vicinity of Island Silver’s propertysupported the district court’s finding that“[Islamorada] has not demonstrated that it has anysmall town character to preserve,” and thus had“failed to provide a legitimate local purpose to justifythe ordinance’s discriminatory effects.” 542 F.3d at847-48.13

All three of these cases—none of whichinvolved explicit, or even very precise, discriminationbetween intra- and interstate commerce—mightfairly be regarded as close, were it not for the clarityof the legislative history. The present case isdifferent, however, in a more fundamental respect.The dormant Commerce Clause protects theinterstate market, not particular interstate films, oreven particular structures or methods of operationwithin a market. Exxon Corp. v. Governor ofMaryland, 437 U.S. 117, 127-28 (1978). Differentialtax treatment of different modes of operation is notunconstitutional, where the “different effect ... onthese two categories of companies results solely[from] the nature of their businesses, not from thelocation of their activities.” Amerada Hess, 490 U.S.at 78 (holding that state tax code denying deductionfor federal windfall profit tax on crude oil did not

13 Other stated justifications—encouragement of small scaleand water-oriented uses, preservation of the naturalenvironment, and avoidance of increased traffic congestion,litter, garbage and rubbish—were also rejected as inaptlyserved by the ordinance. The court was polite enough not toobserve that what the ordinance did serve tolerably well wasthe interests of the local business community.

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unconstitutionally favor local, independent retailersover large interstate oil companies).

It should come as no surprise, therefore, thatevery court to have considered the issue so far hasconcluded that the Commerce Clause does notprohibit differential taxation of providers that deliverprogramming by satellite as opposed to cable. See,e.g., DIRECTV, Inc. v. Treesh, 487 F.3d 471, 480 (6th

Cir. 2007) (“Treesh”), cert. denied, 552 U.S. 1311(2008); DIRECTV, Inc. v. North Carolina, 178 N.C.App. 659, 667 (2006) (“North Carolina”); DIRECTV,Inc. v. Levin, 128 Ohio St. 3d 68, 74 (2010), cert.denied, __ S. Ct. __ (6/25/12) (“Levin”); DIRECTV,Inc. v. Tolson, 498 F. Supp. 2d 784, 800 (E.D.N.C.2007) (dismissing the satellite companies’ complainton other grounds but citing with approval Treesh andNorth Carolina).

All four of these cases involved sales taxes,though they examined two distinct systems. In NorthCarolina and Levin, North Carolina and Ohio hadimposed a straightforward sales tax on satelliteproviders but not on cable providers. By the time ofthe Tolson decision, however, the North Carolinalegislature had overhauled the tax code so that bothcable and satellite companies paid sales tax at thesame rate, but cable providers were relieved ofpaying franchise taxes to the municipalities in whichthey operated; instead, the state distributed sales taxrevenues from cable and satellite providers to localgovernments, some of which had previously receivedfranchise revenues. The new North Carolina law wasvery similar to the Kentucky system earlier upheldin Treesh.

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All four courts rejected the satellite companies’challenges, reasoning that the dormant CommerceClause protects the interstate market for a particularproduct, but not the particular structure or method ofoperation in a retail market. Treesh, 487 F.3d at 480.Accord Levin, 128 Ohio St. 3d at 75; North Carolina,178 N.C. App. at 667-668. These courts have simplyapplied, to the pay TV industry, the holdings inAmerada Hess and Exxon that there is no violation ofthe Commerce Clause when differential taxtreatment has nothing to do with the geographicallocation of the companies or their economic activities,and everything to do with the manner by which theydistribute programming. See, e.g., DIRECTV v.Treesh, 469 F. Supp. 2d 425, 439 (E.D. Ken. 2006),aff’d, 487 F.3d 471, 480 (6th Cir. 2007). Althoughunder the Exxon rule, the dormant Commerce Clausewould prohibit discrimination against the interstatemarket for multichannel video programming, it doesnot prohibit a differentiation between programmersin that interstate market who deliver programmingby satellite and those who deliver by cable. Id. at440.

In the present case as in those, there can be nosuspicion that the tax in question was intended toprotect local pay-TV providers from out of statecompetition; all of the competitors—satellite andcable—are large out-of-state companies with regionalor national footprints. Moreover, although thesatellite and cable companies offer much the sameprogramming and thus compete for many of the same

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customers,14 they go about it with different modes ofoperation, using very different physicalinfrastructures, and operating in markedly differentregulatory environments, much as in Tracy. Itfollows that satellite TV and cable TV are notsimilarly situated for Commerce Clause purposes,and that the satellite tax does not discriminateagainst the satellite providers based on geography.

B. Discriminatory Purpose

The fact that cable and satellite providers arenot similarly situated effectively sidelines anyconcern over the purpose behind their differential taxtreatment. Nonetheless, the plaintiffs argue that theLegislature enacted the satellite-only tax with theintent to favor the local economy, thus purposefullydiscriminating against out-of-state interests inviolation of the Commerce Clause. See, e.g., AmeradaHess, 490 U.S. at 75. The evidence they have pro-vided of protectionist legislative intent, however, issingularly unconvincing.

The centerpiece of the plaintiffs’ argument ondiscriminatory intent consists of multiple commu-

14 Cable providers, of course, are limited to the cities and townsthat have granted them franchises. Satellite providers canreach all of these customers, and also those who live far beyondthe reach of cable. In any event, “[a]lthough competing indifferent markets or offering different products generallymeans that entities are not similarly situated, see Tracy, 519U.S. at 299, competing in the same market is not sufficient toconclude that entities are similarly situated, as Tracy madeclear.” National Ass’n of Optometrists v. Brown, 567 F.3d 521,527 (9th Cir. 2009).

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nications from NECTA, its lobbyist, and Comcast tomembers of the Legislature. Some of these arguethat cable had a larger economic footprint in theCommonwealth and made significant investment inMassachusetts in terms of jobs and infrastructure,while satellite did not—evidence, according to theplaintiffs, of discriminatory intent on the part of thelegislators thus lobbied.

Statements of lobbyists, however, can furnishonly the most attenuated and unreliable evidence oflegislative intent.

Legislative history is problematic evenwhen the attempt is to draw inferencesfrom the intent of duly appointedcommittees of Congress. It becomes farmore so when we consult sources stillmore steps removed from the fullCongress and speculate upon thesignificance of the fact that a certaininterest group sponsored or opposedparticular legislation.

Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 120(2001).

The statements offered up in this case here areexemplary of the problems with this sort of evidence.The “local jobs” pitch15 was made most directly in a

15 This and, even less directly, the references to infrastructureimprovements are the only arguments having even a whiff ofeconomic protectionism, and that only by proxy; the cablecompanies are no more local Massachusetts concerns than thesatellite companies are. Tax equity is not a protectionist

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letter sent by NECTA to every legislator, yet evenhere it is only one of several arguments for the tax:

Unlike cable companies, satelliteproviders pay no personal property orreal estate taxes. Unlike cable, they donot pay to support public andgovernment access channels. Andunlike cable, they do not provide freevideo service to municipal buildings andfree video and high-speed internet toschools and libraries.

Nor do satellite companies makeinvestments in the economy orcommunity, as cable providers do.Comcast alone, for example, employsmore than 5,000 people inMassachusetts who collect more than$336 million in salary and benefits.Over the past seven years, Comcast hasmade $1.8 billion in capital investmentsin Massachusetts while donating morethan $15 million to charity.

(Jt. App. Ex. 50, 51)[.]

purpose. Nothing in the record suggests that satellitecompanies are any less able than cable companies to providelocal access programming, video service to schools, librariesand other public buildings, and donations to charity, and evenif it were so, it would be a mode-of-operation issue, not aninterstate commerce issue.

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Other communications by NECTA, itsmembers, and its lobbyists with legislators, othergovernment officials and the public analyzed thelegality of the bill and repeatedly intoned, “Taxparity is the goal,” mentioning in-state jobs andinfrastructure improvements only in passing or notat all. (Jt. App. Ex. 37, 44, 45, 47-49, 52, 53, 61, 64-66, 69, 70, 72, 96)[.] To suppose from this evidencethat Massachusetts that [sic] the General Court as awhole—or even any individual legislator—voted forthe satellite tax as a jobs measure, as opposed to arevenue-raising and tax parity measure, is con-jectural to an impermissible degree.

The plaintiffs claim, however, to have it fromthe horse’s mouth, in the form of statementsreportedly made to Andrew Reinsdorf, senior vicepresident of government relations for DIRECTV, by“half a dozen to a dozen” legislators whose names hecannot remember. “My general recollection of thosemeetings,” Reinsdorf testified, “was that generallymost all of the legislators I met with, in part, relayedor expressed or voiced the view that cable has asignificant local presence; that cable does PEG[16]

programming; that cable employs lots of myconstituents.” He heard from someone else thatSenator Rosenberg was “particularly adamant” onthese issues. (Jt. App. Ex. 32 at 57-58, 61)[.]

Even putting aside the infirmities of thisparticular testimony, “statements attributed toindividual legislators as to their motives or mixtures

16 Public, educational and governmental.

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of motives in considering legislation are not anappropriate source from which to discover the intentof the legislation.” Administrative Justice of theHousing Court Dep’t v. Commissioner of Admin., 391Mass. 198, 205 (1984); accord, Finch v.Commonwealth Health Ins. Connector Auth., 461Mass. 232, 240 n.6 (2012); Boston Water & SewerComm’n v. Metropolitan Dist. Comm’n., 408 Mass572, 578 (1990).

Finally, the plaintiffs see evidence ofdiscriminatory intent in what they call a “backdoor”process and the Legislature calls “outside sections.”Although this device has been the subject of periodiccriticism from individual legislators, the otherbranches of government, and the citizenry, theSupreme Judicial Court has been

reluctant to reject the use of “outsidesections” as a means to enact amend-ments to general legislation. “This courttraditionally has avoided involvementin the internal workings of theLegislature in deference to the uniquerole of the Legislature and its expertisewith regard to internal legislativeprocesses.” “In these circumstances,mindful of the principle of separation ofpowers so carefully stated in art. 30 ofthe Declaration of Rights, this courtshould not infer specific constitutionalprocedures that the ... legislativebranch[] … must follow.”

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First Justice of Bristol Div. of the Juvenile CourtDept. v. Clerk-Magistrate of Bristol Div. of the BristolJuvenile Court Dept., 438 Mass. 387, 408 (2003)(citations omitted). Outside section or no, theproposed measure was no secret from the satelliteindustry (which lobbied against it) or, apparently,from its customers. (Jt. App. Ex. 54, 84)[.] Finally,the plaintiffs make no connection between the use ofthe outside section process and any supposed intentto discriminate against interstate commerce.

In short: the plaintiffs have not shown that thesatellite tax had any purpose beyond the obvious:raising revenue, by taxing an industry sector thatwas rationally viewed as undertaxed. Accordingly,where cable and satellite are not similarly situated,and where there is no evidence of discriminatoryeffect or purpose, the plaintiffs’ claim of a commerceclause violation fails.

2. Violation of the Equal ProtectionClause

The plaintiffs additionally argue that theimposition of satellite tax violates the EqualProtection Clauses of the Constitutions of the UnitedStates (Am. XIV) and Massachusetts (Arts. I, X)because it arbitrarily distinguishes between similarlysituated businesses without any rational basisrelated to a legitimate state policy. The analysis isthe same under both constitutions. Brackett v. CivilService Comm’n, 447 Mass. 233, 243 (2006). Absenta suspect classification or a fundamental right(neither of which is present here), however, there isno equal protection violation if the statutory

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distinction in question has a rational basis. Armourv. City of Indianapolis, ___, U.S. ___, 132 S. Ct. 2073,2080 (2012); Finch at 668-69.

‘“[C]reating classifications and distinctions intax statutes”’ is a domain in which ‘“[l]egislatureshave especially broad latitude.” Armour at 2080,quoting Regan v. Taxation With Representation ofWashington, 461 U. S. 540, 547 (1983). “So long asany basis of fact can be reasonably conceivedshowing that the distinction made by a tax statutehas a fair and rational relationship to the objectsought to be accomplished, the legislativeclassification is not violative of equal protectionprinciples.” Seiler Corp. v. Commissioner of Revenue,384 Mass. 635, 639 (1981).

The enactment of the satellite tax came at atime when Massachusetts was in the throes of afiscal crisis. The Legislature was faced with alooming revenue shortfall, and it chose, as a smallpart of the solution, to tax a sector whose existingregulatory and fiscal obligations to the sovereignwere reasonably perceived as modest when comparedto those of the rest of the pay-TV industry. This wasa plausible and entirely legitimate reason for the taxclassification. “[T]he legislative facts on which theclassification is apparently based rationally mayhave been considered to be true by the governmentaldecisionmaker, and the relationship of theclassification to its goal is not so attenuated as torender the distinction arbitrary or irrational.”Armour, supra. The plaintiffs’ claim of a violation ofthe equal protection clauses of both the United

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States Constitution and the Massachusetts Con-stitution therefore fails.

ORDER FOR JUDGMENT

For the forgoing reasons, plaintiffs DIRECTV,L.L.C. and DISH NETWORK, LLC’s Motion forSummary Judgment is DENIED. DefendantCommonwealth of Massachusetts, Department ofRevenue’s Motion for Summary Judgment isALLOWED.

Judgment shall enter, declaring that Chapter64M of the General Laws is lawful under Article 1,§8, cl. 3 of the United States Constitution (thecommerce clause) and under the equal protectionclauses of the Fourteenth Amendment to the UnitedStates Constitution and Articles I and X of theMassachusetts Constitution.

_________________________

Thomas P. Billings,Associate Justice

Dated: November 21, 2012

Documents

Supreme Court of the United States · facts of this case..... 23 II. The Decision Below Conflicts With This Court’s Established Precedent..... 25 A. Competing in the same market