When a service is selecting which streams your client is granted a license to, if you claim L1 protection, the license request includes a signature from the GPU/chip doing the decryption, so the service will know whether your device only supports L3 software protection, or has a full chain of trust for the content and thus can protects against things like the user screen recording video content. Chances are the contracts rightsholders have with Netflix et al. require L1 for HD or UHD streams, and only allow L3 420p streaming (note that Netflix Originals seem to stream at 720p on L3, at least from what I've heard).