Legal Storm Brews over Germany

Germany has performed a near exorcism of its Internet gambling industry and companies are preparing to fight the ban.

While some hesitated, all 16 federal states on Dec. 18, 2007 voted to approve the new online betting laws, which the states negotiated after the Federal Constitutional Court ruled in 2006 that the former model was unconstitutional. The accord preserves the country's state monopolies on lotteries and sports betting, but outlaws online gambling from all other foreign and domestic sources.

Furthermore, the states may order Internet service providers to block Web sites of illegal betting operations and banks to stop money transfers to them. According to the rules, illegal gaming includes placing a Web-based bet from a German territory with a company based outside Germany.

Lower Saxony was the last federal state to ratify the treaty, but Schleswig-Holstein held off until almost the end, vociferously opposing the ratification of the treaty because it believed the law violated EU trade laws.

In the face of hesitation from Lower Saxony and Schleswig-Holstein and the threat of legal action from the European Commission, Parliament President Norbert Lammert called upon Scientific Services of the Parliament, a council of scientific experts which advises the parliament on certain legislative matters, to review the bill before putting it to a full vote, explained German gaming lawyer Wulf Hambach of Hambach and Hambach.

Hambach told IGN a Professor Casper, who heads the Scientific Services, gave clear evidence as to why the treaty should not be ratified.

Hambach, who represents about 20 online gambling companies who operate in Germany, said Casper showed that the ban would be in violation of EU law, specifically regarding freedom of services. But Parliament ignored his advice and proceeded with the vote to ratify the treaty.

The ban went into effect on Jan. 1, 2008 and lasts until 2011, and Hambach said he is already preparing to fight the ban in court, and companies such as bwin Interactive Entertainment AG, Fluxx AG and Tipp24 AG and gearing up for battle as well.

"The accord breaches EU law because it excludes foreign betting companies with EU licenses from the German market," Hambach said.

Bwin subsidiary bwin e.K. in November won a favorable ruling at the Administrative Court of Appeals in Hessen, which lifted a lower court ruling preventing the company from offering bets in the state. The decree, however, only allowed the company to operate in eastern Germany.

And Tipp 24 on Dec. 19 said in a prepared statement that it "doesn't see its business model jeopardized" because it expects the new rules to be overturned in court and that it regards the regulations "as clearly contrary to law and will sue for its rights if necessary."

The European Commission has already taken notice of Germany's regulatory ways. It called on Germany in 2006 when first mulling the rules to reconsider a total ban on online betting.

The commission is now free to issue a letter of formal notice, which is the first step in an infringement process, and Hambach said that is only a question of time.