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Analysis | ECJ A.G. Confirms Internal Market Rules Non-Applicable to Gamblng Sector

15 October 2008

By Philippe Vlaemminck

Annick Hubert, a lawyer with Vlaemminck & Partners, coauthored this article with Mr. Vlaemminck.

On Oct. 14, the French Advocate General, Yves Bot, delivered his opinion in the Portugal-Bwin Interactive Entertainment case, which addresses whether restrictions giving an Internet-based games of chance monopoly to a single company, Departamento de Jogos de Santa Casa da Misericórdia de Lisboa. Santa Casa, can be justified under the principle of the free movement of services within the European Union.

On the technical question of whether the Portuguese legislation covering Internet gambling is compatible with the so-called notification directive, the advocate general believes that this legislation is subject to notification in order to be applicable to Bwin. This question could mean that the actions of Portugal against Bwin are limited, although this issue has still to be adjudicated by the national court.

The core of the debate, reflected in the advocate general's opinion, addresses the fundamental questions at stake in this and many other cases. If the national court follows the opinion -- which they do in 90 percent of the cases -- the future of the online business becomes more uncertain than ever. In the past, I've warned the online sector that excessive and aggressive actions could lead to a more restricted market than presently exists -- it seems that the advocate general is indeed arguing in such direction.

During the hearing for the Bwin-Portugal case, the European Commission’s legal service was requested to reply to the member states' views that competition should not prevail in this sensitive area. The commission’s answer was clear: the commission itself is not seeking to establish a fully competitive market.

Advocate General Bot's opinion is in consonance with both the commission and the European member states, as he states explicitly that the aim of Community law is not to open up the market in gambling and games of chance. While competition only benefits consumers where they can benefit from products and services of better quality at a better price (competition being a source of progress and development), these advantages do not arise in the area of gambling and games of chance. By stating this so explicitly, he confirms what Advocate General Claus Christian Gulmann said many years ago in the Schindler case (1994).

In his opinion, Advocate General Bot emphasizes that an opening of the gambling market would increase the share of a family's budget spent on gaming, which means most families would reduce their resources. He argues that a member state should only be required to liberalize its gambling market if that member state treats games of chance and gambling as true economic activities intended to yield maximum profits.

Regarding the extension of Jogos de Santa Casa’s exclusive right to lotteries and off-course betting on the Internet, Advocate General Bot considers the maintenance of this right all the more justified as the risks to consumers and to public order are also, in his opinion, potentially greater with regard to online games than in relation to games offered in a traditional way. He concludes, then, that Portugal could legitimately restrict the freedom to provide lotteries and off-course betting on the Internet, in order to protect consumers and maintain public order.

However, on whether the issuance of an exclusive right to a single entity enables objectives -- like those listed in the Portuguese legislation -- to be attained only if that entity is under state control, Advocate General Bot takes a very doubtful stand.

He ascertains that the first condition to be verified by a national court -- in order to determine whether measures are appropriate for attaining their objectives -- is a member state's right to direct and control effectively the activities of the entity which has the exclusive right of operation. The second condition concerns whether a member state is distorting the purpose of the measures in seeking to obtain maximum profits.

Despite the efforts of Bwin and the Liga Portuguese de Futebol Profissional during the hearing and in their written observations, the advocate general is clearly of the opinion that their arguments -- as such -- do not show that Portugal is failing in its obligation to attain the objectives, underlying the restrictions imposed by its legislation, in a coherent and systematic manner.

The advocate general confirms yet again the principle of controlled expansion as developed in the Placanica case. He states that the aims of the Portuguese legislation in issue do not preclude the possibility of controlled expansion.

The extension of Jogos de Santa Casa’s monopoly to online gambling:

  • arises from the fact that it actually exists;

  • is in response to the wish to channel gaming into a legal framework in order to prevent its operation for fraudulent or criminal purposes;

  • as well as the wish to keep gaming revenue for financial social causes or causes of general interest

    The Portuguese government could legitimately take the view, then, that the increase in illegal gaming activity made it necessary to create new games of a social nature to satisfy Portuguese consumers’ desire to gamble, and to channel that desire into a legal framework. Furthermore, according to Advocate General Bot, the government was also justified in considering that the creation of new games could achieve that result -- only, however, if the creation of these games was accompanied by advertising on a certain scale to inform the public of their existence.

    Furthermore, the advocate general emphasizes that member states have the right to provide for different modes of organization -- which are more or less restrictive for each type of game -- given that the degree of protection against the risks connected with games of chance and gambling is at the discretion of the member states.

    "The national lottery, betting on horse races, casino gaming and slot machines may all constitute different games in respect of the place where they are accessible, their mode of operation and the public to whom they appeal, depending on the culture of each country," the advocate general opines.

    This is the first time an explicit distinction has been made between casinos and lotteries, whereby the advocate general acknowledges the fragmentation of the gambling sector (as previously recognised by the European Free Trade Association Court) for the purpose of the proportionality test, as established in the Gambelli ruling. Indeed, Advocate General Bot says that the coherent and systematic pursuit of the Portuguese legislation's objectives would be called into question only if the Portuguese government authorized the operation of Internet gaming similar to lotteries and off-course betting for which Jogos de Santa Casa has the right of operation. This question could only arise, for instance, if Portugal authorized companies holding a license to operate casino games similar in their mode of operation to those offered by the Santa Casa.

    Advocate General Bot, meanwhile, rejects the claim of Bwin and the Liga that it is necessary to ascertain whether the Portuguese legislation's aims can be achieved by a less-restrictive measure, like granting concessions to various operators. The advocate general, however, yet again takes a very hard line by stating that a member state may legitimately consider that fair play is secured more effectively by the grant of an exclusive right to an entity operating under the government’s control and which, like Jogos de Santa Casa, is charitable.

    This wording merely results from the underlying facts in this case, which concerns Jogos de Santa Casa being a charitable entity. However, in order to avoid all contradictory interpretations that may occur following these last paragraphs of his opinion, it would have been advisable for the advocate general to distinguish more clearly a charitable entity from an operator not maximising profits -- the latter being the rightful condition to be met in the frame of the proportionality test.

    Although the advocate general's opinion is not binding, it is nonetheless an important guide for the national court in this case. The opinion's impact on the European debate, moreover, is certainly important and could even oblige the European Commission to reconsider its position in the different infringement cases, if the national court would follow the opinion and decide that internal market rules cannot be applied as such.

     

    Reading Placanica: The Consolidation of Restricted Markets

    8 March 2007
    Although the Placanica case is an Italian referral (language of procedure: Italian), while the court's working language is French, this does not provide an excuse to the lawyers of the remote gambling operators for commenting on the judgment without having read it. Judgments of the European Court of Justice ... (read more)
    Philippe Vlaemminck
  • Philippe Vlaemminck