Placanica: Strengthening the case for the Private Industry?

Though some interpret the Placanica decision as “consolidating and enhancing the practice of restricted markets," (such as Phillipe Vlaemminck, who on IGN argues thus), it is rather difficult to read this major decision by the European Court of Justice (the Court) as not strengthening the case for the private online gaming industry.

"I agree that this is 'a fair outcome,' as Mr. Vlaemminck asserts. However, I do believe that this decision will change the landscape of betting and gambling in the EU."

-Thibault Verbiest

From the very start of its legal argumentation (§42), the Court reiterates the limitations brought by the Gambelli judgment on the ability of Member States to restrict the free movement of services:

“In so far as the national legislation at issue in the main proceedings prohibits--on pain of criminal penalties--the pursuit of activities in the betting and gaming sector without a licence or police authorization issued by the State, it constitutes a restriction on the freedom of establishment and the freedom to provide services.”

This is a first (though confirmatory) step, strengthening the case for private gaming operators.

The Court goes on to repeat that those restrictions may be justified by imperative reasons of general interest when they satisfy the conditions laid down in the case-law of the Court as regards their proportionality.

The Court, referring to the Gambelli and Zenatti decisions, states that in view of the objective of reducing gambling opportunities, “the restrictions must in any event reflect a concern to bring about a genuine diminution of gambling opportunities and to limit activities in that sector in a consistent and systematic manner.”

This is a second confirmatory step, which further strengthens the case for private gaming operators.

Thirdly, and most decisively, since this the new argument brought forward by the ECJ, the Court states:

In view of the objective of preventing the use of betting and gaming activities for criminal or fraudulent purposes it is possible that a policy of controlled expansion in the betting and gaming sector may be entirely consistent with the objective of drawing players away from clandestine betting and gaming--and, as such, activities which are prohibited--to activities which are authorized and regulated. As the Belgian and French Governments, in particular, have pointed out, in order to achieve that objective, authorized operators must represent a reliable, but at the same time attractive, alternative to a prohibited activity. This may as such necessitate the offer of an extensive range of games, advertising on a certain scale and the use of new distribution techniques.

It is thus partially incorrect to state, as Mr. Vlaemminck does, that this is “the step forward in the jurisprudence into the direction of maintaining restrictions” and that this dismisses “the argument based upon a selective reading of Gambelli and used by several remote gambling operators that monopolistic environments can not be maintained when the concerned operator does expand, advertise, etc. . .”

Indeed:

whether offered by private or public operators (monopolies) the policy of games of chance must be, in the words of the Court, one of a controlled expansion, one that is regulated and that authorizes those which are reliable;
while it is true that the Court does not say that monopolies cannot be maintained when the concerned operator does expand, advertise and use new distribution techniques, it does not say that these monopolies are entitled to expand, advertise and use new distribution techniques without any consideration for the requirements of reliability and controlled expansion;
moreover, to be 100 percent objective, it does not say that about private operators for that purpose;
what the Court does say is that a licensing system can be seen as “an efficient mechanism enabling operators active in the betting and gaming sector to be controlled with a view to preventing the exploitation of those activities for criminal or fraudulent purposes.”

As regards the limitation of the total number of such licences, the Court states that it “does not have sufficient facts before it to be able to assess that limitation, as such, in the light of the requirements flowing from Community law."

It is interesting to note that it leaves with the referring courts the responsibility to both “determine whether, in limiting the number of operators active in the betting and gaming sector, the national legislation genuinely contributes to the objective invoked by the Italian Government, namely, that of preventing the exploitation of activities in that sector for criminal or fraudulent purposes" and “ascertain whether those restrictions satisfy the conditions laid down by the case-law of the Court as regards their proportionality.”

This can indeed be interpreted as meaning that if the Court had sufficient facts to be able to assess the limitation of number of licences in view of the proportionality principle, it would do so without referring back to national courts. Hence, it leaves the possibility open that it could, in the future, assess the consistency of the limitation of the number of licences with European Community law.

Concerning the access to such licences by foreign private gaming companies, the Court unequivocally states:

Even if the exclusion from tender procedures is applied without distinction to all companies quoted on the regulated markets which could be interested in those licences – regardless of whether they are established in Italy or in another Member State – in so far as the lack of foreign operators among the licensees is attributable to the fact that the Italian rules governing invitations to tender make it impossible in practice for companies quoted on the regulated markets of other Member States to obtain licences, those rules constitute prima facie a restriction on the freedom of establishment.
(…) that blanket exclusion goes beyond what is necessary in order to achieve the objective of preventing operators active in the betting and gaming sector from being involved in criminal or fraudulent activities. Indeed, as the Advocate General pointed out in point 125 of his Opinion, there are other ways of monitoring the accounts and activities of operators in the betting and gaming sector which impinge to a lesser extent on the freedom of establishment and the freedom to provide services, one such possibility being the gathering of information on their representatives or their main shareholders. Support for that observation is to be found in the fact that the Italian legislature believed it possible to repeal the exclusion completely by the 2003 Finance Law without, however, adopting other restrictive measures in its place.

What does all this mean in practical terms?

It simply means that a system whereby licences are available under a non-discriminatory tender can contribute to control the offer of betting and gaming in view of the above mentioned objectives of preventing the use of betting for criminal purposes.

Such a system would certainly allow foreign private operators to apply for a licence.

In this respect, the Placanica decison cannot be read other than as a step forward for the private online gaming industry, which has for years--most of the time, unsuccessfully--sought to obtain such licences from national auhtorities.

Though it is true that licensing requirements can lawfully limit market access in view of the objective sought by a member state, the Placanica decision can hardly be interpreted as “consolidating and enhancing restrictive markets," as Mr. Vlaemminck says. In view of the present situation, an open yet regulated licensing system--which is what the ECJ is talking about--would on the contrary allow greater access to national markets by private gaming operators.

Now, regarding the decision on the prohibition of criminal penalties, the Court states that “a member state may not apply a criminal penalty for failure to complete an administrative formality where such completion has been refused or rendered impossible by the state in infringement of Community law” (§69).

As Mr. Vlaemminck states, it is true that “this does not mean that in general member states can no longer apply penal sanctions to illegal operators” and that it is “only in the specific circumstances that a company is excluded without a valid reason under EU law from participation in a license tender process or any other available license allocation process that criminal sanctions cannot apply.”

However, in the view of the present situation:

where the legislation of most Member States excludes gambling operators from licence tender processes in total violation of Community law (since their policies can usually hardly be deemed as consistent and systematic ones, though, with the exception of Germany, few national courts have actually rendered decisions in this respect);
the legislation of other Member States does apply criminal sanctions, despite the fact that the administrative formality of obtaining a licence is impossible to complete.

This is a strong argument for the private online gaming industry, which can rely on the inconsistencies of Member States' policies in order to challenge the application of criminal sanctions.

Hence, I agree that this is “a fair outcome," as Mr. Vlaemminck asserts. However, I do believe that this decision will change the landscape of betting in gambling in the EU.