Thursday, September 09, 2010

A Landmark EU Ruling by the European Court of Justice on the Prohibition of Online Lottery Betting Services in Germany

Eric Pfanner at the New York Times reports on a landmark decision by the European Court of Justice, the highest court in the European Union, in E.U. Court Bats Down Germany’s Protection of Betting Monopolies.

The Grand Chamber [Plenary Session of 13 of the 27 Judges] of the Curia held in its judgment as follows :

"1. On a proper interpretation of Article 49 EC, an operator wishing to offer via the internet bets on sporting competitions in a Member State other than the one in which it is established does not cease to fall within the scope of the said provision solely because that operator does not have an authorisation permitting it to offer such bets to persons within the territory of the Member State in which it is established, but holds only an authorisation to offer those services to persons located outside that territory.
2. On a proper interpretation of Article 49 EC, where a regional public monopoly on sporting bets and lotteries has been established with the objective of preventing incitement to squander money on gambling and of combating gambling addiction, and yet a national court establishes at the same time:
–        that other types of games of chance may be exploited by private operators holding an authorisation; and
–        that in relation to other games of chance which do not fall within the said monopoly and which, moreover, pose a higher risk of addiction than the games which are subject to that monopoly, the competent authorities pursue policies of expanding supply, of such a nature as to develop and stimulate gaming activities, in particular with a view to maximising revenue derived from the latter;
that national court may legitimately be led to consider that such a monopoly is not suitable for ensuring the achievement of the objective for which it was established by contributing to reducing the opportunities for gambling and to limiting activities within that area in a consistent and systematic manner.
The fact that the games of chance subject to the said monopoly fall within the competence of the regional authorities, whereas those other types of games of chance fall within the competence of the federal authorities, is irrelevant in that respect.
3. On a proper interpretation of Article 49 EC, where a system of prior administrative authorisation is established in a Member State as regards the supply of certain types of gambling, such a system, which derogates from the freedom to provide services guaranteed by Article 49 EC, is capable of satisfying the requirements of that latter provision only if it is based on criteria which are objective, non‑discriminatory and known in advance, in such a way as to circumscribe the exercise of the national authorities’ discretion so that it is not used arbitrarily. Furthermore, any person affected by a restrictive measure based on such a derogation must have an effective judicial remedy available to them.
4. On a proper interpretation of Article 49 EC, national legislation prohibiting the organisation and intermediation of games of chance on the internet for the purposes of preventing the squandering of money on gambling, combating addiction to the latter and protecting young persons may, in principle, be regarded as suitable for pursuing such legitimate objectives, even if the offer of such games remains authorised through more traditional channels. The fact that such a prohibition is accompanied by a transitional measure such as that at issue in the main proceedings is not capable of depriving the said prohibition of that suitability."
This is a potentially important ruling for people who were accustomed to buying an online lottery ticket every now and then via private operators, but recently -- through a monopolistic federal German law -- were forced to walk down to the corner drugstore and buy a government-monopolized lottery ticket, because an online purchase from private operators was forbidden.

The EU court ruling does not prohibit Germany from outlawing online betting, or online lottery betting, but it does require the government to be consistent in its lawmaking with respect to betting services, which it has not been.

The German government alleged -- as the basis for prohibiting online lottery services by private operators -- that the online lottery betting prohibition as applied to private operators was made to prevent incitement to squander money on gambling and to combat gambling addiction.

At the same time, however, government operators were advertising the purchase of lottery tickets and developing new schemes to attract lottery money. Moreover, other kinds of betting and gambling, some much more addictive than the purchase of lottery tickets, were being tolerated by the government.

The fact is that the online lottery betting prohibition had been made to protect billion-euro government revenues earned from the government-sponsored lottery and to keep private operators from cutting into government revenues by offering online services.

The German prohibition also had the effect of prohibiting such services in other EU Member States.

The Curia holding in this regard refers to the operative Article 49 EC of the European Treaty which is the fundamental law of the European Union. As written at the page of the European Commission on the EU Single Market concerning General principles: Freedom to provide services / Freedom of establishment:
"The freedom of establishment, set out in Article 49 (ex Article 43 TEC) of the Treaty and the freedom to provide cross border services, set out in Article 56 (ex Article 49 TEC), are two of the “fundamental freedoms” which are central to the effective functioning of the EU Internal Market. 
These provisions have direct effect. This means, in practice, that Member States must modify national laws that restrict freedom of establishment, or the freedom to provide services, and are therefore incompatible with these principles. Member States may only maintain such restrictions in specific circumstances where these are justified by overriding reasons of general interest, for instance on grounds of public policy, public security or public health; and where they are proportionate.
Under the Treaties the Commission is responsible for ensuring that Community law, including Articles 49 and 56, is correctly applied. As the guardian of the Treaty, the Commission has the option of commencing infringement proceedings against a Member State which they believe to be incompatible with Community law.
The recently adopted Services Directive aims to create a legal framework for ensuring that both service providers and recipients benefit more easily from the fundamental freedoms guaranteed in Articles 49 and 56 of the Treaty. The directive complements existing Community instruments and its provisions are, to a large extent, based upon the case law of the European Court of Justice...."
The European Court of Justice in its holding has now essentially said that Germany can not justify its online betting prohibition by the excuse that it is protecting its population from the evils of gambling, while at the same time it is permitting other kinds of gambling and is itself profiting from that gambling and is actively propagating it for its own benefit, excluding similar private services to be offered in EU Member states.

Germany, therefore, has no legal alternative but to adopt consistent standards, whatever they may be, but it can no longer maintain a government-owned monopoly on betting services, online or off.
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