Competition law – the next major battleground for private operator challenges?

1. Competition law – the next major battleground for private operator challenges? Thibault Verbiest Senior Partner, ULYS law firm Member of the Paris and Brussels Bars European Gambling Briefing Brussels

2. Content • Introduction: the situation up to now • EC competition rules • Obligations on undertakings: article 81 & 82 • Obligations on Member States: article 86 (1) as a tool to challenge national gambling operators • Concessions under Community law • Conclusion

3. Internal Market complaints • Legal basis for complaints: art.49 EC Treaty ► freedom to provide services • Gambling services = services (Schindler) • Possible restrictions for imp.reas.gen.int (consumer protection, fight against fraud) + proof of a consistent gaming policy (Gambelli).

4. Internal Market complaints • Drawbacks • Commission case-by-case assessment: art. 226 EC Treaty ► ECJ only last resort • No legal certainty: discretionary power to investigate complaints • Time consuming: internal market ► 25 commissioners unanimity

5. From internal market complaints to competition law… • Some operators turn to competition law • Private operators confronted to national monopolies which enjoy protection through exclusivity: Française des Jeux, Holland Casino, Coni etc… • Competition issue: monopoly, exclusivity ► market power ►dominance►possible abuse of dominant position • Less time consuming ► no unanimity required to investigate complaint • DG competition enjoys large powers

6. EC Competition rules • Article 3 (g) EC Treaty: the activity of the Community shall be to institute a system ensuring that competitionin the internal market is not distorted. • Article 4: the activities of the Member States and the Community shall be conducted in accordance with the principle of an open market economy with free competition. • Article 10 ► obligations on Member States to take all appropriate measures to ensure fulfilment of the obligations arising out of the Treaty / to abstain from any measure which could jeopardise the attainment of the objectives of the Treaty. • Article 81 & 82: obligations on undertakings • Article 86: obligations on Member States

7. Obligations on undertakingsunder competition rules • Article 81 EC Treaty prohibits “agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market.”

8. Article 81 • Up till now, article 81 not the proper tool to challenge national gambling operators: would mean that national gambling operators agree for example to apply dissimilar conditions to equivalent transactions with other parties, thereby placing them at a competitive disadvantage (article 81.1 (d)) • Why? In general national operators do not enter into collusive conduct • There is usually only one operator► no agreement (!) • If there are several national operators, they do not compete on the same markets► no interest in collusive conduct ►eg, FDJ operates on lotteries and sports betting market / PMU on horse betting.

9. Obligations on undertakings under competition rules • Article 82 EC Treaty “ Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market insofar it may affect trade between MS.”

10. Article 82 • Article 82 applies to the unilateral conduct of a dominant firm ► national gambling operators often enjoy significant market power ► monopolies, exclusive rights ►may lead to abuses ► eg,extension of dominanceto the internet • Monopolies are subject to art.82 (Case ERT v Dimotiki). • Art.82 may be a useful tool to challenge national gambling operators.

11. Obligations of Member States under competition rules • Article 86 (1) “ In the case of public undertakings and undertakings to which Member States grant special or exclusive rights, Member States shall neither enact nor maintain in force any measure contrary to the rules contained in this Treaty, in particular to those rules provided for in article 12, and articles 81 to 89.” • Article 86 (1) : direct effect

12. Article 86 (1) • Article 86 seems most adequate tool to challenge national gambling operators: why? • National gambling operators are often public undertakings (eg, FDJ owned at 72% by the French State) or undertakings to which MS grant special or exclusive rights (eg, a body granted a monopoly for the provision of gambling services) • Art.86 has a large scope of application since it must be read in conjunction with other Treaty provisions (reference rule) ►not limited to competition rules ►eg,measures that infringe article 49 may also infringe art.86.

13. Article 86 (1) : examples • ECJ, ERT v. Dimotiki, 1991: • The existence of monopoly itself not contrary to Treaty but manner in which monopoly is exercised can be contrary to Treaty • Article 86 (1) prohibits the granting of an exclusive right to retransmit television broadcasts to an undertaking which has an exclusive right to transmit broadcasts, where those rights are liable to create a situation in which that undertaking is led to infringe Article 82 of the Treaty by virtue of a discriminatory broadcasting policy which favours its own programmes.

14. Article 86 (1): examples • ECJ, RTT v GB-Inno-BM, 1991 • The Court has also held that an abuse within the meaning of Article 82 is committed where, without any objective necessity, an undertaking holding a dominant position on a particular market reserves to itself an ancillary activity which might be carried out by another undertaking as part of its activities on a neighbouring but separate market, with the possibility of eliminating all competition from such undertaking. • Where the extension of the dominant position results from a State measure, such a measure constitutes an infringement of Article 86 in conjunction with Article 82 of theTreaty.

15. Article 86 (1): application to national gambling operators • The challenge today for remote gambling operators ► most national gambling operators have seen their offline exclusivity extended to the internet (eg, Holland Casino, Française des Jeux, Pari Mutuel Urbain). • This extension could be challenged in the light of art.86 (1) read in conjunction with art.82 since it leads national operators to use their already dominant position on the offline market in order to operate on the online market, under authorization of the State (see case-law). • This extension is the more anticompetitive as the traditional separations between gambling markets offline is no longer applicable to the internet► online gaming operators, including national operators, tend to offer all kinds of gambling services from betting to casino.

16. Other issues: concessions under Community law • Directive 2004/18 on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts • Commission interpretative communication submits services concessions to the principles and rules enshrined in the EC Treaty • Awarding authority must give reasons for refusing or rejecting an offer so that any tenderer who considers that it has suffered damage can open an appeal procedure.

17. Other issues: concessions under Community law • Equality of treatment: Provisions reserving public contracts only to companies of which the State or the public sector is a major, or the sole, shareholder contravene the principle of equality of treatment. • Transparency: ECJ, Telaustria judgment: awarding authority'sobliged to guarantee all potential tenderers a proper degree of advertising in awarding concessions. • Proportionality: A Member State may not impose conditions that are excessive and disproportionate when selecting candidates. Nor should the duration of the concession be set in such a way that it limits open competition beyond what is required to ensure that the investment is paid off and there is a reasonable return on invested capital, whilst maintaining a risk inherent in exploitation by the concessionaire. • Mutual recognition: A Member State must accept the products and services supplied by economic operators from another Member State. It must also accept the technical specifications, checks, diplomas,certificates and qualifications required in another Member State if these are recognised as equivalent

18. Conclusion • Article 86 (1) may constitute an alternative legal basis to internal market complaints but can be combined with free movement rules: large scope of application • The Commission could address appropriate directives or decisions to Member States (art.86 (3) ), such as requiring them to allow private operators to offer their services online • With State licences expiring, Member States will be obliged to abide by the rules set out by the Commission regarding services concession, ie, to open services concession to private gambling operators.

19. Thank you for your attention Thibault.Verbiest@ulys.net