World Online Gambling Law Report Summer Retreat 2004 The European legal perspective

1. World Online Gambling Law Report • Summer Retreat 2004 • The European legal perspective • prospects for the future • Thibault Verbiest • Attorney-at-law at the Bars of Brussels and Paris • Partner Ulys Law Firm • Professor at the University of Paris I Sorbonne WWW.ULYS.NET Thibault.Verbiest@ulys.net Law of : • New Technologies•Intellectual Property•Media and Entertainment•Commercial Law•

2. Introduction: regulatory framework The Gambelli and Lindman decisions Post-Gambelli jurisprudence Position of the European Commission Conclusion & Forecasts Introduction & Overview

3. no : EC Law not applicable art.49: freedom to provide services 1)economic activity ? Restrictions may be imposed, provided that 3) not discriminatory ? 4) justifiedby the Treaty ?  Yes : 2) goods or service ? 5) necessary and proportionate ? art.30 E C C O U R T C O M M I S S I O N • The Internal Market Strategy for Services  • Remove all remaining barriers in the Internal Market • Directive 98/48 : e-gaming is an information society service • E-gaming regulation must be notified (Belgium, Denmark?) • Electronic commerce  Directive : Internal Market clause • Member States may not impose additional obligations • Proposal for a Directive on Services in the Internal Market • Create a real Internal Market – Home Country control European Regulatory Framework EUROPEAN MARKET?

4. The European Court of Justice The Gambelli and Lindman decisions

5. Facts of the case Land based gaming operation Advocate-General makes analogy with remote gaming operation reception of services across borders ECJ: 13 November 2003 Restriction is infringing article 49 of the EC Treaty Burden of Proof ? “Analysis of the appropriateness and proportionality of the restrictive measure…” “Statistical or other evidence which enables any conclusion as to the gravity of the risks connected to playing games of chance” Member States must not only claim there is a risk, but also prove that it exists Lindman case

6. First remote gaming case brought before the ECJ Opinion of Advocate-General Alber (13.03.2003): the Italian legislation in the field of sports betting imposed a discriminatory measure and - in view of the facts of the case - failed the required justification on grounds of general interest The Gambelli Case - Background

7. Is it a landmark decision ? Application by analogy to “remote gaming” Confirmation of the Schindler decision § 59 “Article 4 of Law No 401/89, constitutes a restrictionon the freedom of establishment and on the freedom to provide services.” § 60 & 65:“the restrictions must be justified by imperative requirements in the general interest, be suitable for achieving the objective which they pursue and not go beyond what is necessary in order to attain it. They must in any event be applied withoutdiscrimination” §66: “It is for the national court to decide whether …. satisfy those conditions. To that end… “ The Gambelli Case - Decision

8. § 66: “... To that end, it will be for that court to take account of the issues set out in the following paragraphs.” Directing the discretional power of the national court Reasons of justification Discriminatory character Proportionate & necessary The Gambelli Case - Decision Lindman?

9. Justification by reasons of public order §67 MS can impose restrictions, “inasmuch as they must serve to limit betting activities in a consistent and systematic manner”. § 69 MS cannot invoke public order concerns if the Member State incites and encourages consumers to participate in games The national authority: §19-23 • “cannot find in those restrictions any public policy concern” • “cannot ignore the extent of the apparent discrepancy between” The Gambelli Case - Decision

10. Discriminatory character: restrictions must be applicable without distinction UK established operators = Italian operator Discrimination: if imposed conditions are in practice to be met more easily by Italian operators than by foreign operators Freedom of establishment: §48-49 “the Italian rules governing invitations to tender make it impossible in practice for capital companies quoted on the regulated markets of other Member States to obtain licences “ The Gambelli Case - Decision

11. Proportionate & necessary? • Necessary to combat fraud • Intermediaries lawfully constituted & authorized • Gaming provider already subject to rigorous controls in the UK Internal Market clause The Gambelli Case - Decision • Restrictions • Criminal penalties § 21: “The national court questions whether the principle of proportionality is being observed, …”

12. The Court does not formally conclude that the Italian legislation is infringing one of the ground principles of European Community law However, by directing the national court, its conclusionshould be similar to the opinion of A.G. Alber Internal Gaming Market? Too soon to cheer? Post- Gambelli jurisprudence Position of the European Commission ? Gambelli Case: some final considerations Consistent gaming policy?

13. Post-Gambelli jurisprudence

14. Application in abstracto or in concreto? The right to impose restrictions Justification of the restriction & consistency of the gaming policy Post-Gambelli jurisprudence • § 75 Gambelli “It is for the national court to determine whether the national legislation, taking account of the detailed rules for its application, actually serves the aims which might justify it, and whether the restrictions it imposes are disproportionate in the light of those aims."

15. Post-Gambelli jurisprudence • Belgium: Constitutional Court • Italy: Corte Suprema di Cassazione • Germany?: • Arnsberg (Nov.2003), Stade (Nov.2003), Bayern (Nov.2003) • Berlin (Sep. 2003), Munich I (Oct. 2003), Hessen (Feb. 2004) BGH (April 2004) • Netherlands?: • Betfair (Feb. 2004) >< Ladbrokes (2 June 2004)

16. District Court of Arnhem: main proceedings « locus » of the gaming activity Evaluation of the Dutch gaming policy Interlocutory judgement Ladbrokes

17. Ladbrokes: games are organized in the UK = not a game of chance in meaning of the WoK 1964 (Betfair) Court retakes motivation of Arnhem Court of Appeal of 2 September 2003 (Ladbrokes summary proceedings) Ladbrokes offers Dutch residents a possibility to bet without having the required license The fact that Ladbrokes is UK based and managed is irrelevant The locus of the operation  (1) Alternative approach? • Turku, 31 March 2003 • Munich I, 27 October 2003: Bet-at-Home

18. Locus of the operation: alternative approach • Turku: 31 March 2003 “A lottery is arranged where the central activity concerning the game is handled and carried out. Internet is only a distribution channel. Possible distance sales of services do not result in the gaming activity being considered to be arranged on every separate location where a customer happens to reside. In the present case, the server is situated in Mariehamn. Also PAF’s management and administration are located on Åland. Considering that both the maintaining of the gaming services and the operational decision-making, the activity is practiced on Åland, whereas PAF’s gaming activity has to be considered to be arranged on Åland”.

19. Locus of the operation: Alternative approach Munich I: 27 October 2003 • « Recognition » of the internal market clause • organisation of sports bets and lotteries is subject to a monopoly. • monopoly is not adopted for reasons of public order, but for tax reasons. • Not justified to impose to an Austrian licensed bookmaker an obligation to obtain an additional German license. • Similar reasoning followed by criminal court of Bremen (march 2004)

20. The Court recognizes the right to impose restrictions on the cross-border provision of gaming services, but requirements must be met in concreto! Betfair case > < in concreto assessment of the grounds of justification Discriminatory character Reasons of public order Consistent gaming policy and the de facto limitation of « the desire to gamble » Dutch gaming policy (2.1)

21. Annual reports demonstrate that the objective pursued is to generate as much money as possible De Lotto: increase of turnover has the highest priority (2001) Allocation of profits to charity is a positive side effect, but is not a justification Release of new games Average annual turnover increase of 10% (’97-2002) No reference is made towards compulsive gambling and the protection of consumers . Dutch gaming policy (2.2)

22. Expansive marketing strategy: the direct and indirect promotion of gaming activities on radio and TV shows (unsolicited) direct mail actions to attract new customers, this in combination with « free games » Marketing budgets The De Lotto is proud to announce that it won some prices for its jackpot advertising campaings. not-won-money-back” guarantee Visit to Holland casino is a normal day out with the family Dutch gaming policy (2.3)

23. The Court held that the objective was to stimulate the demand for games, even when such a demand was inexistent The Court does not see how these activities can correspond to a consistent gaming policy designed to reduce the possibility to participate in a game of chance Dutch gaming policy (2.4)

24. The Court requests the Dutch Government and the De Lotto to come up with some additional “clarifications” (15.09.2004) The Court refused to condemn Ladbrokes to block access to www.ladbrokes.com The Court referred to the gaming platform of the De Lotto (www.lotto.nl) and questioned whether the possibility to bet on foreign sports events could be reconciled with the Dutch Gaming act Interlocutory judgement(3)

25. The position of the European Commission

26. Electronic Commerce Directive Remote gaming service is service of the information society – Notification (Dir. 98/48) Article 1.5 excludes “gambling activities which involve wagering a stake with monetary value in games of chance, including lotteries and betting transactions.” Scope of the exclusion: Spain? Free games Review every two years First Report on the application of the electronic commerce directive (21 November 2003) The position of the EU Commission

27. “Online gambling, which is currently outside the scope of the Directive, is a new area in which action may be required because of significant Internal Market problems - see for example Case C-243/01s of the European Court of Justice (ECJ press release CJE/03/98), concerning criminal proceedings in Italy against persons collecting Internet bets on behalf of a bookmaker legally licensed in the UK. The Commission will examine the need for and scope of a possible new EU initiative. In addition, the Commission is examining a number of complaints it has received concerning cross-border gambling activities. “ The position of the EU Commission • Scope of the exclusion: forum shopping: cf. Safe Harbours • Regulation in new Member States • Complaints: cf. Denmark / Greece

28. 2. Proposal for a Directive on Services in the Internal Market Create a real Internal Market for services, including gambling services Provision of Services Application of the country of origin principle (Internal Market Clause) A UK established bookmaker will only be subject to UK legislation and Italian authorities must recognize the adequate character of the protection offered in the UK. Therefore, they cannot impose additional restrictions on the operation of the UK bookmaker. The position of the EU Commission

29. 2. Proposal for a Directive on Services in the Internal Market Exception for “sensitive areas”, including gambling services Development of specific rules by 2010 (study?) As from 2005 present harmonized EU-wide rules on gambling services The right to receive services across borders? The position of the EU Commission

30. Gambelli & Lindman Decision : Implications on national procedures? European Commission Will launch a study on the current legal and market situation Service Directive? Other initiatives & instruments EU integration : Justification of restrictions (consumer protection & organized crime) National legislation : conflicting gaming policies and the de facto cross-border nature of remote gaming New Member states: Malta: Remote Gaming Regulations 2004 Conclusion & forecasts

31. I thank you for your attention! Q & A Thibault.verbiest@ulys.net www.ulys.net