Strategic Global Summit For E-Commerce The Regulation of Internet Gambling in Europe By THIBAULT VERBIEST Attorney-a

1. Strategic Global Summit For E-Commerce The Regulation of Internet Gambling in Europe By THIBAULT VERBIEST Attorney-at-law at the Brussels and Paris’Bar Professor at the Universities of Liège and Paris X Nanterre Southern California September 18th & 19th, 2003 WWW.ULYS.NET thibault.verbiest@ulys.net Law of : • New Technologies•Intellectual Property•Media and Entertainment•Commercial Law•

2. Introduction and Overview • Internet gambling? • Interstate or cross-border gaming vs. off shore gaming • Overview • Ground principles of the European Union • The current situation • Freedom to provide services and relevant jurisprudence • From the Rome treaty to the information society • What lies ahead? • Need for a new approach • Decision in the Gambelli case • A regulatory initiative WWW.ULYS.NET / thibault..verbiest@ulys.net

3. The European Commission: Federal Government Driver behind i) the European integration and ii) information society Propose and/or adopt Directives (European Act) Safeguard the common European Market (Internal Market) The European Court of Justice (ECJ): US Supreme Court Uniform application or interpretation of European Law “National Law” must comply with European Law Introduction: The European Union The European Union-2003: 15 independent countries / Member States- 2004: 10 countries will join: east Europe, case of e.g., Malta (sports betting)- European (con)federation? Main Institutions

4. Introduction: The European Union - Legal principles • Principles of the EC Treaty (Rome, 25 March 1957) • Internal Market: • One common and integrated market: • National (German, Spanish) markets become one European Market • five basic principles : • right of establishment (art.43) • free movement of persons (art 39) and capital (art.56) • free movement of goods (art. 30) and services (art.49) WWW.ULYS.NET / thibault..verbiest@ulys.net

5. Current Situation

6. The European Regulatory Framework – Overview • Nature of online gaming activities: • Gaming activity is a service, even if goods are involved (ECJ) • Online gaming activity is an information society service (ISS) • Competence to regulate? • 1992: exclusive member states competence • 2003: ? Need for a European initiative? • From the EC Treaty to the information society • Art. 49: the freedom to provide services (interstate trade) • Regulation of the information society • Electronic commerce Directive: provision of informationsociety services in the Internal Market WWW.ULYS.NET / thibault..verbiest@ulys.net

7. Article 49 of the EC Treaty: Interstate gaming • Principle: • A Member State may not restrict the freedom to provideservicesfrom one Member State to another. • A casino in the United Kingdom may offer its services in Spain and Spanish authorities do not have the right to prevent or restrict this. • Exception: • Restrictions may be imposed on grounds of public policy,publicsecurity or public health; AND • provided that the measure is necessary and proportionate • Jurisprudence WWW.ULYS.NET / thibault..verbiest@ulys.net

8. Article 49 of the EC Treaty: Interstate gaming • Jurisprudence • European Court of Justice : Schindler (1994), Laärä (1999), Zenatti (1999), Justified reasons to impose restrictions are: • counter consequences of compulsive gambling and protect society at large • organized crime, in particular money laundering • reallocation of profits to social welfare Gambelli (2003?): Opinion of AG ALBER, 13 March 2003 • MemberStates:Millions2000 (UK), bet-at-home (Germany), Ladbrokes (the Netherlands) WWW.ULYS.NET / thibault..verbiest@ulys.net

9.  Directive 2000/31/EC on electronic Commerce Commercial Communications (online marketing) Applicable Law – Internal Market clause Safe Harbors – Responsibility Information requirements Directive 2000/46/EC on electronic money Directive 2002/58/EC on privacy and electronic communications Relation with Directive 95/46/EC on data protection (privacy) Commercial Communications Cookies and similar devices Directive 97/06/EC on distance contracts Information requirements Rise of the Information SocietyRegulatory Framework

10. Directive 2000/31/EC on electronic Commerce • Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 (E-com Directive) • Transposition before 17 January 2002 – First review 17 July 2003 • Principles: • Objectives • Applicable Law – Internal Market Clause • Scope – coordinated field • Safe harbours WWW.ULYS.NET / thibault..verbiest@ulys.net

11. Electronic Commerce Directive - Objectives • To guarantee the free provision of Information Society Services (article 49 EC Treaty) • To promote the development of e-commerce in the Internal Market • To provide for and adequate legal framework • To build consumer confidence • To create legal certainty for e-business • To reduce legal obstacles and ensuring that business opportunities can take full advantage of the internal market and the potential offered by new technologies WWW.ULYS.NET / thibault..verbiest@ulys.net

12. Electronic Commerce Directive – Applicable Law Article 3: « Internal Market Clause » Mutual recognition and rules of the country of establishment “Each Member State shall ensure that the information society services provided by a service provider established on its territory comply with the national provisions applicablein the Member State in question which fall within the coordinated field.Member States may not, for reasons falling within the coordinated field, restrict the freedom to provide information society services from another Member State”  «Country of establishment»: Member State from where the economic activities are effectively pursued through a fixed establishment Derogations: general and on case-by-case basis WWW.ULYS.NET / thibault..verbiest@ulys.net

13. Electronic Commerce Directive – Applicable Law • Derogations on a case-by-case basis: art.3 § 4-6 • Member states may restrict the freedom to provide information society service (ISS), IF: • Substantial Conditions • Measures must be necessary to fulfill specific objectives: i) public policy, ii) protection of consumers and iii) public health • Directed against a given ISS which prejudices these objectives or which presents a serious and grave risk of prejudice • Measures must be proportionate to those objectives • The burden of proof is on the country of destination • Formal Conditions • Home country did not adopt adequate measures when asked upon • Prior notification to the Commission and the Home Country • The Commission will examine the compatibility between the restrictivemeasure and Community Law WWW.ULYS.NET / thibault..verbiest@ulys.net

14. Electronic Commerce Directive – Applicable Law CONCLUSION Member States have a backdoor to restrict the provisionof information society services, BUT have to follow theprocedure Grounds are similar than those recognized by the European Court of Justice Outcome of Gambelli.

15. Horizontal Directive: • Delivery of all Information society Services (ISS), indifferent of their nature: • Are Online gaming activities ISS? • European Concept of ISS?: Directives 98/34/EC and 98/48 EC • « Any service normally provided for remuneration, at a distance, by electronic means and at the individual request of a recipient of services » • « service »: in the meaning of article 50 EC Treaty: • « at a distance »: parties are not simultaneously present • « by electronic means »: service is sent and received by means of electronic equipment • « at the individual request of a recipient »: a request proceeds the provision of the service • No reason why online gaming services cannot be qualified as ISS • Notification of the regulation concerning online gaming activities • Gaming activities are excluded from the scope (article 1.5) Electronic Commerce Directive Scope of application WWW.ULYS.NET / thibault..verbiest@ulys.net

16. Electronic Commerce Directive Exclusion of the scope of application • Article 1.5.d: • “the following activities of information society services:- gambling activities which involve wagering a stake • withmonetary value in games of chance, including • lotteries and betting transactions.” • Consequence? • Just derogation from article 3 or complete exclusion? • National Jurisprudence: Bet-at-Home, Ladbrokes WWW.ULYS.NET / thibault..verbiest@ulys.net

17. Current Situation - Conclusion • Although the freedom to provide services is one of the main principles of the European Union, the European Court of Justice has recognized that Member States have the competence to impose restrictions on foreign based gaming operators or to even ban them (Schindler); • The electronic commerce Directive guarantees (in principle) that, e.g., a UK established bookmaker can offer its services in other Countries (Internal Market clause); • However,gaming activities are excluded form this Directive AND Member States have the possibility to impose additional restrictions; • National Courts (Germany and the Netherlands) have confirmed the current status quo. WWW.ULYS.NET / thibault..verbiest@ulys.net

18. What Lies Ahead?

19. What Lies ahead? • European Commission declared in 1992 that it would not take an initiative, but could not exclude this in the future • Can the current restrictive (land-based) gaming policy be maintained and enforced in an online world? • Online gaming services are highly mobile, cross-border services, e.g., mobile gaming via UMTS technology • The proper development of the information society requires an adequate regulatory framework • A different and international approach is required • Need for changes: two axes • Jurisprudence of European Court of Justice:Gambelli • A regulatory initiative of the European Commission WWW.ULYS.NET / thibault..verbiest@ulys.net

20. What Lies ahead? Gambelli • Facts of the Gambelli Case (Italy) • First case concerning online gaming activities submitted to the jurisdiction of the European Court of Justice • P. Gambelli was running in Italy a center for a UK established and licensed bookmaker and a criminal procedure was initiated • opinion of AG Alber(13 March 2003) -Italian legislation in the field of sports bets (monopoly) • imposed discriminatory restrictive measures • Measures failed the required justification on grounds of general interest (responsable gaming policy) . • -According to this opinion, EU gaming operators should havethe right to provide their services in other countries of theEuropean Union • Decision of the European Court of Justice? WWW.ULYS.NET / thibault..verbiest@ulys.net

21. What Lies ahead? Regulatory initiative • Situation in 1992 • The gaming sector was an exclusive competence of the Member States, no European initiative was required. • However, the European Commission did not exclude such an initiative. • Situation in 2003 • The market and legal situation did undergo substantial changes. • Rise of the informattion society and the establishment of a European online gaming market. • European Commission is competent to regulate the information society. WWW.ULYS.NET / thibault..verbiest@ulys.net

22. Electroniccommerce Directive: • “EU Constitution” for the information society • Dutch Bill on casino games (WoK) • Review of the Directive: “Adapting it to legal, technical and economic developments in the field of information society services, in particular with respect to crime prevention, the protection of minors, consumer protection and to the proper functioning of the internal market” • Internal Market Strategy for Services • First stage: • Identify remaining interstate trade barries • Restrictive gaming regulations have been identified as a trade barriers • Second stage: The Commission announced that it will remove identified barries Member States will have to open their ‘national’ gaming markets (?) What Lies ahead? Regulatory initiative WWW.ULYS.NET / thibault..verbiest@ulys.net

23. What Lies ahead? Regulatory initiative Directive 2002/38/EC on VAT and electronically supplied services Annex L: « Supply of music, films and GAMES, INCLUDING GAMES OF CHANCE AND GAMBLING GAMES, and of political, cultural etc. » • Member States? • Most of the Member States have or are reforming their gaming laws • Most of the Member States try to maintain a restrictive control(Denmark) • The Great Britain is about to adopt a permissive regulatory frameworkfor online gaming. • Budd report of the Gambling Review Body • DCMS’s White Paper: A safe bet for success • Draft Gambling Bill, July 2003 • Need to build a European lobby WWW.ULYS.NET / thibault..verbiest@ulys.net

24. I thank you for your attention ! ? Thibault.verbiest@ulys.net www.ulys.net WWW.ULYS.NET / thibault..verbiest@ulys.net