On 8 September 2009, the ECJ gave an important judgment about the legality of cross-border Internet gambling under European free movement law. It found that Portugal can prohibit a gambling operator from another Member State from offering its services on Portuguese territory, via the Internet. Companies involved in the business of cross-border Internet gambling will need to consider carefully the impact and consequences of this judgment.
Background
Bwin International Ltd is an online gaming business with its registered office in Gibraltar and its servers located in Gibraltar and Austria. It offers its services to consumers from a number of European jurisdictions, including Portugal. Since 2005, Bwin was also the institutional sponsor of the First Football Division in Portugal. Bwin also sponsors football in other European countries including the teams of AC Milan, Real Madrid and FC Bayern München.
Bwin offered its services to Portuguese consumers on the basis of licences granted in another EU Member State, but without a Portuguese licence.
Portugal has reserved the right to offer games of chance to an entity called ‘Departamento de Jogos da Santa Case da Misericórdia de Lisboa’ (Santa Casa). Santa Casa acts both as a gambling operator and as an administrative body with the authority to prosecute illegal gambling and impose fines for infringement. Santa Casa imposed fines on Bwin (and on the Portuguese football league) for offering and promoting games that were reserved to Santa Casa. Bwin and the football league challenged these fines before a Portuguese court, invoking Article 49 of the EC Treaty concerning the free movement of services. The Portuguese court referred the matter to the ECJ.
Judgment
In its judgment, the ECJ finds that the monopoly rights granted to Santa Casa do constitute an infringement of the freedom to provide services. However, the ECJ also finds that granting a monopoly to a State controlled body is ‘appropriate for the purpose of protecting consumers against fraud on the part of the operators’. The ECJ explicitly states that the fact that an operator such as Bwin is licensed and controlled in its home jurisdiction is not sufficient assurance that national consumers will be protected ‘in the light of the difficulties liable to be encountered in such a context by the authorities of the Member State of establishment in assessing the professional qualities and integrity of operators.’
The ECJ further points out that:
· due the absence of direct contact between consumer and operator in the case of Internet gambling, there is a higher risk of fraud in the case of Internet gambling than in the case of ‘traditional markets for such games’; and
· ‘the possibility cannot be ruled out that an operator which sponsors some of the sporting competitions on which it accepts bets and some of the teams taking part in those competitions may be in a position to influence their outcome’.
The ECJ concludes that Article 49 EC does not prevent Portugal from prohibiting Bwin from offering gambling services on Portuguese territory, via the Internet.
Analysis and Comment
The judgment in this case was handed down by the Grand Chamber of the ECJ (consisting of 13 judges) which means that the ECJ itself considered the case to be of major importance.
The ECJ makes a number of remarkable factual findings about Internet gambling and Internet commerce more generally (for example, that there is a higher risk of fraud attaching to Internet commerce and that Internet gaming companies sponsoring sporting competitions may be inclined to influence their outcome). This leads the ECJ to conclude that granting exclusive rights for the conduct of Internet gaming operations to a monopoly operator may be necessary to protect consumers against fraud.
While these findings and comments are in themselves extraordinary in that they seem to be ungrounded in any factual analysis, such as, for instance, whether Bwin was subject to adequate local regulation or whether its internal protections against fraud complied with Portuguese standards), their very generic nature places Internet gaming companies in a potentially difficult position. Since the gaming regulations of other EU Member States will inevitably raise similar issues in the near future, it remains to be seen whether this judgment represents a Portuguese ‘blip’ or a real obstacle to cross-border Internet gaming.
In any event, any company directly or indirectly involved in the business of cross-border gambling in the EU will need to carefully consider the impact and consequences of this judgment in planning its future strategy.
Craig Pouncey and Lode Van Den Hende are partners at Herbert Smith and part of the EU/Competition team at their Brussels office.
