Article 49 EC is a key provision relating to freedom to trade. It requires the abolition of all restrictions on the freedom to provide services when they are liable to prohibit, impede or render less advantageous the activities of a service provider established in another Member State where it lawfully provides similar services. Article 49 EC applies even if the restrictions in question apply without distinction to national providers of services and to those from other Member States.
Where a gaming operator is regulated and allowed to trade and provide its services to citizens in one Member State, one might expect that, under Article 49 EC, such a gaming operator would be entitled to provide its services to citizens in other Member States of the EU. But not in the Netherlands – and not in Sweden. In the Ladbrokes case (C-258/08) and the Betfair (Sporting Exchange) case (C-203/08), references from courts in the Netherlands, the Court of Justice has upheld the right of Member States to prohibit the operation of games of chance on the Internet. Moreover, in a case referred from Sweden, the Court of Justice has held that the Swedish law which prohibits the promotion of gambling organised on the Internet by private operators in other Member States for profit is consistent with Community law.
The general reason for restrictions on internet gambling are overriding reasons in the general public interest, such as incitement to squander money on gambling. Each Member State may choose the level of protection that it requires for its citizens in relation to games of chance, although any restrictions that the Member State imposes must be proportionate and should not be used arbitrarily.
The outcome of the cases arising from the Netherlands and Sweden will be a disappointment to gaming operators who were watching these cases with interest to see whether they could continue their Internet gambling services in these countries and also whether any similar restrictions in other EU countries (whether now or in the future) might be upheld.
Analysis
Netherlands Cases
In the Ladbrokes case, the key facts were these.
- Legislation in the Netherlands in relation to games of chance is based on a system of exclusive licences under which (i) the organisation or promotion of games of chance is prohibited unless an administrative licence for that purpose has been issued; and (ii) only one licence is granted by the national authorities in respect of each of the games of chance authorised.
- In the Netherlands, De Lotto holds a licence for the organisation of sports-related prize competitions, the lottery and numbers games. Funds that it collects are distributed amongst institutions working in the public interest such as sport, general welfare, public health and culture.
- Ladbrokes provide Internet gaming services and, after proceedings were issued by De Lotto, the Netherlands Court ordered Ladbrokes companies to block access to their internet site for people residing in the Netherlands.
The Netherlands Court decided that it would need to refer questions to the Court of Justice. The key rulings by the Court of Justice were as follows.
1. National legislation, such as that at issue in the main proceedings, which seeks to curb addiction to games of chance and to combat fraud, and which in fact contributes to the achievement of those objectives, can be regarded as limiting betting activities in a consistent and systematic manner even where the holder(s) of an exclusive licence are entitled to make what they are offering on the market attractive by introducing new games and by means of advertising. It is for the national court to determine whether unlawful gaming activities constitute a problem in the Member State concerned which might be solved by the expansion of authorised and regulated activities, and whether that expansion is on such a scale as to make it impossible to reconcile with the objective of curbing such addiction.
2. For the purpose of applying legislation of a Member State on games of chance which is compatible with Article 49 EC, the national courts are not required to determine, in each case, whether the implementing measure intended to ensure compliance with that legislation is suitable for achieving the objective of that legislation and is compatible with the principle of proportionality, insofar as that measure is necessary to ensure the effectiveness of that legislation and does not include any additional restriction over and above that which arises from the legislation itself. Whether that implementing measure was adopted as a result of action by the public authorities to ensure compliance with national legislation or as a result of an application by an individual in the context of a civil action to protect his rights under that legislation has no bearing on the outcome of the dispute before the national court.
3. Article 49 must be interpreted as not precluding legislation of a Member State, such as the legislation at issue in the main proceedings, under which exclusive rights to organise and promote games of chance are conferred on a single operator, and which prohibits any other operator, including an operator established in another Member State, from offering services via the Internet within the scope of that regime in the territory of the first Member State.
In relation to the Sporting Exchange Limited (Betfair) case, the facts were similar and in this case the rulings were that:
1. Article 49 EC must be interpreted as not precluding legislation of a Member State, such as the legislation at issue in the main proceedings, under which the exclusive rights to organise and promote games of chance are conferred on a single operator, and which prohibits another operator, including an operator established in another Member State, from offering services via the Internet within the scope of that regime in the territory of the first Member State.
2. Article 49 EC must be interpreted as meaning that the principle of equal treatment and the consequent obligation of transparency are applicable to procedures for the grant of a licence to a single operator or for the renewal thereof in the field of games of chance, insofar as the operator in question is not a public operator whose management is subject to direct State supervision or a private operator whose activities are subject to strict control by the public authorities.
Swedish Case
In Sweden, Mr Sjoberg and Mr Gerdin were each editors in chief of newspapers (being the Expressen newspaper and the Aftonbladet newspaper respectively) which published advertisements in Sweden for gambling organised abroad by Expekt, Unibet, Ladbrokes and Centrebet. Expekt, Unibet, Ladbrokes and Centrebet were established in other Member States that offered internet gambling, including people in Sweden. The games offered included, amongst other things, sports betting and poker.
The Public Prosecutor’s office in Sweden took proceedings against Mr Sjoberg and Mr Gerdin for having promoted, unlawfully and for profit, the participation of Swedish residents in gambling organised abroad and Mr Sjoberg and Mr Gerdin were subsequently each ordered by Stockholm’s district court to pay a criminal penalty of SEK 50, 000 in respect of infringement of the Swedish Lotterilag legislation which governs this area.
It was noted that the purpose of the Lotterilag was to restrict Swedish consumers’ participation in gambling. Article 46(1) EC allows restrictions that are justified on the grounds of public policy, public security or public health. In addition, a certain number of overriding reasons in the general interest have been recognised in case law, such as consumer protection and the prevention of fraud and incitement to squander money on gambling, as well as the general need to preserve public order.
It was recognised that the legislation on gambling is one of the areas in which there are significant moral, religious and cultural differences between Member States. In the absence of Community harmonisation in this field, it was for each Member State to determine in those areas its own scale of values and what is required to protect the interests in question.
Pursuant to appeals, the cases were joined and questions were subsequently referred to the Court (Fourth Chamber) in relation to interpretation of Article 49 EC and the Court ruled that:
1. Article 49 EC must be interpreted as not precluding legislation of a Member State, such as that at issue in the main actions, which prohibits the advertising to residents of that State of gambling organised for the purposes of profit by private operators in other Member States.
2. Article 49 EC must be interpreted as precluding legislation of a Member State subjecting gambling to a system of exclusive rights, according to which the promotion of gambling organised in another Member State is subject to stricter penalties than the promotion of gambling operated on national territory without a licence. It is for the referring court to ascertain whether that is true of the national legislation at issue in the main actions.
In other words, Swedish legislation that prohibits gambling organised by operators in other Member States for profit is consistent with Community law, but Community law does not allow penalties in Sweden that penalise non-licensed gambling operators in Sweden in a different way from operators of gambling organised outside Sweden.
Summary
In summary, these cases show that:
- although Article 49 EC does relate to freedom to trade and requires the abolition of all restrictions on the freedom to provide services, there are exceptions to this
- exceptions to Article 49 can apply – there are a number of overriding reasons in the general interest and Internet gambling can be covered by an exception
- an EC Member State can choose the level of protection that it requires for its citizens in relation to games of chance, although any restrictions that the Member State imposes must be proportionate and should not be used arbitrarily
- Community law does not allow penalties in national legislation that penalise non-licensed gambling operators in a territory in a different way to gambling operators of gambling organised outside that territory.
Decisions such as these which restrict markets are not good news for gambling operators. They will hope that governments and other regulatory bodies in other EU countries do not adopt a similar stance.
Jimmy Desai is a partner at Blake Lapthorn. He specialises in technology, intellectual property, Internet, outsourcing and corporate law: Jimmy.Desai@bllaw.co.uk
