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Could the EU provide a forum for rational gaming legislation?

The European Court of Justice pushes for openness

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In a ruling sure to ruffle the feathers of those opposed to open and regulated gambling environments, the European Court of Justice today issued its most forceful opinion yet covering the cross border provision of gaming services. The ruling in the Placanica case, in which Italian suppliers of gambling services for British bookmaker Stanley faced criminal prosecution in Italy for operating without a license, establishes once and for all that national licensing procedures cannot be applied in a de facto discriminatory manner against foreign gaming operators.

Stanley International Betting Ltd., a subsidiary of Stanley Leisure plc, is the fourth largest bookmaker in the United Kingdom, and operates a network of “data transmission centers” (DTCs) , which are terminals that allow a customer to access Stanley’s main server and place wagers remotely. In 1999, when the Italian government issued 1,000 gaming licenses, Stanley chose not to apply, due to the restrictions against corporate licensure. The defendants in Placanica operated an unlicensed DTC in Italy, and, after prosecution by local authorities, found themselves looking at possible sentences of up to three years.

The 1999 Italian legislation prohibited companies from obtaining gaming licenses if all of the shareholders in the company could not be ascertained – a requirement that ostensibly provided transparency and protected players, but in practical terms made it impossible for any publicly listed company to obtain a license. Perhaps not surprisingly, in 1999 none of the listed gaming companies were Italian. Although Italy amended the law in 2002 to eliminate the offending requirement, it issued no new licenses, effectively preserving the status quo.

The case is the intellectual progeny of an earlier ECJ case, Gambelli, which also involved Stanley and Italy-based DTCs. In Gambelli, the ECJ ruled that although Articles 43 and 49 of the EC Treaty - covering the freedom to establish a business and the freedom to sell services across borders respectively – applied to gaming services, national governments still had considerable latitude to determine how and when to regulate the gaming sector, provided that measures enacted were proportionate to the perceived social ills associated with gambling.

As the Court stated then, “[i]t is for the national court to determine whether such 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 objectives.”

The Court in Placanica, probably unconvinced that national courts would give sufficient weight to the interests of foreign suppliers, has chosen to reaffirm and clarify that broad mandate. The ruling emphasizes that regulation cannot be a smokescreen for discriminatory trade practices. “The Court has already ruled that, even if the exclusion from tender procedures is applied without distinction to all companies quoted on the regulated markets which could be interested in those licences – regardless of whether they are established in Italy or in another Member State – in so far as the lack of foreign operators among the licensees is attributable to the fact that the Italian rules governing invitations to tender make it impossible in practice for companies quoted on the regulated markets of other Member States to obtain licenses, those rules constitute prima facie a restriction on the freedom of establishment."

Although the ruling in Placanica specifically covers the prohibitions against corporate licensing in place in Italy, the arguments in Placanica and Gambelli when read together make clear that sneaky attempts by member states to circumvent the free movement of services to protect local favorites will not be tolerated. The ruling also makes clear that draconian, American-style criminal enforcement will almost never be considered proportionate to any missteps associated with the current legal chaos surrounding online gaming services.

The Court specifically held that:

1. National legislation which prohibits the pursuit of the activities of collecting, taking, booking and forwarding offers of bets, in particular bets on sporting events, without a license or a police authorization issued by the Member State concerned, constitutes a restriction on the freedom of establishment and the freedom to provide services, provided for in Articles 43 EC and 49 EC respectively.

2. It is for the national courts to determine whether, in so far as national legislation limits the number of operators active in the betting and gaming sector, it genuinely contributes to the objective of preventing the exploitation of activities in that sector for criminal or fraudulent purposes.

3. Articles 43 EC and 49 EC must be interpreted as precluding national legislation, such as that at issue in the main proceedings, which excludes – and, moreover, continues to exclude – from the betting and gaming sector operators in the form of companies whose shares are quoted on the regulated markets.

4. Articles 43 EC and 49 EC must be interpreted as precluding national legislation, such as that at issue in the main proceedings, which imposes a criminal penalty on persons such as the defendants in the main proceedings for pursuing the organized activity of collecting bets without a license or a police authorization as required under the national legislation, where those persons were unable to obtain licenses or authorizations because that Member State, in violation of Community law, refused to grant licenses or authorizations to such persons.

The ruling is both a rejection of attempts by France to deny the Court’s jurisdiction over gaming services, and an affirmation that regulation of the gambling world needs to be rationally related to the policy goals used as justification for such regulation.

Because gambling is such a controversial activity, involving moral questions usually addressed at the local or national level, it is doubtful that a uniform EU policy on the issue will be forthcoming any time soon. The ruling does, however, continue the EU push for equitable treatment between the member states, as many EU states have local monopolies to protect – and that is a rare piece of good news for the online gaming sector. ®

Burke Hansen, attorney at large, heads a San Francisco law office

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