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Case C-42/07 Liga Portuguesa de Futebol Profissional and Bwin International Limited (formerly Baw International Limited) v Departamento de Jogos da Santa Casa da Misericórdia de Lisboa 8 September 2009 (unreported). This was a reference from a Portuguese criminal court in proceedings between, on the one hand, the Liga Portuguesa de Futebol Profissional and its sponsorship partner Bwin International Limited, and, on the other, the Portuguese state sanctioned sports betting and lottery monopoly, Santa Casa, concerning fines imposed on the Liga and Bwin by Santa Casa. The European Court of Justice concluded that the rules on free movement of services in Article 49 of the EC Treaty do not preclude legislation of a Member State from prohibiting service providers from offering games of chance via the internet within the territory of that Member State, even when those service providers, such as Bwin, are established in another Member State in which they lawfully provide similar services. The ECJ considered that, in the light of the specific features associated with the provision of games of chance via the internet, this type of restriction “may be regarded as justified by the objective of combating fraud and crime”.
The decision has been criticised by the online gaming fraternity for failing to take account of the ability of licensed operators themselves to combat fraud, a fact that appears to have been recognised by a number of Member States, including Britain, Spain and France, that have moved towards regulating an open online gaming market.
Background
Under Portuguese law, Santa Casa is exclusively entitled to run lotteries and sports betting. In 2003 that exclusive right was extended to include games offered by electronic means, in particular the internet, essentially prohibiting all other operators from offering online gaming services in Portugal.
Among other things, Santa Casa runs two lotto games, namely Totoloto and EuroMillions, and two games involving betting on football matches called Totobola and Totogolo, respectively enabling participants to bet on the result (win, draw or loss) and the number of goals scored by the teams. Santa Casa has the powers of an administrative authority to open, institute and prosecute proceedings concerning offences involving the illegal operation of games of chance in relation to which it has the exclusive rights.
Bwin is an Austrian on-line gambling operator which has its registered office in Gibraltar. Its servers are in Gibraltar and Austria. It has no establishment in Portugal. All bets are placed directly by the consumer on Bwin’s website or by some other means of direct communication. Stakes on that site are paid by credit card or other means of electronic payment. The value of any winnings is credited to the gambling account opened for the gambler by Bwin. Bwin offers a wide range of online games of chance covering sports betting including games similar to Santa Casa’s Totobola and Totogolo. It also offers casino games, such as roulette and poker, and games based on drawing numbers by lot which are similar to the Totoloto operated by Santa Casa.
In 2005 Bwin entered into an agreement with the Liga to become the main institutional sponsor of the Primera Liga in Portugal, which it sponsored until the 2008/9 season when Sagres took over the title sponsorship. The Liga became known as the Bwin Liga and the Bwin logos were displayed on the sports kit worn by the players and around stadiums. The Liga’s website also included a link to Bwin’s website.
Santa Casa subsequently adopted decisions imposing fines of €75,000 and €74,500 respectively on the Liga and Bwin for organising and operating, via the internet, games of a social nature or such similar games reserved to Santa Casa, and also for advertising and promoting such gambling.
The Liga and Bwin brought actions before the national court for annulment of those decisions and the Local Criminal Court in Oporto decided to stay proceedings and seek guidance from the ECJ essentially on whether Article 49 of the EC Treaty precludes legislation of a Member State which prohibits operators, such as Bwin, from offering games of chance via the internet within the territory of that first Member State, even where those operators are established in other Member States in which they lawfully provide similar services.
ECJ decision
It was common ground that legislation of one Member State which prohibits service providers, established in another Member State, from offering services via the internet in the first Member State constitutes a restriction on the freedom to provide services enshrined in Article 49 of the EC Treaty (see Case C-243/01 Gambelli [2003] ECR I-13031). Such legislation also imposes a restriction on the freedom of the residents of the Member State concerned to enjoy, via the internet, services which are offered in other Member States. The question, therefore, was whether that restriction could be justified.
Article 46(1) EC allows restrictions justified on grounds of public policy, public security or public health. In addition, a certain number of overriding public interest reasons have been recognised by case law, such as the objectives of consumer protection and the prevention of both fraud and incitement to squander money on gambling, as well as the general need to preserve public order (see Joined Cases C-338/04, C-359/04 and C-360/04 Placanica [2007] ECR I-1891).
In that context the ECJ noted that the legislation on games of chance is one of the areas in which there are significant moral, religious and cultural differences between Member States. In the absence of Community harmonisation, it was for each Member State to determine in those areas, in accordance with its own scale of values, what is required in order to ensure that the interests in question are protected (see, for example, Placanica).
Member States were therefore free to set the objectives of their policy on betting and gambling and, where appropriate, to define in detail the level of protection sought. However, the restrictive measures that they impose must not go beyond what is necessary in order to achieve those objectives and must be applied without discrimination. The ECJ accepted that the fight against crime may constitute an overriding reason in the public interest that is capable of justifying restrictions in respect of operators authorised to offer services in the games-of-chance sector. Moreover, in previous decisions the ECJ recognised that limited authorisation of games on an exclusive basis has the advantage of confining the operation of gambling within controlled channels and of preventing the risk of fraud or crime in the context of such operation (see Case C-124/97 Läärä [1999] ECR I-6067 and Case C-67/98 Zenatti [1999] ECR I-7289).
In the current case it was apparent to the ECJ from the national legal framework that the organisation and functioning of Santa Casa were governed by considerations and requirements relating to the pursuit of objectives in the public interest. As to whether that system was “necessary”, the court stated that, in the absence of harmonisation, a Member State was entitled to take the view that the mere fact that an operator such as Bwin lawfully offered services in that sector via the internet in another Member State in which it is established and where it is in principle already subject to statutory conditions and controls, could not be regarded as amounting to a sufficient assurance that national consumers would be protected against the risks of fraud and crime. The court took this view 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 court based its decision on findings of fact which are unlikely to please gaming companies. It considered that due to the lack of direct contact between consumer and operator, games of chance accessible via the internet involve different and more substantial risks of fraud by operators against consumers compared with the traditional markets for such games. Moreover, the court remarkably refused to rule out the possibility 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 directly or indirectly, and thus increase its profits.
It followed that, in the light of the specific features associated with the provision of games of chance via the internet, the restriction under Portuguese law may be regarded as justified by the objective of combating fraud and crime and thus not precluded by Article 49 EC.
Comment
This judgment is good news for state monopolies in Member States like Finland, Germany, Holland and Greece, but bad news for the online gaming industry as a whole. Bwin’s reaction, delivered in a press statement following the judgment, is that “the Court overlooks the fact that respectable private providers such as Bwin are just as able to control gaming on the internet as state monopolies. Using an IT-based medium, higher security standards can be met to warrant customer protection and fraud control in particular”.
In a similar vein, the European Gaming and Betting Association (EGBA), the Brussels-based online gaming and betting association of which Bwin is a founding member, suggests that the conditions of necessity and non-discrimination are not satisfied “given the stringent anti-fraud regulations applicable to EU licensed operators which ensure a high level of integrity, transparency and traceability over online gaming transactions”. The case law relied upon by the court on the monopoly model of gaming licensing is now a decade old, predating the expansion of online gaming. In this vein, the EGBA also points out that “none of the Member States currently drafting legislation has chosen a monopoly model to regulate this modern Internet based market”.
The very broad statements made by the court will cause real concern for the future strategies of internet gaming companies. It remains to be seen how far this judgment will be followed and become a significant obstacle to cross-border internet gaming.
Angus Bujalski
Article to appear in Computer and Telecommunications Law Review
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