Internet gambling restrictions permissible

On 8 September 2009 the European Court of Justice issued a preliminary ruling on the fairly new phenomenon of Internet betting which substantially differs from its prior decisions.

The dispute to which the preliminary ruling applies involves Santa Casa, a Portuguese state-owned enterprise that was granted a betting monopoly on a statutory basis, and Bwin, an Austrian company that is one of the largest online betting providers in the European Union. Bwin became the principal sponsor of the Portuguese Soccer League in 2005 and this gave it the opportunity to promote its logo at soccer matches and the official website of the League.

Pursuant to Portuguese Act No. 282/2003, such conduct constitutes a breach of the statutory monopoly granted to Santa Casa, which means a committed administrative tort. Act No. 282/2003 sets forth that the following, without limitation, shall constitute an administrative tort:

• development, organizing or operating of lotteries [the operation of which was granted to Santa Casa] electronically in conflict with the exclusive procedure imposed in clause 2 [of the given ordinance having the force and effect of an act], as well as publishing, distribution or sale of virtual admission tickets and advertising draws for such lotteries, irrespective of whether they are held on the territory of Portugal or elsewhere abroad.

The law vests the power to make such decisions with one of Santa Casa’s bodies – the gambling department. The gambling department is authorized to supervise, investigate, and, where applicable, punish, any operations which it believes to interfere with the operations entrusted to Santa Casa by law. Consequently penalties were imposed on Bwin and the Portuguese Soccer League.

Since Bwin has no domicile or residence in Portugal, this concept of Portuguese national legislation posed a threat to the primary acquis communautaire  (namely Article 49 of the EC Treaty), which clearly prohibits:

• any measures that restrict the provision of services within the Community where the service provider is established in a different Member State from the recipient.

The Portuguese court therefore submitted the issue to the ECJ to decide.

The ECJ passed a fairly unexpected verdict in the matter. In its prior decisions, it had always held the opinion that consumer protection ranks first and the restrictions, if any, should be limited to only “consistent and systemic” measures. In this case the Court’s reasoning included, without limitation, the following:

• the combating of crime cannot constitute any urgent grounds of public interest that would justify the restriction of business entities authorized to offer services in the gambling industry;
• taking into account the large amounts to be collected and winnings to be offered to the gamblers, games of chance involve an increased risk of offences and frauds;
• the ban on operations of companies such as Bwin, which offer online gambling, can be legitimate if the ban is focused on combating fraud and other crimes.

Thereafter the Court decided, based on the above as well as other reasoning, as follows: Article 49 of the EC Treaty does not preclude the legislation of a Member State, such as those at issue in the main proceedings, that prohibit operators such as Bwin International Ltd, who are established in other Member States in which they lawfully provide similar services, from offering games of chance via the internet within the territory of that Member State.