PLACANICA RULING DOMINATES THE HEADLINES

9 March 2007

Watershed findings of Europe's top court of law will have far reaching effects

Yesterday's much awaited European Court of Justice grand chamber of judgement ruling in a critical case known universally as the Placanica issue continue to dominate the headlines with reaction stories that were generally optimistic and positive.

The case is seen as pivotal on the vexing question of whether member states of the European Union have the right to exclude betting companies from other EU states from offering their services to gamblers in countries where the state often holds a lucrative monopoly on gambling.

In the Placanica case, Massimiliano Placanica and two other bet shop operators who allowed people to place online bets with the UK's Stanley Leisure plc had faced criminal charges under Italian law because Stanley didn't have a local gaming license.

An 11-judge panel of the European Court in Luxembourg ruled: "The Italian criminal penalties for the collecting of bets by intermediaries acting on behalf of foreign companies are contrary to EU rules."

Predicting the likely result of the case may have been the impetus for the Italians to do an abrupt about-face, offering licensing for online gambling operations rather than trying to ban same late last year.

The Court's finding establishes once and for all that national licensing procedures cannot be applied in a de facto discriminatory manner against foreign gaming operators when it comes to cross border provision of gambling services.

One of the best analyses of the finding was that of San Francisco attorney Burke Hansen, writing in The Register.

Burke explains the origins of the case, describing the contesting parties as Stanley International Betting Ltd., a subsidiary of Stanley Leisure plc, which operates a network of “data transmission centers” (DTCs) - terminals that allow a customer to access Stanley’s main server and place wagers remotely.

Burke says that the case is the intellectual progeny of an earlier European Court of Justice 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.

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 emphasises that regulation cannot be a smokescreen for discriminatory trade practices that might prejudice companies from another member state. Because of this, Placanica will be influential in other regions of the EU where state bodies have been making cross border business as difficult as possible, notably France and Germany, and to would-be EU states like Turkey that have recently introduced anti-online gambling laws (see previous InfoPowa reports).

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, Burke writes.

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 authorisation 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 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 organised activity of collecting bets without a license or a police authorisation as required under the national legislation, where those persons were unable to obtain licenses or authorisations because that Member State, in violation of Community law, refused to grant licenses or authorisations to such persons.

Burke says 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.

According to Martin Arendts, a lawyer in Grünwald, Germany, who works with a number of gambling companies, the decision "will open up the European market, the German market certainly."

"It's a big step further than the Gambelli decision," he added, referring to a 2003 case in which the European Court of Justice said European countries could not block cross-border gambling operators simply to defend state-run providers, but could do so in order to protect society on moral grounds.

The decision could cast doubt over efforts by the authorised lottery operators in the individual German states to try to put in place a treaty to enshrine their monopoly status, Arendts said.

The ruling applies only to sports betting, and it stops short of explicitly endorsing the idea that holders of a betting license in one EU country should be able to operate without borders, other experts opined. The advocate general, an official who provides legal opinions for the court, had urged the court to make a decision authorising such activity.

A spokesman for the German federation of state lottery systems, Deutscher Lotto- und Totoblock said: "The situation in Italy is completely different from the one in Germany. There, there is a partial opening of the market; here, a clear state monopoly, whose central justification is the [moral] protection of gamblers and the prevention of addiction."

But industry observers speculated that the controversial German Interstate Treaty seeking to protect German monopolies is on the verge of collapse in the wake of the ECJ’s Placanica decision, amid new reports that the ruling party in the state of Schleswig-Holstein has introduced new regulatory proposals that would allow German states to licence private sports betting.

The European Commission in Brussels has warned in the past that prohibiting cross border services and trade from other EU nations could be a contravention of the treaties and rules governing EU membership.

It has warned France, Germany and Italy, among others, that they are potentially in violation of rules seeking to create a single market in goods and services across the EU, for public- and private-sector providers alike. The Placanica decision will provide further impetus for that campaign, Stanleybet said.

"We think this is a verdict which puts a lot of pressure on the European Commission and member states," Adrian Morris, finance director of Stanleybet, told Reuters.

Some European countries have taken aggressive steps to try to stop private- sector online gambling companies from outside their borders.

Several German states have banned Bwin Interactive, based in Vienna, from taking bets within their borders. Last year, French authorities arrested two executives of Bwin as they appeared at a news conference to announce a sponsorship deal with Monaco, the soccer club.

"The kind of things that happened in France are now clearly out of the scope of European law," Konrad Sveceny, a spokesman for Bwin, said of the ruling. "It is clearly another big step toward opening up the European gaming market. In the light of this judgment, state monopolies are no longer tenable."

Gaming companies such as Ladbrokes, which has openly criticised state-run monopolies in EU countries such as France and Germany, are hoping that the ruling will clarify the current legal situation across Europe.

And Petter Nylander, CEO of Unibet said: "We are very pleased to see that the Court has taken a firm stance, and in this way has declared that Member States with monopoly legislation are discriminating against private gambling operators. Unibet welcomes this judgement which will accelerate the break up of the existing monopolies in Europe," he added, "and we are now all looking forward to the creation of a new, modern gambling market within EU."

Professor Siegbert Alber, the Advocate-General in the landmark Gambelli case before the European Court of Justice, had predicted that the Placanica verdict will be clear enough in its terms to strengthen the EU’s infringement processes against France, Italy and Germany.

Shares of several online gambling companies, whose stocks have been battered in recent months after the crackdowns on Internet betting in the United States and Europe, rose sharply on the Placanica news.

The Daily Telegraph reported that Bwin was one of the largest beneficiaries of stock improvements, with the stock up 14 percent. The newspaper also quoted Lode Van Den Hende, a lawyer with Herbert Smith, who said: “This is a step further toward a liberalisation of the European gambling markets.”

The Independent reported on comments by Ladbrokes chief executive Christopher Bell that, "This judgment is another step along the road to fairer competition in Europe."

Online Casino News courtesy of InfoPowa

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