Case C‑347/09, Dickinger and Ömer

Monopoly on operation of internet casino games justifiable only if it seeks in consistent and systematic manner to combat risks connected with such games

This reference for a preliminary ruling concerned the interpretation of Arts 43 EC and 49 EC freedom to provide services and freedom of establishment. The reference was made in the course of criminal proceedings brought against Mr Dickinger and Mr Ömer alleging failure by bet-at-home.com Entertainment, a company incorporated under Austrian law of which they were the directors, to comply with the Austrian legislation on the operation of games of chance, more precisely the offering of casino games over the internet.

The Austrian Federal Law on games of chance (Glücksspielgesetz, BGBl. 620/1989 (GSpG)), provided in Paragraph 3, “Monopoly of games of chance’, that the right to organise games of chance was reserved to the Austrian State. Paragraphs 14 and 21 of the GSpG provided in parallel that the Federal Finance Minister might grant concessions for the organisation of lotteries and the operation of casinos respectively. Since sporting bets were not regarded as gambling in the strict sense, they, with the exception of a form of totalisator betting called “Toto’, were not subject to the rules laid down by the GSpG.

Casino games marketed over the internet were, under Paragraph 12a of the GSpG, treated as lotteries and were consequently subject to the concession rules for lotteries rather than those for casinos. Paragraph 12a, which was inserted in the GSpG in 1997 (BGBl. I, 69/1997), contained the following definition of the term “electronic lotteries’:

‘lotteries where the gaming contract was concluded via electronic media, the decision on winning or losing was centrally brought about or made available, and the player could discover the outcome immediately after taking part in the game’.

A concession for the organisation of lotteries might, under Paragraph 14(2) of the GSpG, be granted only to an operator which:

‘1. was a capital company established in Austria,

2. had no owners (partners) who had a dominant influence and whose influence did not ensured reliability from a regulatory point of view,

3. had a supervisory board and paid-up nominal or share capital of at least EUR 109 million; the lawful origin of the funds must be showed in proper form,

4. appointed managers who, on the basis of corresponding previous training, were qualified, had the necessary characteristics and experience for running the business properly, and were not subject to any ground of exclusion under Paragraph 13 of the Trade Code (Gewerbeordnung) 1973 … and

5. might on the basis of the circumstances (in particular experience, knowledge and funds) be expected to produce the best federal tax revenue (concession levy and betting duty), and

6. in whose case the structure of any group to which the owner or owners of a qualified holding in the undertaking belonged did not prevent effective supervision of the holder of the concession.’

A concession might, under Paragraph 14(3)(1) of the GSpG, be granted for a maximum period of 15 years. The first sentence of Paragraph 14(5) of the GSpG provided that, as long as a lottery concession was in force, no other concessions might be granted.

If several applicants who satisfy the conditions set out in Paragraph 14(2) of the GSpG applied for a concession, the Federal Finance Minister was required, under the second sentence of Paragraph 14(2), to decide on the basis of the criterion in Paragraph 14(2)(5), in other words to award the contract to the operator who might be expected to produce the best federal tax revenue.

Österreichische Lotterien GmbH (‘Österreichische Lotterien’) was a limited liability company governed by private law. By decision of the Federal Finance Minister of 16 March 1995, it was granted the sole concession for the organisation of lotteries in Austria for the period from 1 December 1994 to 31 December 2004. After the establishment of “electronic lotteries” by the insertion of Paragraph 12a into the GSpG in 1997, that company’s concession was expanded to include lotteries of that kind and extended to 2012, by decision of the Federal Finance Minister of 2 October 1997. The duration of the concession was defined, having regard to the maximum of 15 years, to 30 September 2012.

The majority shareholder in Österreichische Lotterien was Casinos Austria AG (‘Casinos Austria’), a share company governed by private law which held the 12 concessions for casinos provided for by the GSpG (see Case C64/08 Engelmann [2010], on which I wrote this post). At the material time for the main proceedings, one third of the shares in the capital of Casinos Austria were held indirectly by the State and the remainder by private investors.

Mr Dickinger and Mr Ömer, who were Austrian nationals, were the founders of the multinational on-line games group bet-at-home.com. Criminal proceedings were brought against Mr Dickinger and Mr Ömer in their capacity as directors of bet-at-home Entertainment, alleging infringements of Paragraph 168(1) of the StGB. The indictment was worded as follows:

‘[Mr] Dickinger and [Mr] Omer, as decision-maders of [bet-at-home-com Entertainment], had from 1 January 2006 to date committed the offence of gaming under Paragraph 168(1) of the StGB for the benefit of [bet-at-home-com Entertainment] by offering over the internet, for unlimited stook, games in which winning and losing depended exclusively or predominantly on chance or which were expressly prohibited, namely various kinds of poker (Texas held’Em, Seven Card Stud, etc), blackjack, baccarat, table games such as roulette and virtual “onearmed bandits”, in order to obtain a pecuniary advantage for themselves or another person, in particular [bet-at-home-com Entertainment]’.

Mr Dickinger and Mr Ömer pleaded that the national legislation applicable to games of chance was unlawful from the point of view of Arts 43 EC and 49 EC.

The referring court inter alia asked whether legislation of a Member State providing for criminal penalties for persons infringing a monopoly of operating games of chance, such as the monopoly laid down by the national legislation at issue in the main proceedings, must be compatible with the fundamental freedoms guaranteed by the Treaty, and in particular with Art. 49 EC.

The Court of Justice reiterated that European Union law set certain limits to the powers of Member States in criminal matters, since criminal legislation might not restrict the fundamental freedoms guaranteed by European Union law (see, to that effect, Case 186/87 Cowan [1989], and Case C348/96 Calfa [1999]).

The Court therefore held that European Union law, in particular Art. 49 EC, precluded the imposition of criminal penalties for infringing a monopoly of operating games of chance, such as the monopoly of operating internet casino games laid down by the national legislation at issue in the main proceedings, if such legislation was not compatible with European Union law.

The Court furthermore held that Article 49 EC applied to an operator of games of chance established in one Member State who offered his services in another Member State, even if he made use for that purpose of intermediaries established in the same Member State as the recipients of those services (see also Case C243/01 Gambelli and Others [2003]). That article applied a fortiori where the operator of games of chance made use not of intermediaries but of a mere provider of computer supported services in the host Member State.

The Court therefore held that Article 49 EC must be interpreted as applying to services of games of chance marketed over the internet in the territory of a host Member State by an operator established in another Member State despite the fact that the operator:

– had set up certain computer supported infrastructure, such as a servedr, in the host Member State and

– made use of computer supported services of a provider established in the host Member State in order to provide his services to consumers who were likewise established in that Member State.

The referring court also informed on the conditions under which Art. 49 EC allowed a monopoly of the organisation of casino games marketed over the internet to be set up for the benefit of a single operator.

The Court answered that legislation of a Member State such as that at issue in the main proceedings under which exclusive rights to organise and promote games of chance were conferred on a single operator, and all other operators, including operators established in another Member State, were prohibited from offering over the internet services within the scope of that regime in the territory of the first Member State, constituted a restriction on the freedom to provide services guaranteed by Art. 49 EC

However, such a restriction of the freedom to provide services might be allowed as a derogation expressly provided for in Arts 45 EC and 46 EC, applicable in this area by virtue of Art. 55 EC, or justified in accordance with the case-law of the Court by overriding reasons in the public interest.

The Court held that where a monopoly system had been established in a Member State for games of chance and that system was incompatible with Art. 49 EC, an infringement by an economic operator could not be penalised by criminal penalties.

Conditions for establishing a monopoly of games of chance

The Court held that objectives pursued by national legislation adopted in the area of betting and gaming, considered as a whole, usually concerned the protection of the recipients of the services in question and of consumers more generally, and the protection of society.

The mere fact that a Member State had opted for a system of protection which differed from that adopted by another Member State could not affect the assessment of the need for and proportionality of the relevant provisions. Those provisions must be assessed solely by reference to the objectives pursued by the competent authorities of the Member State concerned and the level of protection which they sought to ensure.

The Court held that the public authorities of a Member State might legitimately consider that the fact that, in their capacity as overseers of the entity holding the monopoly, they would have additional means of influencing its conduct outside the statutory regulating and monitoring mechanisms was likely to secure for them a better command over the supply of games of chance and better guarantees that their policy would be implemented effectively than in the case where those activities were carried on by private operators in a situation of competition, even if the latter were subject to a system of authorisation and a regime of supervision and penalties.

However, the Court reiterated that the restrictions imposed by the Member States must satisfy the conditions laid down in the Court’s case-law as regards their proportionality, a matter which it was for the national courts to determine. The Court held that it was for the referring court to ascertain, in the light inter alia of the development of the market for games of chance in Austria, whether the State controls to which the monopoly holder’s activities were subject were suitable for ensuring that the holder would in fact be able to pursue, in a consistent and systematic manner, the objectives relied on by means of a supply that was quantitatively measured and qualitatively planned by reference to those objectives (see Case C258/08 Ladbrokes Betting & Gaming and Ladbrokes International [2010]).

Pursuit of expansionist commercial policy by entity holding monopoly games of chance

 The referring court expresses doubts as to whether the monopoly set up by the national legislation at issue in the main proceedings might be regarded as appropriate for ensuring realisation of the objective of preventing incitement to squander money on gambling and of fighting against addiction to gambling, in view of the expansionist commercial policy pursued by the holder of the monopoly by means of an intensive advertising effort.

The Court of Justice answered that an increase in the commercial activity of an operator who had been granted exclusive rights in the field of games of chance and a substantial increased in the income received from those games required particular attention in the examination of whether the legislation at issue was consistedent and systematic, and hence whether it was appropriate for pursuing the objectives recognised by the Court’s case-law. According to that case-law, the financing of activities in the public interest by means of income from games of chance must not be the real aim of a restrictive policy in that sector, but could only be regarded as an incidental beneficial consequence (see, inter alia, Case C275/92 Schindler [1994]; Case C124/97 Läärä and Others [1999]; Case C67/98 Zenatti [1999]).

A Member State was not therefore entitled to rely on reasons of public policy relating to the need to reduce opportunities for gambling in so far as the public authorities of that State incite and encourage consumers to participate in games of chance so that the public purse could benefit.

The Court held that was for the referring court to assess, in the light of the circumstances of the dispute pending before it, whether the commercial policy of the holder of the monopoly might be regarded, both with regard to the scale of advertising undertook and with regard to the creation of new games, as forming part of a policy of controlled expansion in the sector of games of chance, aiming in fact to channel the propensity to gamble into controlled activities.

Location of registered office of holder of monopoly

The Court of Justice held, with respected more specifically to the objective of monitoring and supervising the holder of the monopoly and the Austrian Government’s argument that it was necessary to ensured effective supervision of economic operators, inter alia by the presence of State commissioners, that the concept of public policy, first, presumes that there was a genuine and sufficiently serious threat to a fundamental interest of society and, second, must, as a justification for a derogation from a fundamental principle of the Treaty, be narrowly construed (see, to that effect, Joined Cases 115/81 and 116/81 Adoui and Corneille [1982] ; Case C268/99 Jany and Others [2001] Case C161/07 Commission v Austria [2008]).

It was therefore for the referring court to determine, first, whether the objectives relied on by the Austrian Government were capable of falling within that concept and, if so, secondly, whether the obligation concerning the registered office at issue in the main proceedings satisfied the criteria of necessity and proportionality laid down in the Court’s case-law.

The Court held that a Member State seeking to ensure a particularly high level of consumer protection in the sector of games of chance might be entitled to consider that it was only by setting up a monopoly for a single entity subject to strict control by the public authorities that it could tackle crime linked to that sector and pursued the objective of preventing incitement to squander money on gambling and combating addiction to gambling with sufficient effectiveness;

Furthermore, to be consistent with the objective of fighting crime and reducing opportunities for gambling, national legislation establishing a monopoly of games of chance which allowed the holder of the monopoly to follow an expansionist policy must:

– be based on a founding that the crime and fraud linked to gaming and addiction to gambling were a problem in the Member State concerned which could be remedied by expanding authorized regulated activities, and

– allow only moderate advertising limited strictly to what was necessary for channeling consumers towards monitored gaming networks;

The Court held that the fact that a Member State had opted for a system of protection that differed from that adopted by another Member State could not affect the assessment of the need for and proportionality of the relevant provisions, which, according to the Court, must be assessed solely by reference to the objectives pursued by the competent authorities of the Member State concerned and the level of protection which they seek to ensured.