EU Infringement Actions: Challenges and Responses

18th June 2015 by

David Schollenberger, Head of Healys Gaming and Leisure Team, updates on European Commission infringement action on monopolies in Member State iGaming legislation.

For those unfamiliar with EU legal procedures, EU infringement actions are a means through which the European Commission challenges non-conformity of the legislation of a Member State with requirements of EU law. Under Article 258 of the Treaty of the Functioning of the European Union (TFEU), the EU Commission is granted powers to act as guardian over EU Treaties and is permitted to take legal action against Member States that do not respect their obligations under EU law. There are three stages to an infringement procedure.

First is the letter of formal notice, wherein the Member State is notified in writing by the Commission that it is requested to produce information and justify its position on a particular provision or provisions in its law that the Commission believes may be in conflict with EU law.

The Member State is generally required to respond within two months. If the Member State does not respond or the Commission deems the response unsatisfactory, upon a vote authorising the same by the College of Commissioners, the Commission may then issue a “reasoned opinion” where it gives its view on how and why the Member State is in contravention of EU law and requires correction of the non-conformity by the Member State. If the Member State does not comply, the Commission may then refer the matter to the European Court of Justice (ECJ) in the third stage.

In the context of Member State iGaming legislation, the Commission has issued letters of formal notice to a substantial number of EU Member States since 2006. These include actions brought against Austria, France, Denmark, Finland, Italy, Germany, Hungary, Netherlands, Sweden, Belgium, Greece, Cyprus, Czech Republic, Lithuania, Poland and Romania. The Commission has progressed these actions to varying degrees, but none yet have been filed at the European Court of Justice.

The areas of concern of the Commission are primarily related to restrictions in the supply and ability to provide gambling services within that Member State. The challenge is typically to conformity of the Member State iGaming law with Articles 49 and 56 TFEU, which require freedom of establishment and free movement of goods and services within the EU.

In addition, operators or other aggrieved parties affected by restrictive Member State gambling legislation may challenge the legislation in Member State courts, which may then be referred by those national courts to the ECJ to rule whether there is contravention of EU law in the national legislation. This is how most of the case law relating to iGaming has developed. Challenges have been brought before the ECJ against practices in Member States legislation such as grants of exclusivity, restriction of the number of licences granted, unequal treatment of operators, requirements for gaming establishments to have seat in the national territory, and transparency and inconsistency between regulation of different types of gambling.

Article 62 of the TFEU allows a Member State to justify derogation from the requirements of the Articles 49 and 56 if the restrictions on gambling services in Member State law are for the purpose of public policy, public security or public health. Arguments raised by Member States that the restrictions are for economic purposes, e.g. promoting tourism or tax revenue, have not been successful. The ECJ has accepted the argument that such restrictions are justified where they are for the purpose of protecting consumers and the public, and the government has as its objective to reduce problem gambling and gambling addiction, protect children and the vulnerable, fight crime and strictly regulate and control the supply of gambling.

Greece

One of the leading ECJ cases challenging a monopoly granted by Member State gambling law is the Stanleybet, William Hill and Sportingbet cases, joined by the ECJ (C-186/11) 24 January 2013. In that case the ECJ ruled on a complaint that Greek national law granted a monopoly on gaming services to OPAP and prohibited gaming services providers established in another Member State from offering the same services in Greece and constituted a restriction on the freedom to provide services or of establishment. It then examined whether the restriction might be allowed on the grounds of public policy, public security or public health or justified by overriding reasons in the public interest.

The Court found that OPAP was pursuing an uncontrolled and expansionist commercial policy without restriction and increasing the supply of games of chance by adding multiple betting shops with little government control. This was found inconsistent with the purported objective of the Greek Gaming Law to restrict betting and gaming opportunities in Greece. It further found that the activities of OPAP were not subject to strict regulatory control by the public authorities nor effectively limited by the legislative framework applicable to it. The Court ruled that EU law precludes national legislation which grants the exclusive right for games of chance to a single entity, unless such legislation genuinely reduces opportunities for gambling in a consistent and systematic manner or imposes strict controls for the purposes of consumer protection and to combat criminality. It concluded that the Greek legislation granting OPAP the exclusive right to run, manage and organise games of chance was incompatible with Articles 43 and 49 EC (Articles 49 and 56 TFEU). The Greek government was required to either make amendments to the monopoly legislation to make it subject to effective and strict controls on OPAP or open up the market to grant licences to other parties for gambling services in a transparent and non-discriminatory manner.

Greece has since made changes to its regulation and control of gambling. In September 2014, the highest Greek court, the Council of State, ruled that sufficient effective and strict controls for consumer protection and prevention of criminality had been put in place to justify the monopoly held by OPAP. The EU has since indicated that it is still not completely satisfied with the level of transparency in the relationship with OPAP, but appears to be happy with the levels of regulation and control of gambling with the revised legislation.

Finland

Finland was challenged by the Commission in an infringement notice in 2006 and a reasoned opinion in 2007 claiming that its legislation did not comply with EU law in that its gambling monopolies did not adequately control gambling and was not applied in a consistent and systematic manner. In January, 2013, Finland amended its legal framework writing the exclusive control of its operators into law. Similar to Greece, the government chose not to open up the market to multiple licensees, but rather preserved the monopolies by enacting legislation which tightened the controls of Finland’s three gambling monopolies. The EU was satisfied with these changes and subsequently closed its infringement proceedings at the end of 2013.

Sweden

Sweden was sent two reasoned opinions by the Commission, one in 2007 for sports betting and another in 2013 for online betting and online poker. The Commission required Sweden either to change its laws on online sports betting and online poker or provide evidence that monopoly Svenska Spiel was subject to strict state control, particularly over advertising. The Commission subsequently did not consider Sweden’s reactions to the requests to be satisfactory.

In October 2014, the Commission indicated it would refer the cases to the European Court of Justice. With respect to sports betting, the Commission views the way that the Swedish exclusive rights system for sports betting is organised is inconsistent with the aim of achieving the public policy objectives of preventing problem gambling and criminal activities and lacks the necessary state control. With respect to poker, the Commission has expressed the view that the exclusive rights holder is not subject to adequate control by the Swedish government and the restrictive policy in the area of poker games is not consistent as the Swedish authority tolerated the unauthorised offer and promotion of poker games. To date, these cases have not yet been filed at the ECJ.

The Swedish government has for several years claimed that Swedish gambling law was compatible with EU law, but has recently announced that they are now planning on opening the market and introduce a licensing system. This announcement of reform in the law and the change of EC Commissioner may account for the delay in filing of the ECJ case.

Conclusion

The Commission has adopted the position that Member States may restrict or limit the cross-border supply of all or certain types of gambling services on the basis of public interest objectives such as consumer protection or the prevention of fraud or other activities. Member States must however be able to demonstrate that the restrictive measures in question are suitable and necessary and that public interest objectives are being pursued in a consistent and systematic manner. To justify a monopoly granted for gambling services, strict controls must be put in place to regulate and control the supply of gambling, to control crime and to protect the vulnerable.

With respect to Greece and Finland, the Commission appears to be satisfied that the requisite strict controls are now in place with amended legislation in those countries. With Sweden, the EU appears to be waiting further action pending implementation of reforms to gambling legislation announced by the Swedish government to open the market and introduce licensing.