Administrative Court of Munich: Bavarian State Lottery Act is in violation of Community law and therefore not applicable

Rechtsanwalt Martin Arendts, M.B.L.-HSG

Arendts Rechtsanwälte
Perlacher Str. 68
D - 82031 Grünwald (bei München)
As we already mentioned in our newsletter “German Gaming Law updated” no. 33, the Administrative Court of Munich (Bayerisches Verwaltungsgericht München), in its decisions of 7 June 2006, overruled several notifications issued by the Bavarian Ministry of the Interior. ARENDTS ANWÄLTE (www.gaminglaw.de) received the reasons of one decision (case-no. M 16 K 04.6138) today.

In quintessence, the Administrative Court invokes the following reasons:
  • The deficit in regulating sports betting as found fault by the Federal Constitutional Court has not been eliminated.
  • The Federal Constitutional Court did not judge on the state monopoly on sports betting with regard to Community law (contrary to the opinion of the state monopoly supporters).
  • Transitional periods with regard to basic freedoms (in respect to sports betting, especially the freedom of establishment and the freedom to provide services) are unknown to Community law. Provisions in violation of Community law are therefore inapplicable.
  • The current legal situation and their execution by the Free State of Bavaria do not comply with the Gambelli Criteria and are therefore in violation of Community law. The Bavarian State Lottery Act and the respective restricting provisions of the Interstate Lottery Treaty (Staatslotterievertrag) are therefore inapplicable.
  • There is not any coherent and systematic policy on gaming, which would have to include coherent regulations to fit public interest, applying to all forms of gaming (sports betting, casinos, lotteries, horse-betting, radio and TV games). Due to the rule of law principle, an Act of Parliament would be necessary.
In this decision, containing 43 pages, the court holds with regard to offering cross-border sports betting:
“The relevant notification of the Bavarian Ministry of the Interior of 4 November 2004, file-no. I A 4-2161.5 – 67, is unlawful. The reasoning in the relevant notification the Bavarian Ministry of the Interior misjudges the requirements established by Community law. The deciding chamber is convinced that a legal situation in violation of Community law subsists in the Free State of Bavaria at the time of application as well as at the oral hearing on 7 June 2006, as operators and bookmakers of private sports betting, in cases where Community law is relevant, are refused a license or the recognition invoking the fundamental prohibition of private operating or private transferring of sporting bets in the Free State of Bavaria.

a) Irrespective of whether the determining point of time for judging on the legality of the present notification is the time of issuance of the notification or the time of the last oral hearing, the relevant notification is in violation of Community Law.

(1) The deciding court is not barred from verifying the legal situation regarding the sports betting monopoly in Bavaria. Insofar the court does not see himself bound in accordance with Art. 31 of the Federal Act on the Federal Constitutional Court (Bundesverfassungsgerichtsgesetz – BVerfGG) with respect to the decision of the Federal Constitutional Court, allotting a transitional period and providing for the prohibition of private operating and private transferring sporting bets. The Federal Constitutional Court did not judge on the compatibility of the legal situation regarding the sports betting monopoly in Bavaria with Community law, which would have bound national courts.

It its decision of 28 March 2006 (case-no. 1 BvR 1054/01), under par. 77 it has rather held, that it is not judging on freedoms provided for by Community law in a constitutional complaint procedure. A possible violation of Community law could not be invoked with the reasoning, that, due to the primacy of Community law, an applicable law, corresponding to the rule of law did not exist and therefore a limitation of basic rights did not exist either. It were not competent for judging on the relevant question of the compatibility of a simple national provision with Community law (Federal Constitutional Court, par. 77 referring to its earlier decisions BVerfGE 145, (174f) and 82, 159 (191)). The opinion of Hecker/Schmitt that the Federal Constitutional Court had expressly mentioned its doubts as to the compatibility of Art. 284 German Criminal Code with Community law and therefore acted on the assumption of its compatibility with Community law (Hecker/Schmitt, l.c. page 64), otherwise the court would have had to act on the assumption of its inapplicability due to the primacy of Community law (see Dübbers/Kartal, Commentary to the Federal Constitutional Court’s decision, ZfWG 2006, 33 (35)), is in clear opposition to the explanations. Instead the court holds himself bound in accordance with Art. 31 BVerfGG insofar as a judgement as to the compatibility with Community law, which could add up to a binding effect, was not held by the Federal Constitutional Court.

Schmidt’s opinion (Action against illegal sports betting in Bavaria, GewArch 2006, 177 (178)), the clear result of the Federal Constitutional Court’s judgement were, that the transitional prohibition of operating and transferring sporting bets provided for therein applies to licenses issued by EU Member States as well, since the request for a license for cross-border transferring of sporting bets filed by the appellant in the initial proceedings ultimately failed, mistakes the subject matter of the action. The Federal Constitutional Court did not decide on the claim for a license as such, but on alleged violations of basic rights. Due to its limited scope of revision in accordance with Art. 93 par. 1 Nr. 4 a German Constitution, Art. 90 par. 1 of the Federal Act on the Federal Constitutional Court, the Federal Constitutional Court could not judge on whether the refusal of the license was in violation of Community law. The court does not consider himself to be an instance of super appeal.

To the conviction of this court, the transitional period ruled by the Federal Constitutional Court, even assuming the fulfilment of the requirements set forth, does not per se lead to a situation in conformity with Community law (different opinion: Administrative Court of Münster, decision of 2 June 2006, case-no. 9 L 379/06 and arguably Schmidt, l.c. page 178). Transitional Periods are unknown to Community law (Adminstrative Court of Arnsberg, decision of 23 May 2006, case-no. 1 L 379/06; Administrative Court of Minden of 26 May 2006, case-no. 3 L 241/06; DÜbbers/Kartal l.c. page 34). On the contrary, due to the primacy of Community law a situation in conformity with Community law has to be established by non-application of provisions in violation of Community law. The transitional periods by the ECJ in the cases no. C 317/04 and C 318/04 of 30 May 2006 were granted for different protective purposes, that is for “reasons of stability of the law and for the protection of the persons concerned” (press release Nr. 46/06 of 30 May 2006). For the rest, the leeway accorded to the states regarding gaming policy and the basic necessity of transforming Community requirements into national law do not – beyond accorded transitional periods – result in the toleration of a (legal) situation in violation of Community law or the dilution of the primacy of Community law. Therefore, the transitional period accorded by the Federal Constitutional Court cannot be regarded as a period for implementing Community requirements during which a situation in violation of Community law can be accepted (arguably different opinion: Admistrative Court of Halle, decision of 4 May 2006, case-no. 3 B 56/06 HAL).

(2) Therefore, it is irrelevant for the present proceedings, which by the way are of licensing- and not of police law nature, whether the defendant has meanwhile (after the implementation of changes in the oddset betting structure corresponding to the press release of 4 April 2006 and the statements of the Bavarian Lottery Administration on the basis of the package of measures presented in the oral hearing) complied with the requirements set forth by the Federal Constitutional Court in its decision of 28 March 2006 for the transitional period, as this transitional period is irrelevant for an assessment with regard to Community law.

From a Community law point of view and therefore from the decisive view in these proceedings, it is crucial, whether the defendant complies with the requirement set forth by the Gambelli decision. As a result the defendant is immediately obliged to comply with the requirements concerning a coherent and systematic gaming policy, which, as already stated, arguably needs normative specification, in case he desires to keep operators from EU Member States away from the Bavarian market.

b) Refusing the desired license and recognising the plaintiff’s right to operate or transfer sporting bets in the Free State of Bavaria respectively is in violation of Community law, if – as happened here – the refusal of the request is justified by exclusively invoking the prohibition of private operation and private transfer of sporting bets.

(1) The refusal of licenses or other foreign granting acts for the operation or the transfer of sporting bets – and therefore the current legal situation in Bavaria on the basis of the State Lottery Act and the Interstate Lottery Treaty – represents a fundamental limitation of the freedom of establishment in terms of Art. 43 EC Treaty and the freedom to provide services guarantee in terms of Art. 49 EC Treaty (see. ECJ – Gambelli – no. 44 – 59, especially par. 46 for the freedom of establishment and par. 54 for the operator’s freedom to provide services and par. 58 for the bookmaker’s freedom to provide services; ECJ – Zenatti – case-no. C – 67/98 of 21 October 1999 Slg. 1999, 1-7289).

(…)

(3) The current legal situation and its execution in the Free State of Bavaria do not comply with the requirements set forth by the ECJ’s Gambelli decision for the justification of such a limitation.

aa) In this respect, in view of Art. 31 of the Federal Act on the Federal Constitutional Court one can and must refer to the remarks of decision of the Federal Constitutional Court of 28 March 2006 case-no. BvR 1054/01.

In its view, the state betting offer Oddset, established within the scope of the state betting monopoly, is not consequently aimed at fighting betting addiction and betting fervour (Federal Constitutional Court, par. 120).

The State Lottery Act did not contain any corresponding provisions and structural safeguards which would sufficiently guarantee this. The defaults of the embodiment of Oddset did not only represent a deficit of execution of simple material law but instead showed a regulatory deficit (par. 120). This regulatory deficit is reflected in the fact, that the bets operated by the Free State of Bavaria are not consequently focused on fighting betting addiction, betting fervour and other problematic ways of gambling (par. 132).

The operation of the Oddset sports bet evidently also serves fiscal purposes (par. 132) and is not focused at effectively fighting betting addiction and other problematic gaming behaviour, but instead, within effective marketing strategies appears to be a harmless leisure activity (par. 134). The declared intention of developing the target group of the ages 18 – 40 (par. 135), the widely applied advertising (par. 136), such a widespread distribution network with the maxim “wide land – short ways”, whereby the possibility of making sports betting a daily good is created (par. 138), an ineffective youth protection for the internet offer (par. 139) and a very scarcely limited presentation of this betting offer (par. 140) caused the current legal situation not be sufficient in order to constitutionally justify the state monopoly and solely therewith the exclusion of privately organised companies from sports betting (par. 142).

In this context the Federal Constitutional Court explains that “insofar” the requirements of the German Constitution and those set forth by the ECJ for Community law are concurrent (par. 144). To the conviction of the court and in view of Art. 31 Federal Act on the Federal Constitutional Court the current Bavarian sports betting monopoly cannot constitute a justification, neither by national law, nor by Community law, since it is not focused on the objectives for a mandatory protection of the public interest. (…)

bb) In addition, the Free State of Bavaria currently does not practise coherent and systematic gaming policies fulfilling the requirements set forth by the ECJ and Community law (see Redeker/Sellner/Dahs & Widmaier, l.c. page 18 et seq.).

The requirements for a justification set forth by the ECJ even exceed the requirements of the Federal Constitutional Court, which only regarded them to be concurrent “insofar” (see. Federal Constitutional Court l.c. par. 144) as it had examined, whether the sports betting monopoly was focused on the justifying goals. The ECJ in addition not only requires the limitations in place to be suitable in order to reach the above mentioned goals, that is, that they are coherent and that they contribute to limiting gambling (ECJ – Gambelli – par. 67). Therefore there is a need for a comprehensive and systematic gaming policy, including casinos, lotteries, horse-betting, TV and radio games. This is reflected in par. 69 of the Gambelli-decision and in its head note, stating that a justification referring to the public order is excluded, in case the authorities of a Member State incite and encourage consumers to participate in lotteries, games of chance and bets in order to generate revenues. Such a gaming policy in not being pursued in the Free State of Bavaria (see e.g. the remarks of Redeker/Sellner/Dahs & Widmaier, l.c. page 18 et seq.).

Despite the rapid changes for Oddset in Bavaria, the opinion of the Administrative Court of Appeal of Magdeburg of 4 May 2006, that of the Administrative Court of Gelsenkirchen of 29 May 2006 case-no. 7 L 701/06 and to some extent that of the Administrative Court of Bayreuth of 27 April 2006, case-no. B 1 S 06.283, introduced in the oral hearing, the deciding court considers the opinion, that in view of the immediate measures taken, including some considerable limitations for Oddset betting, the current embodiment of the betting monopoly fulfilled the requirements for justifying the limitation of the freedom of establishment and the freedom to provide services set forth by the ECJ and therefore were not in violation of Community law, to be unfounded.

In this context one has to refer to the explanations of the Federal Cartel Office of 24 May 2006 case-no. Z. B 10 – 148/05, which raise serious Community law related and antitrust related doubts as to the embodiment and the breakdown of the German market and in particular Art. 5 par. 3 of the Interstate Lottery Treaty itself (page 136 l.c.).

In the opinion of the deciding court, despite the recent change in Oddset area, there are still doubts as to the coherence and consistency as well as to the clear focus of the sports betting system as a whole on the high goals of the public interest. Fundamental deficits in the area of surveillance, advertising/sponsoring, distribution and sales as well as public order are evident.

This apart, the court sees the necessity to not only conduct a systematic gaming policy by factual execution on the executive level but in the view of the rule of law (Art. 19 par. 1 German Constitution) to cast such a policy in an Act of Parliament, especially if it entails interferences with basic rights. In this context again one has to refer to the explanations of the Federal Constitutional Court which do not only state a deficit in execution, but moreover also state a regulatory deficit in the State Lottery Act (Federal Constitutional Court, l.c. par. 120). Par. 156 also shows that the Federal Constitutional Court acts on the assumption of a reorganisation by the legislator (federal or state level) and not only on factual execution changes.

It can remain to be seen, whether the requirements set forth for the transitional period by the Federal Constitutional Court are currently being complied with, since the regulatory deficit found fault by the Federal Constitutional Court were definitively not eliminated until the oral hearing on 7 June 2006. As shown by a notice in the protocol at the end of the decision of the ministers of the interior on their conference on 5 May 2006, a final opinion on a federal level as to whether the state monopoly is to be upheld or whether a partial opening of the market had to be considered, has not been reached yet. Instead, according to a disclosure by the plaintiff´s attorney, a political initiative for the regulation of sports betting has recently been introduced in parliament by the fraction of the Liberal Democratic Party (FDP). Only the elimination of this regulatory deficit will be able to bring about a legal situation in conformity with constitutional- and Community law.

(4) For lack of justification of the interference with basic rights and as a consequence of the inapplicability of provisions violating Community law one has to act on the assumption of the inapplicability of the Bavarian State Lottery Act and the corresponding interfering provisions of the Interstate Lottery Treaty excluding private operators and bookmakers form the gaming market.

Since the notification in question refers exactly to this violation of Community law and therefore inapplicable legal situation, it is unlawful. The possibility of licensing a private sports betting operator and bookmaker can not be excluded categorically without further justification, the way the defendant did in its notification in dispute (also see Federal Court of Justice, decision of 14 March 2002, case-no. I ZR 279/99, NJW 2002, 2175 (2176), who advances this consequence in the case the sports betting monopoly is in violation of Community law).”

The complete text of this decision can be found as a PDF document on our homepage www.gaminglaw.de.