Gambling before the European Court of Justice: The pleadings by Carmen for the freedom to provide services on the Internet

By Univ.-Prof. Dr. iur. Koenig LL.M., Rheinische Friedrich-Wilhelms-University Bonn and Attorney-at-law Dr. iur. Michael Hettich, Hambach & Hambach law firm.

In its press release “Administrative Court of Schleswig – just as the EU Commission – sees a violation of EU law and has submitted European-law questions relating to the new sports betting monopoly to the ECJ, Hambach & Hambach informed the public for the first time of the ECJ case Carmen Media (C-46/08) represented by the law firm http://www.timelaw.de/cms/front_content.php?idcat=12&idart=468〈=1.

On 8 December 2009, only slightly less than 2 years later, the La Grand Salle at the European Court of Justice was the centre of (European) gambling (law): In a total of seven German proceedings submitted for preliminary rulings, 27 counsels gave their pleadings before the Grand Chamber of the Court of Justice.

After the disappointment over the low significance of the long-expected judgment in case C-42/07 (Liga Portuguesa), it had been the intention of all parties involved to wrest from the Court a guideline decision in the German preliminary ruling cases which would contribute to the further development of (European) law and to clarity in (European) law. Due to the very precise questions posed by the submitting courts, the chances are better than they have been for a long time.

The Court’s questions directed to the parties involved prior to the hearing clearly showed that the legal and factual design of the gambling regulations in Germany are at the Court’s focus. The objective of the counsels of the private gambling providers therefore was to show as vividly as possible that the requirements set by German gambling law are unsuitable from the outset to attain the pursued objective in the public interest, i.e. the combat of gambling addiction.

The following reprint of the pleadings by the counsels for Carmen Media Ltd. in case C-46/08 will provide direct insight into the hearing. This case had a special role on 8 December 2009 in as far as it was the only case which exclusively related to the organisation of gambling on the internet, and the only case which was submitted for a preliminary ruling after the new Inter-State Treaty on Gambling (Glücksspielstaatsvertrag – GlüStV) came into force:

Univ.-Prof. Dr. iur. Christian Koenig LL.M.:

Mr. President, Honourable Members of the Court, Mr. Advocate General!

The inconsistencies of the disproportional German regulation specified in the second question submitted for a preliminary ruling shall now be explained by the Claimant, on the one hand in view of a lack of an empirical foundation for the restrictions; on the other hand, the Claimant will show that the fragmented organisational structures of the German gambling regulations will lead to a failure of the state monopoly system.

The Fachbeirat Spielsucht (expert committee on gambling addiction) established by the Laender under the German Inter-State Treaty on Gambling (GlüStV), stressed in its annual report for 2008 that there is no overall integral and reliable study on gambling addiction in Germany. You can find this acknowledgement of the state-established Fachbeirat Spielsucht on the internet at www.fachbeirat-gluecksspielsucht.hessen.de. I would like to literally quote the main statements made by the Fachbeirat.
“For Germany – in contrast to many of the neighbouring European countries – a significant and representative epidemiological study on the prevalence of problematic and pathological gambling does not exist.”
In its supplementing resolution dated 14 November 2008, the Fachbeirat again, unsuccessfully up to now, requested the urgent implementation of an epidemiological study on gambling addiction in Germany; this statement is also accessible under www.fachbeirat-gluecksspielsucht.hessen.de. I would like to quote from this as follows:
“The Fachbeirat notes that sufficient financial means are not available at present in order to be able to implement the Fachbeirat’s recommendation of 26 May 2008. (…)”
The study requested by the Fachbeirat has not been commissioned due to a lack of financial contributions by the Laender. In spite of state revenue from gambling amounting to 5 billion € per year, the Laender have not allocated sufficient funds. This means that the German Laender had already failed right from the start to empirically prove the risk correlations. However, only on an empirical basis such as this would the member state then subsequently be able to consistently define the level of protection. The empirical defect of the risk correlation which, in the case of sports betting, was only generally alleged but has not been investigated, furthermore correlates with the substantial lack of consistency in the prohibition regulations under the GlüStV: The GlüStV prohibits the organisation and brokering of lotteries and sports bets via the internet. This excludes providers from other member states from offering their services in Germany. On the other hand, it is possible for commercial providers and online offers for more dangerous games of chance, such as horse betting and slot machines, to be granted licences. The liberal regulation of slot machines is in stark contrast to the Fachbeirat’s resolution dated 12 March 2008, to reduce the risks resulting from slot machines. Quote:
“The Fachbeirat recommends that the Laender take a legislative initiative via the Bundesrat (assembly representing the Laender in the German parliament) in order to achieve a modification of the Gewerbeordnung (Industrial Code). Slot machines have the highest addiction potential among all games of chance. For slot machines, the share of pathological players in relation to the stakes amounts to up to 40 per cent.”
However, the legislator has not complied with the resolution by the Fachbeirat to reduce the risks caused by slot machines. This means that the regulatory level of protection in the entire German gambling sector remains blatantly inconsistent.

The Land of Schleswig-Holstein has already drawn the conclusions from the untenability of the GlüStV: According to its coalition agreement, the new government of the Land will cancel the GlüStV.

The reason why the German Laender ignore the recommendations of the Fachbeirat becomes understandable when looking at the organisational structures of the state gambling monopoly. One issue on which the Court, in its instructions on the proceedings, requested special information was the following:

In all Laender apart from Berlin and Bavaria, the lottery companies are organised in the legal form of a Gesellschaft mit beschränkter Haftung (limited liability company).

The “decisive indirect participation” under section 10 subsection 2 of the GlüStV must be organised in a consistent way with the aim of allowing an effective controlling influence by the state in order to combat gambling addiction in a way which is systematic and efficient under epidemiological aspects. The fragmentation of the organisation of the German gambling monopoly, however, thwarts the consistent combat of gambling addiction.

In Schleswig-Holstein, 100% of the shares in NordwestLotto Schleswig-Holstein GmbH & Co. KG are held by Investitionsbank Schleswig-Holstein, an institution owned by the Land. The management is in the hands of a Gesellschaft mit beschränkter Haftung organised purely under private law; 100% of the shares in this company are in turn held by Investitionsbank Schleswig-Holstein. Such investment banks and Laender banks must attend exclusively to the interests of managing the assets of the institutions which established them, and of their customers. Pursuant to § 2 of the articles of association of the Investitionsbank, this bank is – quote – “(…) a general commercial bank. The objects of the company are all types of bank transactions and financial transactions.” The managing Investitionsbank, according to its articles of association, does not fulfil any controlling duties in the area of the combat of gambling addiction.

In the other Laender, the prerequisite of a “decisive indirect participation” under the GlüStV is construed in an even more generous manner: Here, even sports associations hold shares, in Rhineland-Palatinate even 100% up until last year, at present 49%.

51% of the shares in Lotto Rheinland-Pfalz GmbH are now held by the Land, while the sports association Landessportbund Rheinland-Pfalz und Rheinhessen holds 49%. This is particularly noteworthy as the sports associations, some of which directly, or via foundations, benefit from the income, can objectively not be interested in combating addiction. Proof of this can be found on the internet under www.gluecksspielstaatsvertrag.de , and shall now be quoted literally from this website:
“The monopoly in the area of gambling, and with it the existence of the Landessportbund, is ensured. In this way, the state guarantees the foundations for 7,800 clubs and 53 associations in Hesse; they form the framework for the entire area of sports. From the point of view of the government of the Land, there is no alternative to the existing financing system, neither at present, nor in the foreseeable future. Neither the Land’s budget nor, and even less so, other public budgets would be able to raise the additional sum of almost 20 m € per year.”
The sports associations are co-financed by the income from the monopoly, and their statements, which disclose the real objectives of the regulation, show why the German Laender ignore the recommendations of the Fachbeirat. There is no room for the combat of gambling addiction in an epidemiologically efficient manner!

The highly inconsistent system of gambling regulation in Germany appears even
more chaotic when looking at the organisational structures of casinos. In 4 of the 16
Laender, casinos are in private hands.

The factual and legal fragmentation of the organisational structure due to the so-
called “indirect participation” under the GlüStV leads to a failure of the state
monopoly system. Whilst gambling supervisory authorities have been established,
these have up to now not become active and would only have very restricted
possibilities of intervening anyway, in particular in cases where the management de
facto lies with the investment bank of the Land, as in Schleswig-Holstein. Also, the
arbitrary involvement of private parties, and in particular of the sports association
which are co-financed from the monopoly revenue, considerably weakens the state’s
controlling influence. A consistent and systematic combat of gambling addiction
cannot be achieved under the conditions prevalent in Germany. The fragmentation
of the organisational structure of the state gambling monopoly in Germany differs
fundamentally from the uniform and systematic organisation of Santa Casa in Liga
Portuguesa.

My colleague, Dr. Hettich, will now comment on the specific disproportionality of the
internet ban.

Dr. iur. Michel Hettich:

Mr. President, Honourable Members of the Court, Mr. Advocate General!

“Well meant” often is the opposite of “well done”. When the German state partially prohibits internet gambling, one has to ask whether it only means well for itself. In any case, it does it badly.

In 2006, Carmen Media was refused permission to offer internet sports bets to German citizens. During my submissions, I shall first of all show that this refusal violates European law and that the provided justification for the refusal was incorrect. Whilst the prohibition of sports bets and lotteries on the internet is intended to combat gambling addiction, in reality, however, it actually re-directs players to the more dangerous offers provided on the internet. Secondly, I will show how gambling addiction could be combated much more effectively without complete prohibitions by means of regulatory measures.

On the first issue: The decision to refuse my client permission to offer internet sports bets to German citizens violates European law.

Why is my client not permitted to offer internet sports bets in Germany, when at the same time the state-run company Westlotto advertises in Luxembourg via the website www.loterie.lu? In doing so, Westlotto hazards the consequence that offers are also provided to gambling addicts, rendering the prevention and combat of gambling addiction on the internet a mere farce.

Will the German state be able to prevent gambling addiction by imposing a national internet ban? No!

This is because, on the internet, borders can be crossed with one mouse click.

The Carmen Media Website also is available worldwide. The world in this case includes Gibraltar; I say this in order to avoid misunderstandings to the effect that gambling offers may be prohibited in Gibraltar. The former tax-related offshore regulations no longer apply. This means that Carmen Media has been permitted to offer internet games in Gibraltar without any restrictions since the end of 2006.

Whether Gibraltar or Luxembourg, for a German player it is very simple to bypass a national ban, by using the globally available internet offers. This is also possible by taking part in the games offered on www.loterie.lu.

With its offers on www.loterie.lu, Westlotto bypasses the internet ban. A particularly cynical aspect is that last year, Westlotto filed action against my client Carmen Media on account of an alleged violation of competition law with regard to its internet offers. I would ask the Court to take into account, during its decision-making process and when drafting the grounds of the judgment, the significance of this decision for proceedings such as the ones against my client, which are filed in abuse of the law.

Gambling providers other than Westlotto also knowingly violate the internet ban for fiscal reasons, while at the same time filing action against their private competitors.

In this context, I would like to point out three examples which show how players are dishonestly recruited in an illegal manner, for instance on www.lotto.de.
  • First of all, the website continuously shows the sum of the current jackpot.
  • Secondly, the lottery draw is broadcast live on the internet.
  • Thirdly, statistics of the most frequently drawn numbers are published. This is particularly prone to cause addiction, as the statistics suggest that the player has the chance to win if he/she chooses the numbers which are drawn most frequently.
Similar violations of the internet ban can be found on the website www.skl.de. It is even possible to order lottery tickets on this site – a clear bypassing of the internet ban for lotteries.

The state authority for gambling supervision does not prevent any of the above violations. The codification of gambling supervisory law in Germany is, as the previous speaker, my colleague Prof. Koenig, has pointed out, unsystematic and inconsistent, so that an effective state gambling supervision is virtually doomed to fail against the mentioned violations.

The representative for the Land of Baden-Württemberg has just stated in his submissions that the internet ban is necessary in order to combat crime, basing this argumentation on the Liga Protuguesa judgment.

However, the legislative explanations on the GlüStV show that the objective pursued by the German state with the internet ban for lotteries and sports bets was neither the combat of crime nor the protection of minors.

I quote: “Gambling on the internet should be banned, as it (…) bears particularly notable addiction risks (…).” The objective is not to combat crime.

This is another point where our case substantially differs from Liga Portuguesa:

In Germany, the only standard for the evaluation of whether the internet ban on lotteries and sports bets is suitable and necessary is the consistent and systematic combat of gambling addiction. The restriction in Portugal to Santa Casa as the sole provider, on the other hand, exclusively served the objective of combating crime.

Another question is: How can gambling addiction be fought if Germany, in spite of revenue from gambling of 5 billion € per year, does not allocate the financial means to commission adequate studies?

Even if the state commissioned such studies, it would be discovered that the internet ban has not reduced gambling addiction.

Why?

In 2008, for instance, while an internet ban for sports bets was in force, Germans placed stakes amounting to 1.6 billion € on internet sports bets offered by providers abroad.

At the moment, Germans can place their sports bets on approx. 3,000 internet sites.

For 2008, the total turnover in the area of those games of chance banned under the GlüStV amounted to 5.6 billion €. This is exactly the revenue generated by the state with its gambling companies.

Upon a corresponding inquiry by the Court, the Claimant would like to especially point out that the system of the partial internet ban has failed.

According to findings by experts and researchers, players in danger of addiction will, if games are banned, switch to offers provided from abroad, which are a mere mouse click away. Even Prof. Dietlein as the representative of the state monopoly has just confirmed this during his submissions. Such players also place their stakes on horse races and slot machines, all of which are not banned on the internet in Germany, in an inconsistent manner.

For details, we would like to make reference to the submissions by Carmen Media in the written statements, and to the resolution by the Administrative Court of Schleswig-Holstein submitting the case for a preliminary ruling.

The reason why players can so easily switch to other offers also is inherent in the technical realities of the internet.

Since the introduction of the partial internet ban on lotteries and sports bets on 1 January 2008, not one website operated by a foreign lottery or sports betting provider has been deactivated or blocked by the state. The state’s failure to supervise the medium internet is caused by its technical structure: the specific, decentralised architecture of the computer network internet opens up endless possibilities of digitally bypassing official blocking orders. Billions of electronic nodes open up endless data transmission routes. A state-imposed ban will inevitably trail off in the infinity of transmission routes.

This concludes my submissions on the first issue. I would now like to address the second point: How can gambling addiction on the internet be prevented and combated?

The fact that a centralised state-run supervisory authority can permit games on the internet and control them at the same time has, for instance, been shown by the most important technical control board, TÜV Rheinland, in a study which can be accessed under www.tuv.com/de in the file “Systeme“, sub-file “Zertifizierung/Gutachten zur IT Sicherheit“:

How does this control system function technically?

Each mouse click leaves its mark and can be traced by the provider. Every player is directly connected to the game provider’s server via a programme. All of the player’s actions can therefore be analysed correspondingly and can be transmitted in real time to the supervisory authorities – as is the case in Italy or England. The process is similar to internet banking: once the limit has been exceeded, access to the account is denied.

In this manner, the state can, once a player reaches certain limits, either itself or through others, protect players in danger of gambling addiction by means of player bans, stake limitations or similar measures.

We shall provide further technical details which are important for the evaluation should the Court request additional submissions.

We would like to summarise as follows:

A state intending to effectively combat gambling addiction must not ban internet games but rather permit them on the basis of a consistent and systematic regulation, in combination with the imposition of technically suitable requirements. That would mean, “doing it well”.

Finally, this has also been confirmed by the research section of the German Bundestag, in its statement dated 27 February 2009 by Dr. Martin Limpert. The research section of the German Bundestag recommends to abolish the GlüStV and to implement a uniform regulation on the nationwide level.

Thank you for your attention!

The fight over the German gambling monopoly will soon go into the next round before the ECJ: The opinions by Advocate General Paolo Mengozzi will already be published on 3 March 2010.

Source: TIME LAW NEWS 1/2010 (www.timelaw.de) Hambach & Hambach Law Firm