February 21 2008
In June 2007 the European Commission sent France a final warning to open up its sports betting market. The Supreme Court endorsed the European Court of Justice's (ECJ) position on the compatibility of member states’ gambling legislation with the EC Treaty in a dispute between the French monopoly holder for online betting on horseracing - Pari Mutuel Urbain - and a Maltese operator of online betting activities, Zeturf.(1) The decision established the criteria under which Pari Mutuel Urbain is possibly breaching EU law.
Rapidly expanding online gambling sector
Online gambling began to expand in the United States in 1995 as one of the first e-commerce applications. Since then, the online gambling industry has experienced rapid growth on a global scale. Europe appears to be one of the most promising markets.(2) For example, according to Jupiter Research, turnover from sports betting totalled $3.2 billon in 2005 and is forecast to reach $7.2 billon in 2009.(3) This development has led operators to set up online gambling websites in gambling-friendly countries, which then serve as a base from which to provide services to countries where such services are highly regulated or prohibited, such as France. Online gambling activities have generated an increasing number of conflicts among website operators, states and licensed gambling entities.
France’s restrictive gambling legislation
French law is one of the most restrictive on gambling, whether online or offline. This is a result of several laws:
These laws are applicable to foreign websites offering gambling services when accessible from French territory.
France passed a new law in March 2007 which further toughened criminal penalties applicable to gambling activities.(7) However, the legislature’s severe position contradicts ECJ jurisprudence on the compatibility of national gambling legislation with EU law.
ECJ case law
Since 1994 the ECJ has recognized member states' rights to restrict gambling activities in order to protect the general interest.(8) In the Zenatti Case(9) the ECJ held that Italian legislation which grants certain organizations the exclusive right to collect sports bets did not fall foul of the EC Treaty principle of the free movement of services (ie, Article 49), provided that such legislation is justified by social policy objectives and that the legislative restrictions are not disproportionate to those objectives.
However, in Gambelli(10) and Placanica,(11) which both relate to online sports betting, the ECJ was more stringent when assessing such restrictions. The court made it clear that a law prohibiting the organization of sports betting without a licence or an authorization from the member state concerned constitutes a restriction on the right of establishment (ie, Article 43) and on the freedom to provide services. However, these restrictions may be justified if they are: (i) necessary to protect general interest objectives (ie, consumer protection, the prevention of the use of betting and gambling for fraudulent or criminal purposes, or the protection of public order); and (ii) neither discriminatory nor disproportionate to the pursued objective. These restrictions must limit betting activities in a ‘consistent and systematic’ manner.
In Zeturf v Pari Mutuel Urbain(12) the Supreme Court endorsed the ECJ’s interpretation of Article 49 and applied the ECJ’s test to assess the compatibility of French gambling legislation with EU law.
Pari Mutuel Urbain had brought an action against Zeturf, a Maltese company, which offers online betting on horse races occuring in France. The Paris Court of Appeal(13) ratified the decision of the tribunal of first instance,(14) which prohibited Zeturf from offering its services. The court of appeal considered that Zeturf’s activities breached French legislation - which grants Pari Mutuel Urbain the exclusive right to organize bets on horse races occuring in France - and that French law did not violate Article 49.
The Supreme Court overturned the court of appeal’s decision. The fact that the state receives gambling revenues was insufficient to condemn the monopoly. On the grounds of Zenatti, Gambelli and Placanica, restrictions on the freedom to provide services may be justified only by general interest objectives consisting of (i) preventing the exploitation of gambling activities for criminal or fraudulent purposes by channelling it into controllable conduits, or (ii) reducing gambling opportunities. Nevertheless, the court held that this objective can be attained only if the law actually reduces gambling opportunities and limits activities in a consistent and systematic manner. Such conditions are not met where the legislation actually aims to expand the gambling sector in order to increase the state’s tax revenue and it concluded that the court of appeal did not verify whether such conditions were fulfilled.
Finally, the Supreme Court considered that the court of appeal should also have checked whether the general interest was already protected by the existing regulations in Zeturf’s country of establishment, applying the principle of mutual recognition. Therefore, in a dispute between two organizations established in two different member states, the application of the mutual recognition principle may counteract the effectiveness of the general interest test in the state where the services are received. Even if Pari Mutuel Urbain’s monopoly is found to be in the general interest in France, it may nevertheless be struck down if the general interest is sufficiently protected by the Maltese law regulating Zeturf.
The Supreme Court has not ruled directly on the conformity of French and EU gambling law, but it has provided the criteria under which French legislation is considered to violate EU law. It will therefore be up to the court of appeal, to which the case has been remanded, to assess whether the monopoly complies with EU regulations.
The court of appeal must review the consistency between the general interest and French gambling policy. This consistency is likely to be rejected by the court, considering that government policy to date has served to expand, not to reduce, gambling in France.
This decision was rendered soon after the European Commission sent a reasoned opinion in June 2007 requesting that France amend its restrictive legislation on sports gambling and betting activities. This is the final formal warning before a claim is brought before the ECJ.
In response, the finance minister recently declared that France is ready to open up its gambling market under certain conditions. However, the government has already indicated its refusal to apply the mutual recognition principle. Proposed changes to the regulations on sports gambling and betting are due to be provided to the European Commission in February 2008. These changes are expected to adapt older French legislation to recent technological changes. They will be welcomed as an auspicious development by online gambling operators seeking to expand their business in France.
The shape of the new regulatory framework will depend on the discussions that will take place between France and the European Commission in the next few months.
For further information on this topic please contact Bradley L Joslove or Vanessa De Spiegeleer-Delort at Franklin by telephone (+33 1 45 02 79 00) or by fax (+33 1 45 02 79 03) or by email (email@example.com or firstname.lastname@example.org).
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Bradley L Joslove
Vanessa De Spiegeleer-Delort