Swedish case goes in Ladbrokes’ favour

Ladbrokes recently won a case against the Swedish state monopoly, Svenska Spel.

Svenska Spel filed a law suit against Ladbrokes last year for breach of trademark laws in connection with the Ladbrokes advertising campaign “Swedish games with English odds”. The Swedish company claimed that Ladbrokes had misused the Svenska Spel trademark and that only the state monopoly can use the term “Swedish” and “games” for commercial use in advertising and marketing. The Market Court in Sweden ruled that Ladbrokes did not violate the trademark act of Sweden.

Christopher Bell, chief executive of Ladbrokes, stated that this case means that Swedish monopolies cannot extend their power to monopolising language.

For its part, Ladbrokes countered with a law suit against Swedish game (Svenska Spel) for violation of the Marketing Act, for the use of terms such as “Svenska Spel is a world leader in responsible gaming” and “the most effective age verification online.” The Swedish Marketing Court ruled in favour of Ladbrokes and Svenska Spel faces a penalty of SEK 750,000 if these statements are used in future marketing activities.

The ruling, according to Ladbrokes, also noted that the company did not sufficiently manage to demonstrate that the use of statements such as “same game” and “major gains” in the Ladbrokes ad campaign 2008 was relevant to the facts, and therefore contrary to the Marketing Act.

Ladbrokes has been quite critical of Swedish state monopoly laws and actions that restrict competition and choice. Late last year, Ladbrokes had described a report issued by the Swedish National Gambling Consultation as protectionist and anti-competitive. It mentioned that none of the EU principles of proportionality or free and fair competition across border were taken into account in the paper – it is more monopoly, not less. The objective is to protect Government revenues and penalise competitors, it had stated.

ECJ’s ruling in Liga Portuguesa de Futebol Profissional Bwin – Legal Analysis

The present memorandum will briefly analyze the ECJ’s landmark ruling in Liga Portuguesa de Futebol Profissional Bwin[1] (hereinafter referred to as the “ruling”): it will highlight both the main features and the gist of the aforementioned ruling with regard to online gaming operators’ business within the EU.

Although the ECJ’s ruling did not uphold the mutual recognition principle, in the field of online gaming activities, it is our understanding that the so-called “conditional recognition principle” has not been expressly dismissed by the ruling. According to this principle, each Member State should be entitled to issue and enforce its own gaming regulations at national level yet it would also have to take into account the licenses, and the conditions fulfilled, granted by other Member States, when it comes to assessing whether to grant a license to an online gaming operator. In this respect, our understanding of the ruling is that Member States will enjoy a wide margin of discretion as regards the assessment of online gaming operators’ applications for licenses, provided, however, that the general principle of proportionality is complied with.

Main features of the ECJ’s ruling

As regards the infringement of the freedom to provide services

• The ECJ considers that the Portuguese legislation at stake is incompatible with the principle referred to above (recital 54), in accordance with settled case law of the ECJ (Gambelli, Placanica).

Needless to dwell on the above-mentioned since the ECJ’s statement is straightforward and requires no further explanation.

As regards the justification of the above-mentioned infringement of the freedom to provide services

• First, the ECJ recalls the principles laid down by its earlier case law (recital 57) regarding online gaming activities within the EU (Gambelli, Placanica, Schindler and Läära).

In our opinion, this statement is of paramount importance because it implies that the ECJ does not intend to depart from the above-mentioned case law regarding online gaming activities within the EU. Accordingly, the ruling must be read, and interpreted, in light of the ECJ’s earlier case law. Thus, one may argue that the ruling stands on its own facts and must not receive a wider interpretation.

• Second, according to the ECJ, it should be noted that the fight against crime may constitute an overriding reason in the public interest that is capable of justifying restrictions in respect of operators authorised to offer services in the games-of-chance sector. Games of chance involve a high risk of crime or fraud, given the scale of the earnings and the potential winnings on offer to gamblers (recital 63).

• Third, the ECJ infers from the foregoing that Member States are free to set the objectives of their policy on betting and gambling and, where appropriate, to define in detail the level of protection sought. However, the restrictive measures that they impose must satisfy the conditions laid down in the case law as regards their proportionality (Placanica and Others, recital 59).

To our estimation, one must conclude from the two above-mentioned statements that Member States enjoy a large margin of discretion as regards the definition of the overriding reasons of public interests pursued by their national legislations, provided, however, that the latter do not go beyond what is necessary to attain the legitimate aim pursued. In this respect, our understanding is that such national legislations could still be challenged if it is proven that Member States have committed a manifest error of assessment. The threshold is high, but not impossible to attain depending on the circumstances.

• Fourth, the ECJ then recalls that it is apparent from the national legal framework, set out in paragraphs 12 to 19 of its ruling, that the organisation and functioning of Santa Casa are governed by considerations and requirements relating to the pursuit of objectives in the public interest (recital 66).

The above-mentioned statement supports the contention that the ruling must not be broadly interpreted. In fact, the ECJ seems to attach a great deal of importance to the specific legal framework in relation to Portugal. Accordingly, one must carry out a case-by-case assessment of all national legislations under scrutiny. It is likely that some Member States’ legislations will not satisfy the conditions set out by the ECJ’s ruling.

• Fifth, the ECJ held, in a statement of principle, that it should be noted that online gaming activities are not subject to Community harmonization (recital 69). According to the ECJ, Member States are entitled to consider that the mere fact that an online gaming operator, such as Bwin, offers legal services in this sector through the Internet in another Member State where it is located and where it is in principle already subject to legal conditions and controls by the competent authorities of that State, cannot be considered a sufficient guarantee of national consumer protection against the risks of fraud and crime, given the likely difficulties which could be encountered in such a context for the authorities of the Member States of establishment to assess the quality and integrity of online operators.

As noted above, this statement must be interpreted in the context of the Portuguese legislation under scrutiny by the ECJ.

• Sixth, according to the ECJ, due to a lack of direct contact between the consumer and the operator, gambling accessible via the Internet may carry risks of different nature and greater importance in comparison with traditional markets with regard to possible fraud committed by operators against consumers.

Moreover, according to the ECJ, one cannot rule out the possibility that an operator, who is sponsoring some sporting events on which it takes bets and some of the teams participating in these competitions, is in a situation that allows it to directly or indirectly influence the result of the latter and thus increase its profits.

In view of the foregoing, the ECJ therefore considers that the restriction at issue is, given the peculiar characteristics related to the provision of gambling via the Internet, to be regarded as justified by the objective of fight against fraud and crime.

Narrowing down the scope of the ECJ’s ruling

It is our understanding that three alternative routes could be considered to narrow down the scope of the ECJ’s ruling. These routes will be briefly explained below.

Route 1

The ECJ’s ruling must not be broadly interpreted because its scope is limited to the peculiar legal regime applicable in Portugal with regard to online gaming operators. In other words, the ruling needs (i) to be distinguished from the legal regimes applicable in other Member States of the EU and (ii) stands on its own facts. Therefore, online gaming operators can still rely successfully on the freedom to provide services, as enshrined in Article 49 of the EC Treaty, to challenge national measures in the field of online gaming. Futhermore, the aforementioned ruling does not modify the current state of EC law with regard to the “conditional recognition principle”, it is worth recalling that it is settled case law of the ECJ that a host Member State needs to take account of the conditions fulfilled in a home Member State when the former assesses whether to grant a license to exercise a regulated activity in its jurisdiction.

Route 2

Online gaming operators are still entitled to rely upon the proportionality test in order to challenge national measures in the field of online gaming. However, it seems that the ECJ will be scrutinizing the national measures in question through the manifest error of assessment approach, namely Member States will enjoy a wide margin of discretion as regards the measures under scrutiny. That being said, it cannot be ruled out that some measures would fail to pass the above-mentioned proportionality test.

Route 3

Since the ruling is based on the application of Article 49 of the EC Treaty, it is worth considering to rely upon Article 86, § 1, read in conjunction with Articles 82 and 10, of the EC Treaty in order to challenge national monopolies conferred on the incumbents. In accordance with settled case law of the ECJ, the aforementioned Articles, read in conjunction, are aimed at preventing Member States from either creating or favouring national monopolies capable of abusing of their dominant position on the market. In this regard, it seems to us that it is undisputed that national gaming monopolies are holding such a dominant position.

[1] ECJ., 8 September 2009, C-42/07, not yet published, made available at www.curia.europa.eu.

ECJ delivers a critical judgment

The European Union’s highest court recently ruled that a Portuguese state-run charity’s gambling monopoly is legal if it aims to combat criminal activity.

The European Court of Justice (ECJ) rendered its judgment in a case involving bwin and the Portuguese football league versus the Portuguese monopolist Santa Casa da Misericórdia de Lisboa (Santa Casa).

Santa Casa claimed that bwin’s sponsorship agreement with the Portuguese professional football league and accompanying advertising activities were illegal because of Santa Casa’s monopoly in providing on and offline lottery and betting services in Portugal.

According to the ECJ, the Portuguese monopoly on the Internet may comply with Community law under certain conditions, but restrictions imposed by a Member State “must be suitable for achieving the objective or objectives invoked by the Member State concerned, and they must not go beyond what is necessary in order to achieve those objectives. Lastly, in any event, those restrictions must be applied without discrimination.”

The Direccao do Departamento de Jogos da Santa Casa de Misericórdia de Lisboa, a Portuguese state charity that has a broad national monopoly covering electronic betting and lotteries on television, radio and the Internet, fined the Liga €75,000 ($107,565) and Bwin €74,500 for infringing on its monopoly, according to Dow Jones. Liga and Bwin appealed these fines before a Portuguese court, arguing that EU rules ensure companies can provide goods and services freely across the bloc’s borders. The court hearing the case decided to ask the ECJ to give its interpretation on the application of EU law. The Luxembourg court ruled that free movement of goods and services can be restricted if the public interest is at stake.

A major setback for online gaming

The online betting industry has suffered a setback as the European Union said that member states could be allowed to ban gambling websites if its intention was to stop crime.

In a recent ruling, The European Court of Justice (ECJ) decided that a Portuguese state-run charity’s gambling monopoly is legal if it aims to combat criminal activity.

Referring to the recent case, which involved bwin and the Portuguese football league versus the Portuguese monopolist Santa Casa da Misericórdia de Lisboa, Sigrid Ligné, secretary general of the European Gambling and Betting Association (EGBA), said given the stringent anti-fraud regulations applicable to EU licensed operators which ensure a high level of integrity, transparency and traceability over online gaming transactions, “we do not believe those conditions are met”.

“Several jurisdictions in the EU already prove that it is possible to guarantee a high level of consumer protection and have a well regulated and competitive online gaming market at the same time,” said Ligné.

According to the Association, the judgment must also be seen in the context of the increasing number of Member States that are now in the process of rethinking and redrafting their gaming legislation. As has been obvious for all other consumer markets before, none of the Member States currently drafting legislation has chosen a monopoly model to regulate this modern Internet based market.

Overall, the sentiments have been fairly negative.

“It’s a bit disappointing because the hope was that the European Commission and the European Court of Justice were actually in favour of markets opening up,” said James Hollins, analyst of gambling stocks at Daniel Stewart & Company, according to Reuters. “It looks like (the ruling) would strengthen the hand of countries who want to continue to protect state monopolies, which include Portugal or Germany.”

Internet-based gambling operators are currently involved in a number of court cases and regulatory disputes over access to markets in Europe. The industry feels the recent verdict may adversely impact the pending cases.

Camelot asked to discontinue its email campaign

The Advertising Standards Authority (ASA) recently directed Camelot Group to drop its email advertising campaign for the National Lottery.

The Authority upheld a complaint that Camelot encouraged excessive gambling although it rejected the suggesting it implied gambling was indispensable.

According to Camelot, the ad was one of a series of e-mails which were sent to National Lottery players who had opted to receive marketing communications.

The advertiser explained that the ad did not imply that gambling was indispensable and reasoned that it merely suggested that, because of the advantages of playing the Lottery interactively, a good excuse was needed by recipients if they were to miss out. Also, it added that the ad was designed to stress some of the advantages of playing the Lottery interactively and mentioned features like automated ticket checking, advance play and win notifications. The ad did not encourage excessive play but provided information that helped recipients decide if they wanted to play Lottery games interactively.

But the ASA considered that the ad focused on the benefits of playing the Lottery interactively and invited recipients to use their interactive account repeatedly by stating “The more you play the more likely you are to win”.

It noted the ad suggested that recipients had a higher chance of winning if they bought multiple lines, across the numerous Lottery games on both the Wednesday and Saturday weekly draws, and concluded that, by referring to the greater chance of winning resulting from multiple entries, the ad encouraged repeated and potentially excessive gambling.