European Court of Justice rules on Schleswig-Holstein, but offers little certainty for online operators in Germany

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

After previous uncertainty surrounding the legality of Germany's Inter-State Treaty on Gambling ("ITGCJEUDigibet and Albers v Westdeutsche Lotterie[1]TFEU"), the Court of Justice of the European Union ("") has now ruled in the vital case of . Although this provides some clarity on the consistency of the federal German law with Article 56 of the Treaty of the Functioning of the European Union (""), the ruling crucially fails to address wider concerns regarding the proportionality and transparency of gambling regulation in Germany overall, leaving the future unclear for operators in the country.

Background to the case

Following controversy and no little drama in German online gambling regulation, the CJEU on 12 June 2014 delivered its final judgment in the case of Digibet and Albers v Westdeutsche Lotterie. The case concerned a request for a preliminary ruling referred to the CJEU by the German Federal Supreme Court (the Bundesgerichtshof) ("Federal Court") on 24 January 2013. This derived from an appeal brought by online gambling service provider, "Digibet" and its managing director Mr Albers, against a decision in favour of German lottery company Westdeutsche Lotterie, which barred Digibet from offering its sports betting and gaming services online in Germany.

As background, whilst online gambling is prohibited at federal level in Germany under the ITG, the state of Schleswig-Holstein had temporarily adopted its own legislation permitting the organisation and facilitation of games of chance by licensed operators (see our earlier updates here and here). Despite various licences being issued under this regime, Schleswig-Holstein later repeated this legislation and adopted the ITG, ironically on the very same day the Digibet case was referred to the CJEU.[2] This meant that its regime was in force solely between 1 January 2012 and 8 February 2013, although under transitional provisions, licences which had already been granted were allowed to remain in effect until their initial term expired.

Referral to the CJEU

In its referral, the Federal Court submitted four questions to the CJEU. These were:

(i) did the temporary regime adopted by Schleswig-Holstein represent an inconsistent restriction on gaming and betting activities in Germany, undermining the effectiveness of the ITG as a whole in achieving its public interest objectives?

(ii) did this depend on whether the different legal situation in Schleswig-Holsteinremoved or significantly underminedthe overall effectiveness of the federal law in achieving its objectives?

(iii) did Schleswig-Holstein's subsequent adoption of the ITG mean that the inconsistency was now avoided, even despite the transitional provisions which allowed existing licences to remain in force? and

(iv) Did this depend on whether, during the transitional period, the licences already granted would act to significantly undermine the effectiveness of the federal prohibition as a whole?

The significance of this was that if the temporary existence of two separate regimes in Germany was found to be an inconsistent restriction on the provision of gambling services, this would mean that the ITG infringed Article 56 TFEU, which permits restrictions on the freedom to provide services in relation to games of chance only if these are in the overriding public interest and are consistently and proportionately applied.[3]

CJEU Ruling: no infringement of Article 56 TFEU

In answering these questions, the CJEU held that Article 56 should be interpreted as not precluding a situation in which, where the federal law of a Member State prohibits online gambling, one individual state maintains a more liberal legislation. This was, however, providing that the federal legislation otherwise satisfied the conditions of proportionality laid down by national law. It opined that in this case, the restrictions did seem likely to be proportionate under German law, but left this for the Federal Court to confirm. The CJEU gave weight to the fact that the regime applied in Schleswig-Holstein had been in force for a limited duration of 14 months only and was restricted to one German state. This meant that it had not seriously affected the appropriateness or effect of the ITG restrictions in achieving their public interest objectives as a whole, and that the other German states had not been required to change their own legislation merely to comply with the more lenient policies adopted in Schleswig-Holstein.

Bets still on for the future of the ITG?

Although the ruling provides clarity that the existence of a separate regime in Schleswig-Holstein did not infringe Article 56, it does little to address the wider concerns and uncertainties surrounding the ITG. In particular the Federal Court will now itself have to determine the proportionality of the legislation under German law, leaving the situation still uncertain for operators until this is determined. Again, although the European Commission refrained from including Germany in the list of countries to whom it issued formal notices in November 2013, requesting that such countries verify their national legislation is compliant with EU law (see our earlier update here), it may still challenge the compatibility of the ITG. Such assessment of the ITG will be all the more pressing once the Commission has received Germany's report on the overall functioning of the ITG, which it requested after the passage of the legislation in July 2012 and which is due shortly on 1 July 2014.

In the meantime, attention will shift to a further case currently pending in the CJEU, which queries the consistency and clarity of the ITG in relation to the process for awarding sports betting licences in Germany, and which is expected to be heard next year.

[1] Digibet and Albers v Westdeutsche Lotterie GmbH & Co,(Case C-156/13).

[2] See our earlier updates on 29 June 2012 here and 1 February 2013 here.

[3] See the case ofCarmen Media Groupv Land Schleswig-Holstein(Case C-46/08).