French gaming regime: Game over ?

The legality of the French gaming regime has recently been put under a lot of pressure - attacked from the outside, by the European Commission and, quite unexpectedly, also from the inside, by the French Supreme Court.

The principle underlying gaming regulation in France is a general prohibition. Three sets of law [1] lay down a general prohibition of lotteries, games of chance, and horse race betting. There are a few exceptions. The most significant is for the two state monopolies: Française des jeux ("FDJ") for lotteries, and Paris Mutuel Urbain ("PMU") for horse race betting, which are granted the exclusive right to be on the French market. Both monopolies extend to the Internet market.

Casinos and gaming circles need to be authorised by the Ministry of Home Affairs and they are supervised by a special police, the "races and games" [2] police. While online casinos are still prohibited, as a recent decision confirms [3], hold'hem poker has been authorised in casinos [4] with a rake set at 4%. Casinos will also be entitled to organise tournaments.

The law of 5 March 2007 [5], also known as the Law on the Crime Prevention ("LCP"), creates new criminal offences in the already restrictive field of gaming, and reinforces others. The new provisions, which will apply as from 5 September 2007, specifically target online gaming operators, and particularly focus on the role of intermediaries such as advertisers.

Indeed, fines for operating illegal lotteries and betting will be doubled, from €30,000 to €60,000 and for illegal horse race betting the penalties will range from €90,000 to €200,000 (instead of the previous maximum of €100,000).

The LCP creates a criminal offence for advertising illegal betting and gaming activities. The minimum fine is €30,000 but courts will be able to sanction advertisers with a penalty up to the equivalent of four times the advertising budget dedicated to the illegal campaign.

Another set of provisions address Internet Service Providers ("ISPs") and banks or financial organisations.

Article 40 of the LCP lays down a new obligation for ISPs to warn their subscribers when they enter websites, including gaming websites, deemed unlawful by the French authorities, they must also advise users on the risks they take when using illegal sites. Failing to comply with this obligation will cost ISPs up to one year imprisonment and a €75,000 fine.

Another innovation of the LCP is the ability for the government (Finance and Home Affairs ministries) to order banks to block any transfer of funds from "illegal" gaming operators' accounts to players'. This fund blocking may be applied for a renewable period of six months.

Both provisions still need to be implemented by governmental decrees, which mean that they are not applicable yet.

It is difficult to assess when, and whether, these provisions will be applicable, since they concern information society services and as such, must be notified to the European Commission[6], under the so-called "standstill procedure" established by EU Directive 98/34.

The role of the European Commission as "guardian of the Treaties" is to ensure respect of the "four freedoms" established in EU law, including the freedom to provide services [7]. The standstill procedure is a means to ensure that the Treaty will be respected. Therefore Member States must notify to the European Commission, and the 26 other Member States, any draft technical regulation concerning products and information society services before they are adopted in national law. They must respect a three months standstill period during which comments on its compatibility with EU law are received from the European Commission or any Member State. The European Court of Justice ("ECJ") [8] decided in 1996 that a national provision which is not notified but should have been, cannot be held applicable to individuals.

Since the LCP should have been notified and has not, individuals pursued under the new provisions can be expected to use this E.U. law argument before courts to escape its restrictive provisions.

Oddly enough, while France overlooked this procedure for the entire LCP, the government notified the decree implementing provisions concerning ISPs. On 20 July 2007 the European Commission responded with a detailed opinion [9] urging France to modify this decree since it would be breaching the freedom to provide services [10].

Cedric Manara, professor of law at EDHEC Business School, has commented that "at first sight, the decree only aims at informing people of the risks to play online: viruses, credit card number hijacking, etc., but it also provides that the French Government will publish a list of illegal gaming sites. It is a problem since only courts can decide that an activity is illegal. It means that the draft decree tends to give even wider powers to the government to exclude gambling websites, which is another violation of article 49 of the EU Treaty."

This refusal of France to play by the E.U. law rules raises a number of doubts regarding the applicability of this new set of rules. This probably represents a last, and vain attempt to maintain the existing model which is imploding.

The second blow to French gaming policy began on 12 October 2006 when the European Commission launched an infringement procedure [11]. After receiving conclusive evidence from gaming operators of France breaching article 49 of the Treaty, the Commission sent the government a letter of formal notice urging it to modify the sports and horse race betting restrictive policy. The government tried to justify these restrictions to article 49 of the EC treaty on the basis of the protection of consumers, especially the young, against gaming addiction. However, the Commission considered that the ever expanding range of betting opportunities offered by the French monopolies was not consistent with the alleged concern, and was rather an excuse for obstructing competitors.

France made a few attempts to meet the requirements of EU law by publishing a decree [12] prohibiting all forms of gaming, including online, to minors. The FDJ also endorsed a code of conduct along with other European lotteries.

Nonetheless, in June the Commission confirmed its position and sent the French government a reasoned opinion, the second step of infringement proceedings. If no satisfactory response is provided within two months the Commission may then decide to refer the case to the Court of Justice.

This procedure only targets the sports and horse race betting market, representing several million in profits for the State, and leaves, so far, untouched the juicy market of lotteries occupied by the FDJ.

The last straw came from the least expected side, France's Supreme Court [14]. The Court was supposed to render its decision on the same day that the Commission issued its reasoned opinion, but it was postponed until 10 July.

The case concerned actions by the PMU (French Monopoly) against Malta based online operator (Zeturf) for offering bets on horse races to French public. PMU won at first instance and on appeal, and Zeturf was condemned to cease its activity under the threat of heavy daily fines. Nonetheless the Maltese Court of Appeal judged that this decision was not enforceable.

Against all odds and the prior case-law, the Court followed the ECJ arguments developed in many cases, the most prominent being the Gambelli and the Placanica cases.

The Supreme Court referred to the ECJ case law and stated that restrictions to the freedom to provide services need to be adequately justified. It considered that PMU had not demonstrated a gaming policy showing a concern to bring about a genuine diminution of gambling opportunities. The second argument invoked is even more interesting: even if the restriction (i.e. the national gaming legislations) is justified by the general interest the Court of Appeal, which will have to apply the Supreme Court legal interpretation, must examine the level of protection already offered in the country of origin, in the present case, Malta. This argument is a clear endorsement of the EU law principle of mutual recognition [15].

The recent action taken by the European Commission and the French Supreme Court presents a fundamental challenge to France's regulation for betting in particular, and gaming more generally.

Continued pressure from industry has contributed to these important developments. However, the game is not yet over. Operators will need to continue to apply pressure and position themselves in the emerging regime.

[6] The 98/34/EC Directive sets up a procedure which imposes an obligation upon the Member States to notify to the Commission and to each other all the draft technical regulations concerning products and Information Society Services before they are adopted in national law. Such procedure aims at providing transparency and control with regard to those regulations. Since they could create unjustified barriers between Member States, their notification, in the draft form, and subsequent evaluation of their content in the course of the procedure help to diminish this risk. For more information on this procedure see the European Commission website

"Within the framework of the provisions set out below, restrictions on freedom to provide services within the Community shall be prohibited in respect of nationals of Member States who are established in a State of the Community other than that of the person for whom the services are intended. The Council may, acting by a qualified majority on a proposal from the Commission, extend the provisions of the Chapter to nationals of a third country who provide services and who are established within the Community".

[8] Judgment of the Court of 30 April 1996. CIA Security International SA v Signalson SA and Securitel SPRL.

[10] Article 1 requires persons whose activity consists of providing access to online public communication services to "place on the home, help and technical documentation pages of their online communication sites, as well as on their interactive services and discussion boards, an information area in order to alert the public to the risks involved in connecting to illegal online gambling sites of damage to their computer equipment, the collection of their personal data, particularly relating to their means of payment used for banking transactions, and the non-collection of their winnings".

Article 2 stipulates that "the information area defined in Article 1 shall include direct access for the public to the list of illegal gambling sites drawn up by the Minister for the Interior"

[11] Under article 226 of the EC Treaty which states "if the Commission considers that a Member State has failed to fulfil an obligation under this Treaty, it shall deliver a reasoned opinion on the matter after giving the State concerned the opportunity to submit its observations. If the State concerned does not comply with the opinion within the period laid down by the Commission, the latter may bring the matter before the Court of Justice."

[13] Decision n° 1023 of 10 juillet 2007, Cour de cassation - Commercial Chamber