Germany – As Schleswig-Holstein jumps on the train, the Interstate Treaty on Gambling is submitted to the ECJ

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

Even by the high standards set by the confusing developments in 2012, last Thursday (24 January 2013) marked an exciting day for gambling regulation in Germany.

The German Federal Supreme Court decides on the Interstate Treaty on Gambling

On the morning of 24 January 2013, the German Federal Supreme Court decided to refer four questions to the Court of Justice of the European Union ("ECJ") for a preliminary ruling on the consistency of the German Interstate Treaty on Gambling ("ITG") with the fundamental European Union ("EU") law principle of the freedom to provide services (Article 56 of the Treaty on the Functioning of the European Union).

In this case, the Federal Supreme Court had to decide, inter alia, whether the conduct of an online gambling operator who provides its services to German customers without having obtained a licence was illegal. As this would be the case only if the complete ban on online casino games and the licence requirement for online sports betting under the ITG were effective, the decision depended on an assessment of whether or not the ITG was consistent with federal German law and EU law.

However, such assessment was complicated by the fact that, from 1 January 2012, Schleswig-Holstein introduced its own, very liberal, local gambling act which was in contrast to the restrictive ITG which was in force in the rest of Germany. While the Federal Supreme Court decided that the gambling operator in question was indeed in breach of the ITG for the period it offered online services up to 31 December 2011, the legality of the operator's activities after this date will be the subject of further scrutiny by the ECJ.

In particular, the German Supreme Court has asked the ECJ to clarify whether the operation of the two gambling regimes in Germany in the period from 1 January 2012 (i.e., the liberal regime operated in Schleswig-Holstein and the more restrictive regime operated in the rest of the country), resulted in an incoherency of German gambling law which would make it incompatible with EU law.

Schleswig-Holstein repeals its 2012 gambling act

There was a further twist in the tale when, only a couple of hours after the decision of the German Supreme Court had been published, the Parliament of Schleswig-Holstein passed a bill repealing its 2012 gambling act and joining the ITG.

This turnaround was caused by a change of government in Schleswig-Holstein following the regional elections in May 2012. The new coalition government was strongly opposed to the idea of a solitary regional gambling legislation and pushed for a quick accession to the ITG after coming into power.

Confusion continues

The recent developments add yet another wrinkle to the confusing picture of the regulatory landscape for gambling in Germany.

With regard to EU law, it is of course difficult to predict how the ECJ will rule on the questions referred to it. While the accession of Schleswig-Holstein to the ITG has at least led to a unification of German gambling law, the provisions of the ITG themselves have been subject to much criticism by the European Commission with regard to their proportionality as well as their suitability for the achievement of the ITG's objectives.

Apart from the pending judgment by the ECJ, it also has to be noted that during the mandatory notification procedure for the Schleswig-Holstein bills on the accession to the ITG, the European Commission issued a detailed statement on the draft bill questioning its compliance with EU law. In particular the European Commission questioned the change to the regulation from a liberal model to a more restrictive one within a period of merely a year, without proving the necessity for such a transition. Although Schleswig-Holstein was formally allowed to pass the bills after the expiry of a stand-still period following the detailed statement, the risk remains that the European Commission might start a non-compliance procedure against Germany on these grounds.

As far as the national - or rather regional - level is concerned, Schleswig-Holstein is facing the problem of having issued 25 licences for online sports betting as well as 21 licences for online casino games under its now repealed gambling law, all of which are valid until 2018. Considering the strong risk of otherwise becoming liable for compensation towards the licensees based on the principle of protection of trust, it is most likely that the state will not revoke the issued licences. While the licence process under the ITG is still ongoing, it will be very interesting to see how the other 15 German states react to this potential scenario, especially considering the complete ban of online gaming under the ITG.