Federal Administrative Court gives blessing to total ban on online casino in Germany

Federal Administrative Court gives blessing to total ban on online casino in Germany

Guest post by Dr Matthias Spitz of Melchers law firm, Germany

According to a German proverb, “before court and on the high seas, one is in God’s hands”. As for the igaming industry, it might be more appropriate to refer to the “devil’s hands”, considering the streak of unfavourable judgments of German courts which the industry has had to endure over the past years. In the epic struggle for the German market for online gambling, the devil apparently struck again on 26 October 2017.

According to an official press release, the total ban on online casino, online poker and online scratchcards, provided for in the German regulatory framework (the Interstate Treaty on Gambling), has been confirmed to comply with EU and constitutional law by the Federal Administrative Court (the ‘Court’). Non-compliance of Interstate Treaty restrictions to online casino, with the freedom to provide services, has been a key argument for lawfully operating in the German market.

As the court of last resort in administrative jurisprudence, the Court is also responsible for appeals in the litigation against prohibition letters issued to igaming operators. In the underlying cases, entities linked to 888 litigated against prohibition letters issued by a local regulator in the state of Baden-Wuerttemberg for allegedly operating unlawful sports betting, online casino and poker (cf. Court file no. 8 C 14.16 and 8 C 18.16).

In the final judgment, the Court also swept away substantial arguments under administrative law; it rejected the second instance’s notion that prohibition letters have to set out the prohibited games of chance in greater detail (the argument of the “principle of certainty”), thereby allowing for more regulatory ambiguity. Further, it considered enforcement not to be arbitrary if it is not based on a previously developed concept of enforcement (the argument of “equality in enforcement”), giving regulators greater discretion to single out igaming operators as enforcement targets.

Finally, the Court indicated that operators of sports betting cannot legally object to the prohibition of online sports betting if they had not originally applied for a sports betting licence back in 2012, as the licensing provisions of the Interstate Treaty have been considered not to be discriminatory against EU-based operators. The latter appears to conflict with key findings of the Court of Justice of the EU in case C-336/14, Ince.
Although the full legal grounds are yet to be published by the Court, it can be expected that they will substantiate the above.

So, what should we take from the situation?

Regulators are most likely to see the judgment as an invitation to intensify enforcement efforts against the unregulated online gambling market which makes daily life for igaming operators considerably more complicated, and legal defence against enforcement very difficult. In that context, the judgment may be considered to be devastating for online casinos. Still, the unregulated market is likely to continue in Germany, as has been the case for more than a decade – strategies to hibernate a more hostile regulatory environment will be adapted and implemented.

Further, it appears likely that the judgment will mainly affect B2C operations, rather than B2B. Following its origin in public order law, the German regulation of gambling under the Interstate Treaty mainly attaches responsibility (or liability) to B2Cs for being the organisers of games of chance (or the “offenders” in the case of illegal gambling). Consequently, enforcement efforts are, in practice, focused on B2C operations. However, there may be some white label structures where the B2B white label in fact controls all of the relationship with the customer by being directly involved in the contract with the customer and, hence, may be considered to be liable as the factual B2C operator. Payment services providers are an exception in that payment blocking may be imposed for transacting with illegal gambling operations. However, payment blocking bans have not been imposed since the Interstate Treaty entered into force in 2012 and still raise substantial concerns under the strict laws on data protection.

To conclude with another proverb: “Every cloud has a silver lining”. Clear intentions of the government of Schleswig-Holstein and increasing open-mindedness in other German states towards the implementation of a more progressive regulatory regime that includes online casino point to a more positive trend in gambling policy than the recent jurisprudence might suggest. Accordingly, it will be vital for the online casino industry to boost lobbying efforts in Germany through organisations such as EGBA or the German Online Casino Association (‘DOCV’).