French Court Attempts To Ban Maltese Internet Gaming

LawAndTax-News.com, London

20 September 2005

Zeturf, a Malta-licensed online gaming operator, says it will appeal against the decision by a French court to prevent it from offering gaming services via the internet to the French market. George M. Mangion of PKF Malta reports on the impact of the ruling.

Zeturf offers its gaming services through servers in Malta, but it was successfully argued in court that a French company, Pari Mutuel Urbain (PMU) has, since the 1930s, enjoyed the exclusive right to organise betting activities on horse races in France.

The case is of particular significance to Malta, says Mr Mangion, which has been successfully enticing gaming operators to base their cross-border activities there. On the other hand, Malta too had offered a seven-year monopoly to a lottery operator, thus temporarily preventing competitors from operating on Maltese turf.

As a rule, EU member states operate an open policy that shuns monopolies, but the rules on freedom of services are complex and sometimes tortuous. It all hinges on the individual member state’s desire to protect its local monopolies from unbridled competition.

Despite Zeturf's appeal, says Mr Mangion, the court’s decision thus far may have serious repercussions on other foreign online operators involving in cross-border activities.

'In line with the praxis of international jurisprudence, once Zeturf is a Malta-registered company, the execution of the decision meted by the French courts must be acquiesced by a Maltese court. But at this stage one may ask, is it legal for a French citizen to place bets on a foreign registered gaming website?

'Websites offering paying bets are not licensed in France. There are no licences for remote gambling operations. Indeed, prohibitions of online gambling are common in Europe. In Norway, parliament has taken steps to ban Norwegians from gambling online with foreign companies. In a case in Italy last year, the Italian Supreme Court ruled that Italy's restrictive gambling policies were consistent with its obligations under current European Law. The court ruled that gaming restrictions were justified to protect public order.

'In the Zeturf case in the French court it was argued that the Malta based-bookmaker seemed to be conducting its horse racing bets using a PMU database. This led to the protest by PMU on the alleged abuse of its intellectual property and rights rather than on the prohibition exercised by a state monopoly to inhibit cross-border gambling services.

'In its decision , the court took the view that Zeturf by accepting online bets without PMU prior authorisation had inflicted an illicit disturbance to PMU.

'It is curious to note that the French court also ordered the Malta-based ISP to sever the power supply to Zeturf. One may argue that all things being equal the French court has no jurisdiction over an ISP in another country.

'The case should ruffle a few feathers among the lobbyists of the single market. It is a moot point, whether the strategies being employed by the French monopoly lay bare a genuine desire to bring about a diminution of gambling opportunities to protect its citizens. However, in the light of recent cases in Holland and Germany, it would seem that a state which
actively seeks to stimulate demand for gambling products, would have some difficulty justifying its national gaming restrictions, were it called upon to do so by the European Commission.

'Ewout Keuleers, an attorney at Brussels who has discussed the case, says that it is only "a question of time" before the restrictions to cross-border online gambling faced a growing number of legal challenges. Indeed, the European Court, in a November 2003 judgment (the Gambelli case) stated, that public interest considerations may justify limitations on the free movement of services, providing the objectives to be achieved were not disproportionate to the restrictions imposed.

' But the veil of hypocrisy ought to be lifted. There is ample evidence that most of the member states do not have as their central objective the restriction of gambling opportunities but the swelling of treasury coffers.

'The developments in this case are very important for Malta, an emerging online gaming centre of repute. It may well be that the sweet aroma of its success in attracting quality operators has percolated in the taste buds of other member states leaving a spasm of envy. But that is the rule of the game. It should be a level playing field where states can compete for inward foreign investment based on a well formulated and regulatory regime.

'Let the games begin.'

Mr Mangion is a partner in PKFMALTA an audit and business advisory firm.

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