#131 © Copyright 2007, all rights reserved worldwide. Gambling and the Law® is a registered trademark of Professor I Nelson Rose, www.GamblingAndTheLaw.com

In March, the Grand Chamber of the European Court of Justice issued a dramatic judgment in a case involving Internet gambling. This was followed almost immediately by an almost equally dramatic statement from the European Commission. Some observers see these as the beginning of the end for America’s Unlawful Internet Gambling Enforcement Act.

These developments are certainly much needed good news for publicly traded online gaming companies, like PartyGaming. But I believe people are being way too optimistic in believing that changes in the law in Europe, or even direct challenges from Europe, will lead to any relaxing of U.S. federal prohibitions in the immediate future.

If you only read press reports, you would believe that the developments in Europe ended the debate on whether a country can keep out legal online gaming companies from other countries. Although there was certainly significant movement toward removing barriers against cross-border gambling, there is still great resistance in most nations to allowing in competition. But the fight is coming to a head.

From this side of the Atlantic, it seems that the dispute over Internet gaming is really about how independent the old nations of Europe will be in the new European Union. In the U.S., we would call this a fight over “states’ rights.”

The leading legal and political players calling for a dominant E.U. include the European Court of Justice and the European Commission. So, it is not surprising that they have declared that countries in Europe are unlawfully keeping out online gaming competition from their neighbors.

But the E.U. is not the U.S. The United States is a nation, a federation with a Constitution. More importantly, it has a Supreme Court that can and will strike down any state law that offends that federal Constitution.

The E.U. is only a treaty organization. Yes, a very powerful one. But the European Court of Justice will only declare a member nation’s laws invalid in cases of clear conflict with the laws of the European Communities. Instead, this High Court of Europe usually merely gives guidance and refers cases back to the courts of the nation involved to actually resolve the case.

So it was with the most recent case, “Placanica.” The Court has consistently declared that a member state of the E.U. can only keep out legal gambling competition if it can show it is doing so for a high-minded reason, like protecting children and compulsive gamblers, preventing crime and fraud, or protecting local morality. Giving local operators a monopoly to increase profits or tax revenue is not enough.

The Court seems to find in every case that the motives of local governments are not so pure. For example, it did not believe Italy in a prior case when the Italian Government said that it was excluding outsiders in order to reduce the amount of gambling, especially since the Italian Government was actively expanding local gambling. But the High Court then remanded the case back to the Italian court to decide what were the reasons for the state monopoly. The Italian courts decided that, yep, the Government was trying to limit gambling after all.

The Placanica case finally pushed the European Court of Justice too far. Italy announced that it was going to award 1,000 licenses for sports betting, and automatically renew 329 licenses for horse books, while adding 671 more. Surprise – none went to anyone not in Italy.

Stanley Leisure, the fourth biggest bookmaker and largest casino operator in the U.K., couldn’t get a license. Its problem was that its stock was constantly being traded on the London stock exchange, and Italian law required that every shareholder had to be vetted. But even Stanley’s Italian agents couldn’t get licenses. Stanley has more than 200 agencies in Italy, called “data transmission centres (DTCs),” open to the public, where bettors can access Stanley’s computers in the U.K. Some of those DTC operators tried to get licensed, but were ignored. Until they were arrested.

The High Court stated that when Italy excluded Stanley from applying, merely because it was a publicly traded company, it violated E.U. laws that guarantee freedom to establish businesses and freedom to provide services. The Court found no good reason for preventing the leading foreign companies from competing for the Italian gaming market, especially since Italy later changed its rules to allow publicly traded companies to get licenses.

The High Court also did not buy the argument that greatly expanding the number of licenses reflected Italy’s “concern to bring about a genuine diminution of gambling opportunities.”

But, it had more trouble with Italy’s argument that the expansion was designed to compete with existing illegal gambling in the state. The Court was clearly skeptical – because limiting the number of licenses now keeps out foreign applicants. But, once again, it remanded the case back to the Italian courts to decide whether Italian law “genuinely contributes to the objective invoked by the Italian Government.”

The Court also called for the Italian legal order to figure out how to reopen the licensing process to let Stanley and other publicly traded companies apply. Somehow, I don’t think Italy will adopt the Court’s suggestion that the old licenses be revoked and redistributed.

Interestingly, this Placanica case had an immediate impact far beyond the actual decision. Commentators declared that the case marked the end of all barriers inside Europe to Internet gambling. Word came out of Poland that it would begin licensing online operators.

Germany issued a strong statement declaring that the case had nothing to do with them, and applied only to Italy. But it was then slapped down. According to Reuters, E.U. Industry Commissioner Guenter Verheugen wrote to Germany’s state governments telling them they had only a month to change a draft treaty they were considering to lock in their local monopolies.

The most optimistic observers declared that the U.S. was next.

The problems with this view are many: The U.S. is not part of the European Union. America does have similar treaty restrictions with the World Trade Organization. But the long-running fight with Antigua shows how little the U.S. cares about violating W.T.O. rulings.

Most importantly, look who would have to change the American law. A court case would take years, and administrative agencies, like the Department of Justice, cannot enact statutes.

Only Congress can amend or revoke the UIGEA. And any bill would have to be signed by President George W. Bush, since Congress would never have enough votes to override his veto.

Can you imagine Pres. Bush signing a bill to bring back Internet gambling that is not regulated or taxed by the United States?

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© Copyright 2007. Professor I Nelson Rose is recognized as one of the world’s leading experts on gambling law. His latest books, Internet Gaming Law and Gaming Law: Cases and Materials, are available through his website, www.GamblingAndTheLaw.com.