C-275/92

OPINION OF MR GULMANN — CASE C-275/92

OPINION OF MR ADVOCATE GENERAL GULMANN delivered on 16 December 1993 *

Mr President, for public-interest purposes or accrues to the Members of the Court, State exchequer.

1. In the legal systems of all the Member States there is a fundamental prohibition on lotteries and other forms of games of chance. 2. The lotteries sector, with which the The reasons for the prohibitions are broadly present case is concerned, is characterized by the same. Lotteries and games of chance are the fact that in most of the Member States activities which, for ethical and social rea­ there is one or more large country-wide lot­ sons, should not be permitted. Citizens tery which is either operated directly by the should be protected against the dangers that public authorities or is subject to tight public may stem from the urge to gamble and there controls and there are also rules under which is a significant risk of criminality in this field. small local lotteries are permitted subject to certain conditions, in particular as regards their revenue. Moreover, according to the information given, there are prohibitions or far-reaching restrictions on the activities of foreign lotteries in the Member States. 1

But at the same time in all Member States there are to a greater or lesser extent excep­ tions from that prohibition. That is because it may be appropriate to permit some mea­ sure of gambling, partly to meet the citizens' desire to gamble and partly to prevent unlawful gambling. It is possible to lay down requirements concerning permitted forms of The internal market has thus not been gambling in such a way as to limit the risk of achieved in the lotteries sector. The large criminality. In addition a significant factor in country-wide lotteries have been given all the Member States is that it is possible to exclusive rights and they are to a large extent make authorization subject to conditions protected against competition from foreign whereby the revenue from gambling is used lotteries.

4. The questions referred to the Court of Justice for a preliminary ruling have been raised in a case in which an English court must rule on the compatibility with Com­ munity law of the seizure of advertising — casinos 17% material for a foreign lottery pursuant to United Kingdom legislation which at the material time prohibited lotteries apart from specified local lotteries, that is to say at a time when there was no large country-wide lottery in the United Kingdom. — gaming machines 11%

Gambling and the regulation of gambling in — bingo etc. 5% the Member States

7. The Report shows that there are major — France 16.0% differences between the gambling markets in the various Member States.

— Italy 11.0%

— United Kingdom

(presumably only football pools) 6.0%

As a result of those national differences in •— The other Member States 12.5% the market for horse-race betting, for exam­ ple, the United Kingdom and France had 55% and 30% respectively of the total market at Community level while the lottery market 3— in respect of which the Report 8. The Commission Report thus emphasizes includes only figures for the large country­ that the gambling market is made up of wide lotteries but on the other hand includes highly differentiated national markets and figures from betting on football and other that that reflects different national traditions sports (Totto/football pools) — was and preferences and differing national 4 regimes.

That is striking in the lottery sector too. It is possible for lottery concessions to be granted apparent from the Commission Report and to companies which are responsible for hold­ also from the observations submitted in this ing lotteries on behalf of the State. Finally, case that the States either retain revenues there are instances in many Member States of from lotteries for themselves (and pay them lotteries being held at national level by into the public exchequer) or require that benevolent organizations which finance part revenues be used for purposes in the public of their operations with the revenues from interest (in some cases after deduction from the lotteries they organize. the revenue of taxes for the public exche­ quer). In some Member States winners have to pay tax on their winnings. According to the information that has been given, no country-wide lotteries operated on a com­ mercial basis, by private undertakings which may decide on the use of revenue themselves, are permitted.

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The United Kingdom legislation lays down a It is apparent from the White Paper that general prohibition on the organization of those amendments should be seen in the lotteries. Exceptions are made from that pro­ light of the technical developments which at hibition only in respect of certain specified one and the same time open up the possibil­ local lotteries promoted either by local ity of extensive cross-border lottery opera­ authorities or by organizations or the like tions and render difficult the maintenance of where the profit is destined for 'good caus­ the ban on such operations. 8 es'.

The background to the questions referred for a preliminary ruling and their content One consequence is that it has not been pos­ sible for country-wide lotteries to be held and a prohibition has also applied to the sale of lottery tickets in or the marketing of for­ eign lotteries. 6

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envelope on which was printed an address in Questions 1 and 4 seek to ascertain whether the Netherlands. tickets in, or advertisements for, a lottery which is lawfully conducted in another Member State constitute goods for the pur­ poses of Article 30 of the EEC Treaty or whether the provision of tickets in, or the sending of advertisements for, such a lottery constitutes the provision of services for the purposes of Article 59 of the EEC Treaty.

9 — The Suddeutsche Klassenlotterie is a public institution estab­ lished by the four German Lander of Bavaria, Hessen, Baden-Württemberg and the Rheinland Palatinate and has an annual turnover of some DM 700 million. The management of the lottery is supervised by a State lottery committee which has to approve the budget and the annual accounts. Agents, who must meet specified requirements as to personal and professional qualifications, arc expected to promote the lottery but under the rules of the Süddeutsche Klassenlotec- rie may not promote the lottery in States where that is pro­ hibited. The agents receive a commission for every ticket sold. If the answer is affirmative, Questions 3 The Süddeutsche Klassenlotterie is a lottery in which players and 6 seek a ruling on whether 'the concerns buy whole tickets or fractions of tickets winch arc entered in several draws in each class. There arc two lotteries a year. of the United Kingdom to limit lotteries for Each lottery runs for a period of 26 weeks. The draws are spread over six classes, with four draws in Classes 1 to 5 and social policy reasons and to prevent fraud six draws in Class 6. In practice there is one draw each week constitute legitimate public policy or public throughout the year. Tickets are issued for each class sepa­ rately. Class 6 offers the highest prize (in the lottery in ques­ morality considerations to justify the restric­ tion in the main proceedings, the highest prize was DM 4 million). The attraction of the Class Lottery lies in the very tions of which complaint is made, whether high main prize and also the relatively high chance of recov­ under Article 36' or 'under Article 56 read ering the stake. See also paragraphs 34 to 38 of the Report for the Hearing and the Commission Report, Vol. II, p. 93. with Article 66 or otherwise.'

— Is the ban on imports discriminatory? 19. The underlying common argument for that view is that the Treaty applies only to economic activities with a view to attaining the objectives set out in Article 2 of the — If not, does it constitute a restriction on Treaty and that a lottery does not constitute the free movement of goods or services such an economic activity. Reference is made which is in principle incompatible with in this respect inter alia to the case-law of the Treaty? the Court of Justice to the effect that non- economic activities fall outside the scope of the Treaty, in particular the judgments in 10 Walrave and Dona, in which it was held that certain sporting activities were not cov­ — Can the grounds which are relied on jus­ ered by the Treaty because they were not of tify such a restriction? an economic nature. Reference was also made to the provision in Article 58 of the Treaty under which the Treaty applies only to companies or firms which operate for

•— Is the restriction necessary and propor­ tionate to the objects that are being pur­ 10 — Case 36/74 Walmve [1974] ECR 1405 and Case 13/76 Dona sued? [1976] ECR 1333.

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11 — See in this connection the judgments in Case 196/87 Srey- mann [1988] ECR 6159 concerning the application of the Treaty rules to the economic activities of religious organiza­ tions, Case 186/87 Cowan [1989] ECR 195 concerning the application of the Treaty to national rules on compensation for victims of acts of violence, and Case C-159/90 Grogtm [1991] ECR I-4685 concerning the application of the Treaty to rules regarding information on abortion. Reference may also be made in this connection to Case C-272/91 Commission v Italy in which the Court of Justice has been asked to rule on the compatibility with the Treaty and Council Directive 77/62/EEC on public supply con­ tracts of an Italian public tendering procedure for comput­ 20. I do not consider that view tenable. The erization of the Italian lottery. The Italian Government contends that the tendering procedure relates to a conces­ circumstances stressed by the Member States sion of the right to hold the lottery and that it is therefore covered by Articles 55 and 66 of the Treaty. As far as the show that gambling has a special position in present case is concerned, it is worth observing that neither the Italian Government nor the Commission was prompted society in comparison with most common to consider whether the holding of a lottery is covered by economic activities. They are circumstances the Treaty rules at all. In my Opinion of 14 July 1993 in Case C-272/91, I concluded that the tendering procedure which are clearly relevant to the assessment did not concern the right to operate the lottery since I con­ sidered that the procedure related to an agreement to carry of the significance of the rules of the Treaty out services for and the supply of goods to the public in this field but they do not entail that the administration with a view to the hitter's holding of lotter­ ies. If the Court of Justice follows that view, the question Treaty as such or the Treaty rules on services whether lotteries as such arc covered by the Treaty rules will not directly be at issue in that case. are fundamentally inapplicable.

24. As mentioned above, the Court has been expressly asked to rule on how certain activ­ ities relating to lotteries are to be classified with regard to the concepts of goods and ser­ vices under the Treaty. 23. In connection with the question of the scope of the Treaty, reference has been made to Council Directive 75/368/EEC of 16 June 1975 on measures to facilitate the effec­ tive exercise of freedom of establishment and freedom to provide services in respect of var­ ious activities (ex ISIC Division 01 to 85) and, in particular, transitional measures in Such a classification under the Treaty is in respect of those activities. 13 That directive, any event necessary even though it is at least one of the so-called transitional directives, to some extent correct, as certain Member applies inter alia to lotteries conducted by States point out in their observations, that private persons in certain Member States but the question whether the United Kingdom does not cover lotteries organized by public rules are to be assessed on the basis of the

14 —- According to the preamble 'lottery and similar activities 12 — No weight can be attached to the view that the activity in which come under ISIC Group 859 often belong to the question is not regarded as a private-law economic activity field of public services, either directly or through public in one or more Member States. The scope of the Treaty bodies, or are prohibited, and some of these activities do must necessarily be determined on the basis of an indepen­ not therefore come within the scope of this Directive; ... dent interpretation of the Treaty which cannot be bound by however, in certain Member States such activities can be the definition of terms in one or more Member States. conducted by private persons and should be included in 13 — OJ 1975 L 167, p. 22. this Directive'.

29. It follows that lotteries and related activ­ ities, including the sale of lottery tickets and advertising for lotteries, constitute services The Member States which have commented within the meaning of the Treaty and that on the issue and the Commission agree that the activities in question in this case relating to a lottery must be regarded as part of the 15 — See judgment in CascC-362/88 GB-INNO [1990] ECR provision of those services. I-667.

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national rules regulating such activities fall has decided not to submit proposals for within the Treaty rules on the freedom to 16 Community rules in this field. provide services.

31. There can be no doubt that the Member States regulate this sector in an intensive and fairly restrictive manner. The right of the Member States to regulate lotteries

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33. The starting point in all the Member major cases in the lotteries sector, 1 is that States is, as mentioned above, that gambling the revenue from the activity in question is prohibited and that legal position cannot accrues to the State exchequer or is applied be contrary to the Treaty. In practice certain to public-interest purposes. It must be possi­ forms of gambling are, however, allowed in ble for the Member States to lay down such all Member States under certain specified requirements. conditions. There are quite considerable dif­ ferences between the Member States as regards the forms of gambling that are per­ mitted and as regards the conditions for such authorization. As a result, one form of gam­ bling may be prohibited in one Member State but permitted in another.

36. The practice in Member States where lotteries are permitted is that major national lotteries must generally be administered by the public sector or subject to public super­ vision. That is apparently because it is regarded as an appropriate means of protect­ 34. If gambling is permitted, the Member ing against abuse and because it is regarded States may undoubtedly lay down rules as natural in view of the fact that the revenue regarding the qualifications to be met in is to accrue to the State exchequer or to be order for operators to be allowed access to used for public-interest purposes. the activity and as regards the way in which the activity must be carried out in order to ensure that it is not abused to the detriment of the individual players and of society as a whole.

— prohibit lotteries altogether or in part; It is plain from the rules on establishment under the Treaty and the case-law of the Court that there is no absolute prohibition on confining certain forms of commercial activity to one or more undertakings, includ­ ing possibly public undertakings or under­ — lay down requirements regarding respon­ takings under public control. But the Treaty sible operation of an authorized activity; does require that there be general criteria which are acceptable under the scheme of the Treaty and which necessitate such derogation from the principle of equal access to trades or occupations (see point 75 below). — require revenue to be used solely for public or public-interest purposes; and

— restrict the supply of lotteries, at least to 40. The question is whether the Member some extent. States can restrict access to the exercise of lottery activities on the basis of what might be called an assessment of needs, that is to say on the basis of determining what supply there should be on the market for the ser­ vices in question. In other words, the ques­ 39. It is perhaps more doubtful whether the tion is whether Member States can in this Member States may restrict supply, as they field set aside the general mechanisms of the do in practice, by confining the activity in market.

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41. There must be good reasons for not nub of this case, namely what are the limits allowing the general mechanisms of the mar­ applying to the right of States to extend the ket to function. In an open market economy scope of their legislation to apply to foreign it is market forces and not public regulation providers of services. which should in principle determine what supply of certain goods or services there should be.

The considerations are relevant because the There is certainly no call in these proceed­ factors which underlie the Member States' ings to examine from the right of establish­ regulation of the right of establishment are ment aspect the lawfulness of such restric­ the same factors that may form the basis for tions on the right of undertakings to engage limitations on the free movement of services in the business of lotteries. But, as will be and it may well be that the object pursued in seen below, there can be no real doubt that regulating the right of establishment can Member States may lawfully regulate the only be achieved if the rules on establish­ market in the abovementioned respects pro­ ment, that is to say the rules on access to and vided that they comply with the obligation exercise of the activity in question, must be of equal treatment under Article 52 of the complied with both by national and by for­ Treaty and so long as the Community has eign undertakings. not adopted relevant rules on the matter.

43. Those considerations are not conclusive 45. In deciding on the fundamental issue in but they are relevant to a decision on the these proceedings it is important to appreci-

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ate clearly the consequences of the Court's 49. The Court must finally consider, and possible answers. this is the key issue in the case, whether the State of destination must in addition be given the possibility of restricting the supply of lotteries.

48. It is also necessary to consider whether the State of destination would be able to apply to foreign providers of services in the same way as to its own undertakings the requirement that profits must in any event In short a situation would arise in which be applied to public or public-interest pur­ there would be no real possibility of restrict­ poses. ing supply in order to protect consumers

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against the dangers of excessive gambling applying in most of the Member States and competition would not be between pri­ where the market for large lotteries is con­ vate commercial undertakings, with the fined to one or more lottery undertakings ensuing advantages regarding the allocation which are operated by the public sector itself of resources, but between public funds and under public control. In interpreting the public-interest purposes in the various Mem­ Treaty rules in the context of this case the ber States. Court must, of course, take account of the implications of its interpretation for the legal positions in the other Member States. More­ over, the United Kingdom has rightly pointed out that the rules that applied at the material time in the main proceedings cannot 50. It is that result which the Member States be assessed without regard to the fact that a find fundamentally wrong and which, they decision has finally been taken in the United claim, cannot result from the Treaty. Kingdom to introduce a legal situation which in principle corresponds to that in the other Member States. Furthermore, the other Member States in their observations have largely expressed views which are relevant to an assessment of the legal positions in those Observations on Questions 5 and 6 countries.

United Kingdom law on the conduct of such in Säger on patent renewal services. In lotteries within the United Kingdom apply Säger the Court held: 'Article 59 of the without discrimination on grounds of Treaty requires not only the elimination of nationality and irrespective of whether the all discrimination against a person providing lottery is organised from outside or within services on the ground of his nationality but the United Kingdom?' also the abolition of any restriction, even if it applies without distinction to national pro­ viders of services and to those of other Member States, when it is liable to prohibit or otherwise impede the activities of a pro­ vider of services established in another Mem­ ber State where he lawfully provides similar services' (paragraph 12).

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other restrictions the Court has held: 'Hav­ covered by the prohibition under the Trea­ ing regard to the particular characteristics of ty. certain provisions of services, specific requirements imposed on the provider, which result from the application of rules governing those types of activities, cannot be regarded as incompatible with the Treaty. However, as a fundamental principle of the Treaty, the freedom to provide services may The area of services is at least to some extent be limited only by rules which are justified different from that of goods in particular by imperative reasons relating to the public because of the important personal element in interest and which apply to all persons or many services and the consequent impor­ undertakings pursuing an activity in the State tance of distinguishing between conditions of destination, in so far as that interest is not applying to access to the activity in question protected by the rules to which the person (personal qualifications and the like) and the providing the services is subject in the Mem­ conditions applying to the exercise of that ber State in which he is established. In par­ activity. ticular, those requirements must be objec­ tively necessary in order to ensure compliance with professional rules and to guarantee the protection of the recipient of services and they must not exceed what is 23 necessary to attain those objectives'. 57. On that basis the Court's case-law regarding Article 59 can perhaps most accu­ rately be summarized as follows:

56. As will be seen, there is a large degree of correspondence between the Court's case- — all discriminatory measures are caught by law concerning Article 30 and Article 59 of Article 59, and the Treaty.

59. Most of the observations that have been submitted in these proceedings, including 62. But that cannot be conclusive in the those of the United Kingdom, contend that present case. The two abovementioned judg­ this question must be answered in the affir­ ments can be relied on in support of that mative. result only up to a point. In Debauve the Court in fact carried out an assessment of whether the prohibition at issue was dispro­ portionate to the objective pursued and the

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fact must not be overlooked that the Court underlying Question 5, namely that the in its subsequent decisions has stated, as United Kingdom rules at issue, in so far as mentioned above, that non-discriminatory their actual content is concerned, apply with­ restrictions can also be caught by Article 59. out discrimination on grounds of nationality and irrespective of whether the lottery is organized within or outside the United Kingdom.

63. There is, moreover, one ground which in the circumstances of this case suggests that rules like those at issue must also be regarded as restrictions within the meaning of Article 59. The prohibition at issue is 66. However, the Commission and Gerhart being applied in a situation in which the and Jörg Schindler contend that the rules are United Kingdom has stated that it is to be in fact discriminatory since they deny a lot­ abolished because the view has been taken tery like the Süddeutsche Klassenlotterie that it is appropriate to set up a national lot­ access to a market on which similar gambling tery. A legal position under which foreign activities by competing undertakings are per­ providers of services cannot operate in the mitted. same way as national providers is in any event a restriction within the meaning of Article 59, even if in this case it was to be regarded as non-discriminatory.

They point primarily to the activities that may be carried out by local lotteries and the activities carried out by private undertakings which organize football pools. According to 64. On those grounds the following answer the Commission and Gerhart and Jörg should be given to Question 5: Article 59 Schindler, those competing undertakings are of the Treaty applies to the rules at issue thus afforded indirect protection and the even if they apply without discrimination on rules at issue are therefore discriminatory. grounds of nationality and irrespective of whether the lottery is organized within or outside the United Kingdom.

There is nothing in this case to indicate that the direct or indirect object of that legal sit There has been nothing to suggest that the uation is to protect British lotteries against current United Kingdom rules on football competition from other lotteries organized pools taken on their own are incompatible outside the United Kingdom. There is an apparently objectively-founded delimitation of the United Kingdom lottery market to 30 — The Court has heard that there are currently three pools admit only local lotteries with a limited turn undertakings: Littlewoods, with more than 76% of the mar

'29. The football pools are the form of gambling most likely to be affected by the national lottery. They offer a "small stake/large win" form of gambling and have expressed concern that a national lottery would eventually drive them out of business. In some countries a national 29 — Under the Lotteries and Amusements Act 1976 the excep lottery has had an adverse effect on the pools but in others tions are for small lotteries incidental to certain entertain they co-exist. More work will be needed to establish the ments (section 3), private lotteries confined to a restricted impact of the national lottery on the pools in this country. group (section 4), lotteries promoted on behalf of certain 30. Other forms of gambling are less likely to be affected societies (section 5), lotteries promoted by local authorities than the pools. They offer a product which differs substan (section 6) and lotteries promoted and conducted in accor tially from a national lottery either in the nature of the dance with the Art Unions Act 1846. gamble or the circumstances in which it is made, or both. In practice it is the lotteries referred to in sections 5 and 6 For example, those who bet on horse or greyhound racing of the 1976 Act that are the most significant. The following are unlikely to be attracted by the "long-odds/no skill" details of such lotteries are set out in Annex A to the 1992 gamble of a national lottery. Bingo is a social activity for White Paper on a national lottery: 'There are three types of which the purchase of a lottery ticket is no substitute.

The maximum 33. One of the concerns most frequently voiced about the turnover is £ 90 000 and the maximum prize is £ 9 000. The impact of a national lottery is that charities will lose income largest public lotteries are promoted quarterly with turn from existing small lotteries and from charitable donations over of £ 180 000 and a maximum single prize of £ 12 000. generally. The level of income which charities at present In all cases, the maximum price of a ticket is £ 1'. obtain from small lotteries is unclear because figures for all The United Kingdom has stated that those limits have been lotteries are not collected centrally. .

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with the Treaty rules, nor has there been obliged for that reason alone to accept corre­ anything to indicate that the United King­ sponding forms of gambling conducted by dom's rules applying to the gambling market foreign undertakings. in question here might have been adopted in order to protect the British gambling market against competition from foreign lottery undertakings.

Is the existence of a large national lottery sig- nificant with regard to the question of dis- crimination?

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74. It is quite possible for rules to apply in a It is not in itself incompatible with the country which prevent foreign service under­ Treaty for the Member States to give one or takings from providing their services — even a few undertakings exclusive rights (see in if that is permitted for national undertakings this respect Article 90 of the Treaty). In such — without such rules falling to be classified a situation the Member States are under a as discriminatory. Typical examples are duty to comply with the general rules of the national rules which provide that a specified Treaty, that is to say in the present context in occupation can only be exercised by under­ particular the Treaty rules on establishment takings which are established in that country. and services. That signifies inter alia that the Such rules constitute 'the very negation' of limitations which the exclusive rights in the freedom to provide services in the words question entail for the free movement of ser­ of the Court's judgment in the Co-insurance vices must be capable of being justified 31 cases. The Court did not classify that legal under the general case-law of the Court. position as discriminatory but held that 'if such a requirement is to be accepted, it must be shown that it constitutes a condition which is indispensable for attaining the objective pursued' and it thus accepted that factors other than those referred to in Arti­ cle 56 of the Treaty might justify such a sig­ If the very fact that exclusive rights have nificant restriction on the free movement of been granted is seen as constituting discrim­ services. ination, exclusive rights would be lawful only if they were on the grounds of one of the factors referred to in Article 56, namely public policy, public security or public health.

The very wording of Article 56 shows that there must be special rules for foreign under­ takings and it does not seem reasonable to me in cases where exclusive rights are given to certain undertakings without regard to nationality or the undertakings' origin to 78. Nor do I consider that the question of describe such rules as 'special treatment for classification is of any great practical impor­ foreign undertakings. tance in this case. However the situation is classified with regard to the concept of dis­ crimination, there is a significant restriction, a real negation of the right to the free move­ ment of services, which can be justified only if the measures at issue are objectively neces­ sary to take account of fundamental interests of society.

81. The 11 Member States which have sub­ mitted observations all proposed that this question should be answered in the affirma­ 85. It is contended that there are special tive. Gerhart and Jörg Schindler and the 34 risks with cross-border lotteries. Some Commission disagree. Member States have referred in this connec­ tion to the increased risk of tax evasion. The Commission does not deny that there is an increased risk of abuse with cross-border lotteries but has stated that, on the basis of

What interests do the existing restrictions seek to protect? 33 — It is pointed out that lotteries arc a form of gambling which is especially vulnerable to fraud. That is because the partic­ ipant has no ready and independent means of ascertaining either the total amount paid in or that the promised prizes have been paid out. Without adequate controls, it would be possible for the operator of a lottery to skim off part of the proceeds, or, in the case of instant lotteries, to withhold, perhaps for his own use, the winning tickets (see point 30 of the order for reference). 82. The Member States essentially contend 34 — Examples of complaints of such alleged abuses are given in that three interests underlie the strict the observations of the Belgian Government.

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the information given, that has not caused 89. The decisive point remains therefore the Member States any insurmountable whether the restrictions considered here are problems. necessary in order to achieve the aims in question, whether those aims could be achieved by other, less restrictive means, and whether those restrictions are in general rea­ sonable in relation to those aims.

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Are the restrictions necessary in order to pro- already taken into account by the provider's tect consumers and society against fraud and own legislation (principle of equivalence). the like?

95. In this instance it can certainly be argued that the principle of equivalence is difficult to apply because large lotteries were prohibited in the United Kingdom at the material time in the main proceedings and because there was therefore no prescribed level of protec­ 92. It has not been disputed in these pro­ tion with which the level of protection ceedings that the concern to protect consum­ applying to the foreign provider of services ers against the obvious dangers of abuse in can be compared. lotteries and also against the use of lotteries for criminal ends may justify even very strin­ gent regulation of and controls over lotteries.

96. Nor, finally, is there any real basis, in my view, in the assertions of the Member States in general terms regarding the increased risk in connection with cross-border lotteries for holding that that alleged risk in itself could justify the United Kingdom authorities' application of the rules at issue.

The fact is, as mentioned above, that the gambling markets in the various countries differ. What is permitted in one country may be prohibited in another. If a State cannot 97. If the aforementioned factor cannot be ban services from countries where they are relied on in the present instance as a basis for permitted, its possibility of limiting the total the exclusion of the Süddeutsche Klassenlot- supply of gambling will be sharply reduced. terie's activities in the United Kingdom, that does not of course signify that the Member States are prevented in other instances from refusing foreign lotteries access to their mar­ kets if the rules applying to those lotteries in their home States and the controls to which they are there subject are not adequate by comparison with the level of protection which the State of destination wishes to ensure.

99. Against that, Gerhart and Jörg Schindler and the Commission argue that such factors cannot reasonably be invoked in this instance by the United Kingdom in view of Are the restrictions necessary in order to limit the following: the total gambling market in the supply of gambling in the State of desti- the United Kingdom in 1990 amounted to nation? more than UK £ 13 000 million; a compre­ hensive range of gambling is available, including football pools (which are private commercial undertakings which in principle can be operated by anybody who meets the relevant general requirements); the United 98. If it is accepted — and all the Member Kingdom has decided to establish a large States have proceeded on this basis — that it national lottery; and the United Kingdom

101. Acceptance of the view argued for by Gerhart and Jörg Schindler and the Commis­ sion would, as mentioned above, have the In view of what is now known of the dan­ result that a Member State with relatively gers associated with gambling for certain liberal gambling laws would no longer be people, I do not consider it possible to dis­ able to maintain limitations on the supply of miss the consensus of the Member States that gambling, at least not with regard to the there is a real need to limit the supply of form of gambling which the authorities of gambling and that such limitation — in the absence of Community rules on the matter — must necessarily be undertaken by each Member State separately. 37 — See the 1992 White Paper, in which it is stated: '14. The Rothschild Royal Commission recognized two principles for gambling policy. First, that gambling should be properly regulated to ensure that it is conducted hon­ estly and fairly. Second, that the demand for gambling should not be positively encouraged because, if taken to excess, it can cause misery for the individual and his family, and have damaging consequences for society as a whole. Although these general principles underlie all gambling controls, they have been applied in different degrees to dif­ ferent forms of gambling. 15. For example, casino gaming is more vulnerable to abuse by criminals and large amounts of money may be lost very quickly. It represents the "hardest" form (in the sense of 102. If the individual Member States must vulnerability to abuse and of its dangers to the individual) admit lotteries which are held in a lawful and of gambling and so it is the most tightly regulated. ... By contrast, lotteries have long been considered to be the proper manner in all other Member States, "softest" form of gambling. The amounts staked are usually small and there is not the same incentive to chase losses. they are denied the possibility of controlling They are subject to a lighter regulatory regime because the sums of money involved are more modest. Because they the number of lotteries held, the number of offer modest prizes and support good causes, they can be draws, and the amount of the authorized advertised quite freely. In particular, they can be advertised on TV and radio whereas the broadcast advertising of all turnover. The supply in the Member States betting and gaming is prohibited by a mixture of statutory controls and the broadcasting authorities' advertising will in fact be determined by overall supply codes.' in all the Member States.

105. In short, I believe that on the basis of No duty can therefore be inferred on the the Treaty rules on services and in the basis of the Treaty for Member States to absence of harmonization at Community introduce a system of authorizations in a level, an intermediate solution can be found field where they consider that the form of between, on the one hand, accepting the pos­ gambling in question should be prohibited. sibility for the Member States to limit supply on a non-discriminatory basis, including by means of prohibiting or limiting the provi­ sion of services by foreign lotteries, and, on the other, total acceptance of the right of for­ eign lotteries to provide their services if they However, as mentioned above, it is undoubt­ are subject to proper control and the like in edly possible on the basis of the Treaty to their home State. require the Member States, in so far as they authorize a limited supply of a certain form of gambling, to implement that in a non­ 38 — Sec judgment in Case 169/91 Council of the City of Stoke- discriminatory manner. on-Trent [1992] ECR I-6635. paragraph 11.

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108. The contention that a main underlying reason for allowing gambling at all is that the revenues from it can be used for 'good causes' is undoubtedly both historically cor­ 111. A number of factors are relevant in this rect and still a reality. regard.

109. There are certainly some grounds for It is probably right, as is mentioned in many scepticism today as to the motives behind of the observations, that participants in

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lotteries do to some extent decide to partici­ also the national lotteries of the smaller pate because the revenues accrue to a pur­ Member States. pose which is of particular concern to them. But on the basis of the foregoing it may also be presumed that, in so far as the large lotter­ ies are concerned, the use to which the reve­ nues are put has only a limited bearing on the participants' decision to take part. It seems to be accepted that it is not least the 113. The competition would, presumably, as 39 size of the prizes that is decisive. mentioned above, also be conducted on the basis of the size of prizes. These essentially depend on turnover, the amount of adminis­ trative costs, and the proportion of revenues that must be devoted to public or public- interest purposes. A major parameter for competition would therefore be what pro­ portion may be used for prizes and what proportion must be devoted to public or 112. It is therefore reasonable to suppose, as public-interest purposes. The lotteries which has moreover been claimed by many of the devote the greatest proportion to prizes Member States, that the opening of the would have a competitive advantage. It national markets would probably lead to seems to me that it ought to be permissible intensive competition between the large lot­ for the Member States to prevent such forms teries for market shares throughout the of competition on this very special market. whole Community.

The big prizes of the German Klassenlotterie are very attractive to consumers who normally play on the smaller 39 — According to the Commission Report on Gambling in the national lotteries which have smaller first prizes. In this Single Market, Vol. I, p. 44: 'The player's main interest is to regard, diagram 8 shows the vulnerability of Denmark, Bel­ participate in an attractive game. A game's attractiveness is gium and the Netherlands. reflected in the size of the prizes, the chances to win and in the fact that no or only little tax is levied on the winnings. Cross-border betting which occurs out of convenience Where a foreign lottery seems more attractive than a resulting from nearness to a neighbouring Member State or domestic game, some players will participate cither by similar language and culture is of an osmotic nature. ordering the tickets by mail or by crossing the border to Osmotic cross-border betting is more likely to occur if buy them at an agent's abroad. Mail order is particularly there is a disproportionate size of population and therefore viable in class lotteries as deadlines for accepting tickets can larger lotteries with bigger prizes next to smaller national be many weeks in the future'. lotteries or lottos.'

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competition arising between lotteries at cannot justify derogations from the Treaty European level as the main practical result rules on the free movement of services. would be that the exchequers or public- interest purposes of the various countries would compete for the money which Euro­ pean citizens spend on lotteries.

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it does not alter the fact that the Member that case could be justified by the aim of States may tax the imported goods in the protecting the States' tax revenues by ensur­ same way as national goods. ing the cohesion of tax systems.

It seems to me not unreasonable to regard the position relating to lotteries as also involving a form of taxation. If the Commis­ sion's view that under the Treaty the Mem­ ber States are under a duty to open their 120. What is more important, however, in markets to foreign lotteries is upheld, that my view, is that the Court in the present case will mean that the 'tax' on lottery tickets — is considering a market of a very special that is that proportion of the payment for nature where the rules of all the Member the lottery ticket which must be paid into States show that the general mechanisms of the State exchequer (or be applied for public- the market cannot and should not apply. So interest purposes) — will be paid to the far as I can see, not one of the Member States 'State of production' and not to the 'State of considers it appropriate to have free compe­ consumption'. tition in this area with the consequences that are detailed above.

123. The appropriate allocation of resources which from an economic point of view is the most important basis for the Treaty rules on the free movement of services is not, in my 43 view, of any relevance as regards lotteries.

125. It may therefore be concluded, in my view, that there are no cogent reasons which must be taken into account pursuant to the aims of the Treaty militating against the Member States continuing to be able to limit the free movement of services; on the other hand considerable importance must attach to 124. The Commission does indeed point out the grounds invoked by all the Member that the opening of the markets would mean States against opening the markets. It is an that consumers would have a wider range of area in which there are good grounds for choice between the public-interest purposes continuing to uphold the regulatory powers they wish to support and would also offer of the Member States so long as it is estab­ consumers bigger prizes. As regards the lished that the Community does not intend former, it is possible that the Commission is to exercise its regulatory powers in this area. right in the short-term. But, as mentioned above, it is not unlikely that one long-term effect of the opening of the markets would be that a number of lotteries would be driven from the market which would thus narrow the range of choice available to con­ sumers.

43 — See Article 102a of the EC Treaty as amended by the Treaty on European Union, the second sentence of which pro­ 126. It must also be concluded in my view vides: 'the Member States and the Community shall act in accordance with the principle of an open market economy that it is not possible on the basis of the with free competition, favouring an efficient allocation of foregoing to identify less restrictive means of resources, and in compliance with the principles set out in Article 3a'. achieving the aims underlying the existing

Rules on the import of lottery tickets and advertisements for large lotteries are within the scope of Article 59 of the Treaty of Rome but that does not preclude those rules from prohibiting services from large foreign lotteries where such a pro­ hibition is part of a general prohibition of the conduct of large lotteries.

44 — In the United Stares of America, Congress, acting pursuant 45 — I have considered whether the second paragraph of Arti­ to the commerce clause in the Federal Constitution, has laid cle 55 of the Treaty may be of any relevance to the interpre­ down a fundamental prohibition on the free movement of tation of Article 59 of the Treaty in the context of this case. services between the States in the field of lotteries. The con­ Article 55, in conjunction with Article 66, provides that the stitutionality of that legislation was confirmed by a 1903 Council may, acting by a qualified majority on a proposal judgment of the Federal Supreme Court in the Lottery case from the Commission, rule that the provisions of the chap­ (Champion v Ames (1903) 186 U. S. 321). ter on services arc not to apply to certain activities. There has been nothing in these proceedings to suggest that the Council and Commission might have considered applying that provision to exempt lotteries from the Treaty rules on services. It is clearly of importance in any event that that provision cannot apply unless the Commission has submit­ ted a proposal regarding its application. The result of my analysis is that that provision is not of any relevance in the context of this case.