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The Engelmann ruling and its implications on Austria

January 24, 2011 News & Reports

By Attorney-at-law Dr. Arthur Stadler and scientific assistant Nicholas Aquilina from our

Austrian co-operation partner Brandl & Talos law firm.

A year and a day after the European Court of Justice (“ECJ”) had ruled on the Portuguese case C-42/07, Liga Portuguesa and only one day after three judgements in German gaming cases (C-316/07 et al, Markus Stoß et al, C-46/08, Carmen Media and C-409/06, Winner Wetten), the ECJ issued its judgement on the Austrian case for a preliminary ruling C-64/08, Engelmann on 9 September 2010. The Court holds that certain provisions in the Austrian Gaming Act and “the total absence of transparency for the purposes of the grant of the concessions” to the Austrian de-facto monopolist casino operator, Casinos Austria AG (“CASAG”), are contrary to EU law.

1. The “Engelmann” case

The Austrian Gaming Act (Glücksspielgesetz) establishes a state monopoly on lotteries and casinos. Only operators having been granted a license according to § 14 respectively § 21 of the Act are entitled to offer such gaming operations in Austria. At the time of the referral to the ECJ by the Regional Court of Linz, the Act required a casino operator to be a publicly listed company with a seat in Austria and a share capital of EUR 22 million. All twelve licenses are currently held by CASAG, to which the licenses had been awarded behind closed doors without any tender procedure. Furthermore it is interesting to note, that the licensing and supervising authority, the Ministry of Finance, is an indirect shareholder of CASAG through the participation of the state.

The German citizen Ernst Engelmann “operated gaming establishments in Austria […]. In those establishments, he offered his customers, inter alia, a game called observation roulette and the card games Poker and Two Aces. He had not sought a concession to organise games of chance, nor was he the holder of a lawful authorisation in another Member State.[1] Therefore he was charged according to § 168 of the Austrian Criminal Code for offering games of chance without a national license. The court of first instance (District Court of Linz) imposed a fine of EUR 2,000 upon Mr Engelmann, however, the court of appeal (Regional Court of Linz) was in doubt of the conformity of relevant provisions of the Austrian Gaming Act with EU law, namely with the freedom of establishment (Art 49 TFEU) and the freedom to provide services (Art 56 TFEU).

The national court, therefore, asked the ECJ to clarify (a) whether Art 49 TFEU precludes the provision which constitutes the requirement of a certain legal form and seat within a certain Member State in order to obtain a license. Furthermore the referring court wanted to know (b) whether Art 49 TFEU and 56 TFEU preclude a national monopoly on certain types of gaming if there is no consistent and systematic policy as the monopoly is being advertised aggressively. Regarding the allotment of the licenses, the court wanted to know (c) whether Art 49 TFEU and 56 TFEU preclude national legislation granting licenses without a tender procedure, thereby excluding operators from other Member States.

a. License requirements not in conformity with EU law

Concerning the first question, targeting the requirement of a certain legal form and a seat in Austria, the ECJ stated that regarding the legal form it leaves the decision to the national court “in the absence of additional information.[2] However, the ECJ ascertained that the requirement of a seat infringes the freedom of establishment. “Doubt is not in any way cast on that finding by the fact, raised by the Austrian Government, that the obligation in question is imposed on operators only from the time that they are selected and for the duration of the concession. […] Such an obligation may deter companies established in other Member States from applying, owing to the establishment and installation costs in Austria that they would have to incur if their application were successful […].[3]

The requirement to have a seat in Austria in order to obtain a license constitutes a restriction to the freedom of establishment and the freedom to provide services, which can only be justified by overriding public interest objectives, which must be met in a non-discriminatory matter, suitable to achieve the objectives and not go beyond what is necessary in order to attain the objectives.[4] In the Engelmann ruling the ECJ concludes that “[…] the categorical exclusion of operators whose seat is in another Member State appears disproportionate, as it goes beyond what is necessary to combat crime […].”[5]

The ECJ itself gives some examples on how the Austrian legislator could pursue its objective for these restrictions and sufficiently monitor its licensees without harshly violating basic EU law: “[…] There are indeed various measures available to monitor the activities and accounts of such operators. […]  Inter alia, the possibility of requiring separate accounts audited by an external accountant to be kept for each gaming establishment of the same operator, the possibility of being systematically informed of the decisions adopted by the organs of the concession holders and the possibility of gathering information concerning their managers and principal shareholders may be mentioned. In addition […] any undertaking established in a Member State can be supervised and have sanctions imposed on it, regardless of the place of residence of its managers.[6]

Therefore the freedom to provide services precludes the “legislation of a Member State under which games of chance may be operated in gaming establishments only by operators whose seat is in the territory of that Member State“.[7]

b. Consistency of Austrian gaming laws

Concerning the second question on the consistent and systematic approach of the Austrian gaming regulation in regard to the extensive and aggressive advertising attitude of casino licensee Casinos Austria AG and the lottery licensee  Österreichische Lotterien GmbH (Austrian Lotteries, “ÖLG”), the ECJ did not give an answer as it did not deem it relevant for the decision at hand. However, concerning the extensive advertisement conducted by the de-facto monopolists, the ECJ had ruled just one day before issuing its Engelmann judgement that all advertising needs to be “[…] measured and strictly limited to what is necessary in order thus to channel consumers towards authorised gaming networks.” Advertising must not “[…] aim to encourage consumers’ natural propensity to gamble by stimulating their active participation in it, such as by trivialising gambling or giving it a positive image due to the fact that revenues derived from it are used for activities in the public interest, or by increasing the attractiveness of gambling by means of enticing advertising messages depicting major winnings in glowing colours“.[8] As this is exactly the advertising policy that CASAG and ÖLG pursue, it is clear that this internal “inconsistency” of the Austrian gaming market does not conform to what the ECJ laid out in Markus Stoß et al.

c. Violation of EU law when awarding Austrian gaming licenses

By answering the third question the ECJ assesses the compliance of Austria’s license awarding practice with EU law.

In the Engelmann ruling, the ECJ directly addressed its critics to the Austrian government confirming Austria’s total lack of transparency. As previously laid out in its consistent case law, the ECJ held that a prior administrative authorisation scheme”must be based on objective, non-discriminatory criteria known in advance, in such a way as to circumscribe the exercise of the authorities’ discretion so that it is not used arbitrarily“.[9]

If a Member State (i.e. in this case Austria) issues concessions without applying the principle of transparency, the ECJ states that, although concessions in the field of games of chance are not subject to any specific EU regulation, the Member States “[…] are none the less bound to comply with the fundamental rules of the Treaties, in particular [Art 49 and 56 TFEU], and with the consequent obligation of transparency […]“.[10] Furthermore, any person affected by a restrictive measure based on such derogation must have an effective judicial remedy in place.[11] An impartially conducted competition must be sufficiently made possible by the licensing authority.[12] However, the ECJ ascertained the “total absence of transparency for the purposes of the grant of the concessions” in the Austrian system.[13]

d. Consequences of the Engelmann ruling

It is vital to note, that due to the Austrian regulations at stake it was impossible for potential licensees from other Member States to acquire a license under Austrian law. The requirement of a seat and the lacking transparency are clearly violating EU law. Therefore, according to established ECJ case law, an operator, who was not able to obtain a license due to these circumstances, may not be sanctioned.[14]

2. Amendments to the Austrian Gaming Act and further outlook

a. Amendments of 2010


The main purpose of the amendment of the Austrian Gaming Act was to regulate the slot-machine sector. In the course of this amendment, the Austrian legislator, also extended the number of casino licenses from 12 to 15, introduced a new license for poker casinos and adapted provisions concerning the licensing procedure for the casino licenses and the single lottery license.

The amendment had come into force before the ECJ delivered its judgement in the Engelmann case, in July 2010. The amendment takes into account some of the aspects which had been criticized before the ECJ in the oral pleadings of the Engelmann case in January 2010:

In the amendment, the Austrian government abolished the requirement of a seat for the application phase. However, during the operational phase the operator is still required to have a seat in Austria. This is clearly contrary to the freedom of establishment and freedom to provide services and has also been repeated in the Engelmann ruling.[15]

In order to comply with EU law, the Austrian government also changed the objective pursued when choosing the most suitable licensee for casinos and the lottery license. Before the amendment the licensee was supposed to gain the highest revenues for the state treasury, however, now that licensee shall be chosen, who can best safeguard the aim of protecting consumers. A “public and transparent” announcement shall take place before licenses are tendered.


b. Amendments of 2011


In November 2010, the Austrian government issued a draft amendment of the Austrian Gaming Act as part of the budgetary bill, slightly redesigning one license requirement for the lottery and casino licenses. The purpose of the new draft amendment was to overcome violations of EU freedoms which were found by Engelmann ruling.

The amendment has two main areas of focus. It modifies the requirements listed in § 14 for companies in order to be able to apply for a lottery license as well as the requirements for casino licenses given in § 21 of the Austrian Gaming Act.

This recent amendment modified the requirement of having a seat in the operational phase to the effect that now a seat in any Member State is sufficient, if the potential licensee also has a “comparable license” from the Member State in which it is established or, in case of a successful application, the company founds its seat in Austria within a certain respite. The comments to the §§ 14 and 21 of the Austrian Gaming Act further explain that it is the duty of applicants (!) established in another Member State to submit evidence of the comparability of their concession, as well as a statement by the gaming regulator of its home country declaring the willingness for administrative cooperation with the Austrian authorities.

The implications of the amendments of the Austrian Gaming Act clearly discriminate against applicants from other Member States, as for an Austrian applicant it is sufficient to have a seat in Austria while an applicant from another Member State finds numerous burdens: Even with a seat in an EU Member State, an applicant would still need a “comparable license” in its Member State of establishment plus a statement of the regulator, while an Austrian applicant needs to provide neither a previously obtained license nor a statement of any regulator. Beyond that, the provision “comparable state supervision and control”[16] leaves a wide discretion to the Austrian authority. There is also no justification why an applicant from another Member State would need a statement from the regulator of that Member State: According to EU law and consistent ECJ case law, it is the duty of the Austrian authority (and not the one of an applicant) to initiate and proceed with the administrative cooperation between national authorities.

This leads to the conclusion that the Austrian Gaming Act, even after these amendments would still not be compliant with EU law. The outcome of the amendments would ultimately result in a similar ECJ ruling like already delivered in the Engelmann case.


c. Further Amendments


According to the Austrian Gaming Act, online gaming can only be offered by the licensee for lottery products. This single license is currently held by ÖLG. Despite the fact that due to an order from the Ministry of Finance, the online platform of ÖLG is set up in cooperation with casino licensee CASAG, there is no EU compliant over-all regulation of online gaming within the Austrian Gaming Act. Drafting a compliant online regulation for the gaming sector has been on the table of the Austrian legislator for some time. The Austrian deputy to the Minister of Finance recently announced that a regulation for online gaming shall enter the drafting process in 2011.


d. Another Austrian case “Dickinger and Ömer


On 27 January 2011 the oral hearing of the next Austrian gaming case, C-347/09, “Dickinger and Ömer” will take place before the ECJ.

The Austrian referral court wants to know whether Art 49 TFEU and 56 TFEU preclude national licensing regulations under which a concession for lotteries is granted to only one applicant. Can this be justified as a restriction of betting activities relating to the public interest in light of the massive advertisement and expansionist policies of the de-facto monopolists? Does supervision in the Member State of establishment have to be considered?

During the hearing on 27 January 2011, the ECJ is going to assess the following aspects:

–       What particular difficulties can the competent authorities foresee in evaluating the qualities and probity of private operators that operate only online and mostly target consumers from other Member States?

–       Can these difficulties be met and a level of control ensured that is comparable to the levels met in offline gaming?

–       Is there mutual trust between Member States in respect of the supervising activities and the actual implementation of the regulations applicable to games of chance on the part of the authorities of other Member States?

Targeting at the special constellation in the initial case, in which an Austrian operator, provides its services under a Maltese license, the referring court also asked to what extent the controls on the qualities and probity of organisers of games of chance undertaken by the competent Austrian authorities go beyond the controls applied by the competent Maltese authorities?

It is expected that the outcome will be similar to the Engelmann ruling, however, broaden its scope also to lotteries.


e. Transparent license awarding in 2011


The Austrian government has recently announced that in June 2011 the tender procedures for all 15 casino licenses, the license for poker casinos and the single lottery license shall be commenced. The licenses shall be awarded at end of 2011 respectively the beginning of 2012. The Secretary of State, deputy to the Minister of Finance, announced that the government will certainly wait for the developments in the Dickinger and Ömer case. It is rumoured that the submission of the application documents will cost EUR 10,000.- and the grant of a license will be subject to further fees of EUR 100,000.- payable to the Ministry of Finance.


f. No sanctions for operators until EU compliant license awarding concluded


As long as the Austrian government maintains the various provisions within the Austrian Gaming Act that clearly violate EU law for various reasons, according to the consistent case law of the ECJ, all operators, who have never been able to successfully apply or be granted a license due to the Austrian regulations being in breach of EU law, must remain without any sanctions whatsoever. Any sanctioning of non-compliant operators will be possible the earliest when the Austrian government is able to fully comply with EU law. Thereby a transparent and public licensing procedure must take place under circumstances that do not discriminate against operators from other Member States potentially interested in obtaining an Austrian license and do not violate the fundamental freedoms of the EU. The Austrian gaming system must be regulated in a consistent and systematic manner, both externally in an over-all approach and also internally, so that if the lottery license is awarded to only one licensee, this license holder must not extensively advertise.

Only when the Austrian government has taken all measures necessary to regulate the gaming market in a manner compliant with EU law, will sanctions against operators not willing to comply with the law be enforceable. Therefore and also in order to provide a secure and systematic gaming legislation, the Austrian government is called upon to take the appropriate measures in due time.

[1] ECJ, 9 September 2010, C-64/08, Engelmann, para 17.

[2] ECJ, 9 September 2010, C-64/08, Engelmann, para 31.

[3] ECJ, 9 September 2010, C-64/08, Engelmann, para 33.

[4] ECJ, 30 November 1995, C-55/94, Gebhard, para 37 and ECJ, 6 November 2003, C-243/01, Gambelli, para 65.

[5] ECJ, 9 September 2010, C-64/08, Engelmann, para 37.

[6] ECJ, 9 September 2010, C-64/08, Engelmann, paras 37-38.

[7] ECJ, 9 September 2010, C-64/08, Engelmann, para 40.

[8] ECJ, 8 September 2010, C-316/07, Markus Stoß et al., para 103.

[9] ECJ, 3 June 2010, C-203/08, Sporting Exchange, para 50.

[10] ECJ, 9 September 2010, C-64/08, Engelmann, para 49.

[11] ECJ, 9 September 2010, C-64/08, Engelmann, para 55.

[12] ECJ, 9 September 2010, C-64/08, Engelmann, paras 49-50.

[13] ECJ, 9 September 2010, C-64/08, Engelmann, para 56.

[14] ECJ, 6 March 2007, C-338/04 et al, Placanica et al, para 69 and subsequently ECJ, 8 September 2010, C-316/07, Markus Stoß et al., para 115.

[15] ECJ, 9 September 2010, C-64/08, Engelmann, para 40.

[16] Compare to that extent the comments of Article 24 of the Amendment of the Austrian Gaming Act.


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