Case C-176/11 HIT & HIT LARIX v. Bundesminister für Finanzen

On 12 July 2012, the  ECJ handed down a new ruling on gambling advertisements. The judgment in C-176/11 HIT and HIT LARIX clarifies that a country may restrict advertisements for foreign casinos on the ground that the casino’s home state does not provide equivalent protection for gamblers. However, they cannot require identical regulation, and the restriction must be directly related to protecting consumers.

At the same time, however, the judgment raises once more the question of what regulations should be found proportional in gambling cases. The disagreement over proportionality is evident in the differences between the opinion of the Court and that of Advocate General Mazák, and will no doubt lead to further debate regarding the exact scope of Member State freedom in this area.

HIT and HIT LARIX operate casinos in Slovenia. The two companies applied for licenses to advertise their gaming establishments in Austria, but were denied. Austrian law provides that permits for advertising casinos located in other Member States can be granted only where the legal protection for gamblers in the casino’s State “at least corresponds to” the protection provided in Austria. The Austrian authorities found that Slovenian regulations were insufficient to meet this test, noting in particular the lack of a legal obligation to warn and bar gamblers who seem to be exceeding their limits, the lack of a monitoring system for gambling abuse, the lack of adequate legislation to protect minors, and the lack of a provision for direct civil actions in case a gaming establishment breaches its obligations (para. 10).

The companies brought suit, alleging that Austria’s refusal to allow their advertisements was in breach of the right to freely provide services under EU law. Austria argued that its restriction was justified by overriding reasons in the public interest–in particular, the protection of consumers (paras. 11-12). The Austrian court hearing the case asked for a preliminary ruling on the question:

Is legislation of a Member State which permits the domestic advertising of casinos located abroad only where the legal provisions in those foreign locations for the protection of gamblers correspond to the domestic provisions compatible with the freedom to provide services? (para. 15)

The Court found the Austrian regulation requiring comparable protections for gambling establishments to be a restriction on the freedom to provide services under Article 56 TFEU. However, it found that the restriction was justified on public interest grounds (para. 36). The Court acknowledged, citing Liga Portuguesa, that “legislation on games of chance is one of the areas in which there are significant moral, religious and cultural differences between the Member States” (para. 24). Lacking harmonized rules, therefore, it is up to Member States to decide on their own levels of protection. The ECJ also reiterated its finding in Carmen Media Group and elsewhere that protecting citizens from the risks associated with gambling is a legitimate aim. The Court therefore held that a measure like Austria’s would be proportional so long as it required only an equivalent (but not identical) level of protection, and so long as it was directly related to protecting consumers against the risks of gambling.

The case now goes back to the Austrian courts to determine whether the law goes beyond what is necessary for consumer protection (para. 35).

Interestingly, the Court’s opinion here differed sharply from that of Advocate General Mazák, who had argued that Austria’s rule “goes beyond what is necessary to achieve the objective of protecting consumers” (AG para. 23). The Advocate General was concerned that the system of prior authorization for advertising could constitute “a ‘hidden’ total prohibition of the advertising of foreign casinos” (AG para. 24), and that it “leads, ultimately, to a discrimination based on the origin of the applicant” (AG para. 25). Moreover, he was concerned with the fact that the grant of a permit “depends solely on the content of the legislation of the Member State, without taking account of the actual level of protection provided by the casino operator” (AG para. 26).

Does the ruling strike the right balance between the regulatory freedom of Member States and the need to ensure freedom of movement for service providers? Gambling cases have come before the ECJ regularly over the past several years. Indeed, according to the Advocate General, this is the third time Austria’s laws have been challenged before the ECJ. The proportionality assessment set out by the Court leaves quite a bit of leeway for state regulation. Here, the Court seems to have more of an eye for cultural sensitivities and national disparities, whereas the Advocate General appears more concerned with the proper functioning of the internal market.

What is the right path to tread in an increasingly integrated EU? The Advocate General’s opinion proposed a more restrictive approach that would have taken into account the risks for protectionism raised by a rule like Austria’s. And a number of commentators and trade bodies have argued for greater harmonization in this area. Would this stricter approach accelerate the need for harmonization at the EU level, as Member States would begin seeking to find an adequate level of protection EU-wide?

The proportionality question will no doubt continue to arise in future gambling cases at the ECJ, particularly as internet gambling and cross-border providers continue their fight to take maximum advantage of the free market provisions of EU law.