The Court held that Article 49 EC allows a member State to prohibit internet suppliers of on line gaming, gambling and betting services which are established in other member States, in which they lawfully provide similar services, from offering games of chance via the internet within the territory of that member State.
The case concerned the situation in Portugal. In that country, the State has reserved the operation of games of chance such as lotteries, lotto games and sports betting exclusively to an organization called Santa Casa which has existed for several centuries. Santa Casa has a Gaming Department which has been entrusted by the State with powers to prosecute offences involving the illegal operation of games of chance in breach of its exclusive rights.
The Santa Casa Gaming Department fined Bwin, an on-line gambling company established in Gibraltar, for offering in Portugal games of chance and betting on soccer matches on its internet site. Bwin has no establishment in Portugal. Its servers for the on-line service are in Gibraltar and Austria. All bets are placed directly by the consumer on Bwin’s internet site or by some other means of direct communication.
Because Bwin is the main institutional sponsor of the First Soccer Division in Portugal, which is run by a private association called the Liga, both Bwin and the Liga challenged the fines imposed on Bwin by Santa Casa in the Portuguese courts. They claimed that the exclusive rights conferred by the state on Santa Casa to provide betting and gambling services was contrary, among other provisions, to Article 49 EC. The Portuguese court seised of the dispute referred a question to the Court of Justice whether those exclusive rights did indeed infringe Article 49 EC.
The Court of Justice held in its judgment in Case C-42/07 that the Portuguese legislation prohibiting Bwin from providing its betting and gambling services was a restriction of the freedom to provide services contrary to Article 49 EC.
That was the easy part and no-one really contested that there was a breach.
The real issue was whether the restriction in issue may be allowed as a derogation expressly provided for by Articles 45 EC and 46 EC, applicable in this area by virtue of Article 55 EC, or justified, in accordance with the case-law of the Court of Justice, by overriding reasons in the public interest.
The Court held in this case that the Portuguese legislation reserving those exclusive rights to supply gambling and betting services in its territory to Santa Casa to the exclusion of operators such as Bwin which are established in other member States in which they lawfully provide similar services, was justified and thus was not prohibited by Article 49 EC.
The Court recalled that Article 46(1) EC allows restrictions justified on grounds of public policy, public security or public health. In addition, a certain number of overriding reasons in the public interest have been recognized by case-law, such as the objectives of consumer protection and the prevention of both fraud and incitement to squander money on gambling, as well as the general need to preserve public order (Joined Cases C-338/04, C-359/04 and C-360/04 Placanica and Others  ECR I1891, paragraph 46).
It also finds that the legislation on games of chance is one of the areas in which there are significant moral, religious and cultural differences between the member States. In the absence of EU harmonization in the field, it is for each member State to determine in those areas, in accordance with its own scale of values, what is required in order to ensure that the interests in question are protected (Case 34/79 Henn and Darby  ECR 3795, paragraph 15; Case C-275/92 Schindler  ECR I-1039, paragraph 32; Case C-268/99 Jany and Others  ECR I-8615, paragraphs 56 and 60, and Placanica and Others, paragraph 47).
The mere fact that a member State has opted for a system of protection which differs from that adopted by another member State does not mean that such a system is necessarily disproportionate : Those provisions must be assessed solely by reference to the objectives pursued by the competent authorities of the member State concerned and the degree of protection which they seek to ensure (Case C-124/97 Läärä and Others  ECR I6067, paragraph 36, and Case C-67/98 Zenatti  ECR I-7289, paragraph 34).
The member States are therefore free to set the objectives of their policy on betting and gambling and, where appropriate, to define in detail the level of protection sought. However, the restrictive measures that they impose must satisfy the conditions laid down in the case-law of the Court as regards their proportionality (Placanica and Others, paragraph 48).
The Court examined whether the Portuguese legislation in issue was proportionate. It recalled that national legislation is appropriate for ensuring attainment of the objective pursued only if it genuinely reflects a concern to attain it in a consistent and systematic manner (Case C-169/07 Hartlauer  ECR I0000, paragraph 55).
It had previously recognized limited authorization of games on an exclusive basis has the advantage of confining the operation of gambling within controlled channels and of preventing the risk of fraud or crime in the context of such operation (see Läärä and Others, paragraph 37, and Zenatti, paragraph 35).
It found that the sector involving games of chance offered via the internet has not been the subject of Community harmonization. A member State is therefore entitled to take the view that the mere fact that an operator such as Bwin lawfully offers services in that sector via the internet in another member State, in which it is established and where it is in principle already subject to statutory conditions and controls on the part of the competent authorities in that State, gives insufficient assurance that national consumers will be protected against the risks of fraud and crime, in the light of the difficulties liable to be encountered in such a context by the authorities of the member State of establishment in assessing the professional qualities and integrity of operators.
It added that, because of the lack of direct contact between consumer and operator, games of chance accessible via the internet involve different and more substantial risks of fraud by operators against consumers compared with the traditional markets for such games.
Rather ominously, the Court also found that, bearing in mind that Bwin was a substantial sponsor of the Liga, the possibility cannot be ruled out that an operator which sponsors some of the sporting competitions on which it accepts bets and some of the teams taking part in those competitions (which assertion does not seem supported by the facts) may be in a position to influence their outcome directly or indirectly, and thus increase its profits.
In conclusion the Court of Justice held that, in the light of the specific features associated with the provision of games of chance via the internet, the restriction at issue in the main proceedings may be regarded as justified by the objective of combating fraud and crime.