JUDGMENT OF THE COURT

21 September 1999 (1)

(Freedom to provide services — Exclusive operating rights — Slot machines)

In Case C-124/97,

REFERENCE to the Court under Article 177 of the EC Treaty (now Article 234EC) by the Vaasan Hovioikeus, Finland, for a preliminary ruling in the proceedingspending before that court between

Markku Juhani Läärä,

Cotswold Microsystems Ltd,

Oy Transatlantic Software Ltd,

and

Kihlakunnansyyttäjä (Jyväskylä),

Suomen Valtio (Finnish State ),

on the interpretation of the judgment of the Court of Justice of 24 March 1994 inCase C-275/92 Schindler [1994] ECR I-1039 and of Articles 30, 36, 56 and 59 of theEC Treaty (now, after amendment, Articles 28 EC, 30 EC, 46 EC and 49 EC) andArticle 60 of the EC Treaty (now Article 50 EC),

THE COURT,

composed of: P.J.G. Kapteyn, President of the Fourth and Sixth Chambers, actingfor the President, J.-P. Puissochet (Rapporteur) and P. Jann (Presidents ofChambers), C. Gulmann, J.L. Murray, D.A.O. Edward, H. Ragnemalm, L. Sevónand M. Wathelet, Judges,

Advocate General: A. La Pergola,

Registrar: L. Hewlett, Administrator,

after considering the written observations submitted on behalf of:

—    Mr Läärä and Oy Transatlantic Software Ltd, by P. Kiviluoto, of theJyväskylä Bar,

—    Cotswold Microsystems Ltd, by H.T. Klami, Professor at the University ofHelsinki,

—    the Finnish Government, by T. Pynnä, Legal Adviser in the Ministry ofForeign Affairs, acting as Agent,

—    the Belgian Government, by J. Devadder, Director of Administration in theMinistry of Foreign Affairs, Foreign Trade and Cooperation withDeveloping Countries, acting as Agent, assisted by P. Vlaemminck andL. Van Den Hende, of the Ghent Bar,

—    the German Government, by E. Röder, Ministerialrat in the FederalMinistry of Economic Affairs, and C.-D. Quassowski, Regierungsdirektor inthe same Ministry, acting as Agents,

—    the Spanish Government, by L. Pérez de Ayala Becerril, Abogado delEstado, acting as Agent,

—    the Netherlands Government, by A. Bos, Legal Adviser in the Ministry ofForeign Affairs, acting as Agent,

—    the Austrian Government, by F. Cede, Ambassador in the Ministry ofForeign Affairs, acting as Agent,

—    the Portuguese Government, by L. Fernandes, Director of the Legal Serviceof the Directorate-General for the European Communities in the Ministryof Foreign Affairs, A. Cortesão Seiça Neves, of the same Service, andJ. Ramos Alexandre, Inspector-General of Gaming in the Ministry ofEconomic Affairs, acting as Agents,

—    the Swedish Government, by E. Brattgård, Departementsråd in theDepartment of Foreign Trade of the Ministry of Foreign Affairs, acting asAgent,

—    the United Kingdom Government, by J.E. Collins, Assistant TreasurySolicitor, acting as Agent, assisted by M. Brealey, Barrister,

—    the Commission of the European Communities, by A. Caeiro, LegalAdviser, and K. Leivo, of its Legal Service, acting as Agents,

having regard to the Report for the Hearing,

after hearing the oral observations of: Mr Läärä and Oy Transatlantic SoftwareLtd, represented by P. Kiviluoto; Cotswold Microsystems Ltd, represented byH.T. Klami; the Finnish Government, represented by T. Pynnä; the BelgianGovernment, represented by P. Vlaemminck and L. Van Den Hende; the GermanGovernment, represented by E. Röder; the Spanish Government, represented byM. López-Monís Gallego, Abogado del Estado, acting as Agent; the IrishGovernment, represented by M. Finlay, SC; the Luxembourg Government,represented by K. Manhaeve, of the Luxembourg Bar; the NetherlandsGovernment, represented by M.A. Fierstra, Deputy Legal Adviser in the Ministryof Foreign Affairs, acting as Agent; the Portuguese Government, represented byL. Fernandes and A. Cortesão Seiça Neves; the Swedish Government, representedby L. Nordling, Rättschef in the Legal Secretariat (EU) of the Ministry of ForeignAffairs, acting as Agent; the United Kingdom Government, represented byJ.E. Collins, assisted by M. Brealey; and the Commission, represented by A. Caeiroand K. Leivo, at the hearing on 30 June 1998,

after hearing the Opinion of the Advocate General at the sitting on 4 March 1999,

gives the following

Judgment

1.

    By order of 21 March 1997, received at the Court on 25 March 1997, the VaasanHovioikeus (Court of Appeal, Vaasa) referred to the Court for a preliminary rulingunder Article 177 of the EC Treaty (now Article 234 EC) three questions on theinterpretation of the Court's judgment of 24 March 1994 in Case C-275/92 Schindler[1994] ECR I-1039 and of Articles 30, 36, 56 and 59 of the EC Treaty (now, afteramendment, Articles 28 EC, 30 EC, 46 EC and 49 EC) and Article 60 of the ECTreaty (now Article 50 EC), with a view to determining whether national legislationreserving to a public body the right to run the operation of slot machines on theterritory of the Member State concerned is compatible with those provisions.

2.

    Those questions were raised in proceedings between Mr Läärä, Oy TransatlanticSoftware Ltd, a company incorporated under Finnish law ('TAS‘), and CotswoldMicrosystems Ltd, a company incorporated under English law ('CMS‘), appellantsin the main proceedings, and Kihlakunnansyyttäjä (Jyväskylä) (Jyväskylä DistrictProsecutor) and Suomen Valtio (the Finnish State) concerning the operation of slotmachines in Finland.

The national rules

3.

    In Finland, under Article 1(1) of the Arpajaislaki (1.9.1965/491) (Law No 491 of1 September 1965 on gaming, in the version thereof in force at the material time),games of chance may be organised, with the authorisation of the administrativeauthorities, only for the purpose of collecting funds for charity or for another non-profit-making purpose provided for by law. According to Article 1(2) of theArpajaislaki, games of chance, within the meaning of that law, include in particularcasino activities, slot machines and other gaming machines or games in which, inexchange for a sum of money, the player may receive a cash prize, goods or otherbenefits of money's worth, or tokens to be exchanged for money, goods or benefits.

4.

    Article 3 of the Arpajaislaki provides, inter alia, for the issue by the administrativeauthorities to a public-law body of a licence for the operation, in return forremuneration, of slot machines and other gaming machines or for the carrying-onof casino activities, with a view to the collection of funds for various public interestinitiatives as listed by that provision. Only one licence, valid for a specified period,may be issued to cover those activities.

5.

    Such a licence was issued to the Raha-automaattiyhdistys (Association for theManagement of Slot Machines, hereinafter 'the RAY‘), pursuant to Article 1(3)of the Raha-automaattiasetus (29.12.1967/676) (Regulation No 676 of 29 December1967 on slot machines, in the version thereof in force at the material time). According to Article 6 of that regulation, the RAY is entitled, with a view toachieving its object of collecting funds to meet the needs referred to in Article 3of the Arpajaislaki, in return for remuneration, to operate slot machines and tocarry on casino activities, and also to manufacture and sell slot machines andamusement machines. Article 29 et seq. of that regulation lays down the conditionsunder which the net proceeds of the RAY's activities, the amount of which appearsin the State budget, are to be paid over to the Ministry of Social Affairs and Healthand then distributed amongst the organisations and foundations established to meetthe aforesaid needs.

6.

    Under Article 6(1) of the Arpajaislaki, a person who without a licence organisesgames of chance for which a licence is required is liable to the imposition of a fineor a term of up to six months' imprisonment. In addition, according to Article16(2) of Part 2 of the Rikoslaki (13.05.1932/143) (Finnish Criminal Law, in theversion thereof resulting from Law No 143 of 13 May 1932), any device belonging

to an offender or to a person on whose behalf or for whose benefit he has actedand which has been used in the commission of the offence or has been made orobtained solely for that purpose may be confiscated.

The main proceedings

7.

    It is apparent from the order for reference that CMS entrusted TAS, of whichMr Läärä is the chairman, with the running in Finland of slot machines known as'AWP‘ machines, of the Golden Shot type, which, in terms of the contract betweenthe two companies, remain the property of CMS. These machines contain rotatingrollers bearing symbols which represent fruit. When the rollers stop turning, eitherby themselves or by the operation of a handle by the player, and the sequenceformed by the symbols corresponds to one of the winning combinations, themachine delivers to the player winnings amounting to a maximum of FIM 200 (fora stake of between FIM 1 and FIM 5).

8.

    Criminal proceedings were brought against Mr Läärä, in his capacity as the chiefexecutive of TAS, before the Jyväskylän Käräjäoikeus (Jyväskylä Court of FirstInstance) on a charge of having operated these machines in Finland without alicence. Supported by TAS and CMS, who were joined in the proceedings, hedenied the offence with which he was charged, on the ground, in particular, that theprospects of winning offered by Golden Shot machines was not based exclusivelyon chance but also, to a large extent, on the skill of the player, with the result thatthose machines could not be regarded as gaming machines, and that the Finnishlegislation was contrary to the Community rules governing the free movement ofgoods and services. The Käräjäoikeus, rejecting his arguments, sentenced him toa fine and ordered the confiscation of the machines.

9.

    On appeal against that judgment by the parties concerned to the VaasanHovioikeus, that court decided to stay proceedings and to refer the followingquestions to the Court for a preliminary ruling:

'(1)    Is the judgment of the Court of Justice of 24 March 1994 in Case C-275/92Her Majesty's Customs and Excise v Gerhart Schindler and Jörg Schindler tobe interpreted in such a way that it may be regarded as analogous to thepresent case (compare the judgment of 6 October 1982 in Case 283/81 SrlCILFIT and Lanificio di Gavardo SpA v Ministry of Health), and that theprovisions of the EC Treaty should be interpreted in the present case in thesame way as in the aforesaid case?

    If the answer to the first question is wholly or partly in the negative:

(2)    Do the provisions of the EC Treaty on the free movement of goods andservices (Articles 30, 59 and 60) also apply to gaming machines of the typein issue here?

(3)    If the answer to the second question is in the affirmative:

(a)    do Articles 30, 59 or 60 or any other article of the EC Treaty precludeFinland from restricting the right to manage slot machines to the monopolyoperated by the Raha-automaattiyhdistys (Public-Law Association for theManagement of Slot Machines), irrespective of whether the restrictionapplies under that Law to domestic and foreign organisers of gaming alike,and

(b)    can that restriction be justified, having regard to the reasons set out in theLaw on games of chance or the measures implementing that Law, or on anyother grounds, by the principles contained in Articles 36 or 56 or any otherarticle of the EC Treaty; in addition, is the answer to that question affectedby the amount of the winnings which may be obtained from the machinesand by the question whether the opportunity of winning is based on chanceor on the player's skill?‘

10.

    By those three questions, which should be examined together, the national courtis asking whether, in the light of the judgment in Schindler, Articles 30, 59 and 60of the Treaty are to be interpreted as not precluding national legislation such asthat in force in Finland, which grants to a single public body exclusive rights toexploit the operation of slot machines, in view of the public interest grounds reliedon in order to justify it.

11.

    Mr Läärä, TAS and CMS maintain that operating the slot machines at issue in themain proceedings is quite different — on account, in particular, of the modest sizeof the stakes and prizes and their ultimate purpose, namely to provide amusementbased on the skill of the player — from the organisation of large-scale lotteries withwhich the judgment in Schindler was concerned. In their view, the exclusive rightconferred on the RAY is contrary to the provisions of the Treaty regarding the freemovement of goods and services and competition, principally because the publicinterest objectives relied on to justify it are not pursued in practice and could beattained by less restrictive measures, such as regulations imposing the necessarycode of conduct on operators.

12.

    The Finnish, Belgian, German, Spanish, Irish, Luxembourg, Netherlands, Austrian,Portuguese, Swedish and United Kingdom Governments and the Commissionconsider, by contrast, that the provisions of the Treaty do not preclude legislationsuch as the Finnish legislation, granting exclusive rights to run the operation of slotmachines, since it is justified by considerations analogous to those accepted by theCourt in Schindler. In the view of all those Governments, the games at issue in themain proceedings, which offer, in return for payment, the opportunity of winning

cash prizes, constitute a form of gambling comparable to lotteries, in relation towhich the Court has accepted that it is for the Member States, having regard totheir specific social and cultural characteristics, to assess whether it is necessary torestrict or even prohibit the activities concerned in order to maintain order insociety.

13.

    In paragraph 60 of the Schindler judgment, the Court drew attention to the moral,religious and cultural considerations which attach to lotteries, like other forms ofgambling, in all the Member States. The general tendency of the nationallegislation is to restrict, or even prohibit, the practice of gambling and to preventit from being a source of private profit. The Court also held that lotteries involvea high risk of crime or fraud, given the potentially high stakes and winnings,particularly when they are operated on a large scale. Furthermore, they are anincitement to spend which may have damaging individual and social consequences. A final ground which, according to the Court, is not without relevance, although itcannot in itself be regarded as an objective justification, is that lotteries may makea significant contribution to the financing of benevolent or public interest activitiessuch as social works, charitable works, sport or culture.

14.

    As is apparent from paragraph 61 of the judgment in Schindler, the Court held thatthose particular factors justify national authorities having a sufficient degree oflatitude to determine what is required to protect the players and, more generally,in the light of the specific social and cultural features of each Member State, tomaintain order in society, as regards the manner in which lotteries are operated,the size of the stakes, and the allocation of the profits they yield. In thosecircumstances, it is for them to assess not only whether it is necessary to restrict theactivities of lotteries but also whether they should be prohibited, provided thatthose restrictions are not discriminatory.

15.

    Although the judgment in Schindler relates to the organisation of lotteries, thoseconsiderations are equally applicable — as is apparent, moreover, from the verywording of paragraph 60 of that judgment — to other comparable forms ofgambling.

16.

    It is true that, in its judgment in Case C-368/95 Familiapress v Bauerverlag [1997]ECR I-3689, the Court declined to equate certain games with lotteries of the typeconsidered in Schindler. However, that case concerned competitions published inmagazines in the form of crosswords or puzzles, giving readers who had sent in thecorrect solutions the chance of being entered in a draw from which a number ofthem were selected as prize-winners. As the Court noted, particularly in paragraph23 of that judgment, such games, organised only on a small scale and forinsignificant stakes, do not constitute an economic activity in their own right but aremerely one aspect of the editorial content of a magazine.

17.

    In the present case, by contrast, it is apparent from the information supplied by thenational court that a game of chance is involved and that the machines at issue inthe main proceedings offer, in return for a payment specifically intended torepresent consideration for their use, the prospect of winning a sum of money. Ashas been pointed out by the majority of the governments intervening in the presentproceedings, the relatively modest size of the stakes and prizes, on which theappellants in the main proceedings base their case, does not in any way precludethe possibility of earning considerable sums from the operation of such machines,particularly on account of the number of potential players and the tendencyamongst most of them, given its short duration and its repetitive nature, to play thegame over and over again.

18.

    In those circumstances, games consisting of the use, in return for a money payment,of slot machines such as those at issue in the main proceedings must be regardedas gambling which is comparable to the lotteries forming the subject of theSchindler judgment.

19.

    However, the present case differs from Schindler in a number of respects.

20.

    First of all, the lotteries at issue in Schindler are not activities relating to 'goods‘,falling, as such, under Article 30 of the Treaty; instead, they must be regarded as'services‘ within the meaning of the EC Treaty (judgment in Schindler, paragraphs24 and 25). Slot machines, by contrast, constitute goods in themselves which maybe covered by Article 30 of the Treaty.

21.

    Next, whereas the national legislation at issue in Schindler prohibits the holding oflotteries on the territory of the Member State concerned, subject to certainexceptions laid down therein, the legislation at issue in the present case does notprohibit the use of slot machines but reserves the running of such machines to apublic body holding a licence issued by the administrative authorities ('the licensedpublic body‘).

22.

    Finally, as has been pointed out in certain of the observations submitted to theCourt, other provisions of the Treaty, such as those relating to the right ofestablishment or the competition rules, may be applicable to legislation of the kindat issue in the main proceedings.

23.

    As regards the latter point, however, since the national court has merely added tothe reference to Articles 30, 36, 59 and 60 of the Treaty in its third question thewords 'or any other article of the ... Treaty‘, without providing any further detailsin that regard, either in the reasoning or in the operative part of its order, theCourt is unable to rule on the question whether any provisions of the Treaty otherthan those relating to the free movement of goods and services preclude nationallegislation of the type at issue in the main proceedings.

24.

    First of all, as stated in paragraph 20 of this judgment, the provisions of the Treatyrelating to the free movement of goods may be applicable to slot machines, whichconstitute goods capable of being imported or exported. It is true that suchmachines are intended to be made available to the public for use in return forpayment. However, as the Advocate General has stated in point 19 of his Opinion,the fact that an imported item is intended for the supply of a service does not initself mean that it falls outside the rules regarding freedom of movement (see, tothat effect, Case C-158/94 Commission v Italy [1997] ECR I-5789, paragraphs 15to 20).

25.

    It should be noted in that regard that national legislation of the kind at issue in themain proceedings may hinder the free movement of goods, inasmuch as thelicensed public body is, in law, the only possible operator of slot machines intendedto be used in return for payment, and has the right to manufacture such machinesitself.

26.

    However, in the absence of adequate detailed information concerning the practicaleffect which the legislation in issue has on the importation of slot machines, theCourt is unable, in the present proceedings, to rule on the question whether Article30 of the Treaty precludes its application.

27.

    Second, as the Court held in Schindler in relation to the organisation of lotteries,the provisions of the Treaty relating to freedom to provide services apply toactivities which enable users, in return for payment, to participate in gaming. Consequently, such activities fall within the scope of Article 59 of the Treaty, sinceat least one of the service providers is established in a Member State other thanthat in which the service is offered.

28.

    As the referring court points out, national legislation on slot machines such as theFinnish legislation prohibits any person other than the licensed public body fromrunning the operation of the machines in question; it therefore involves nodiscrimination on grounds of nationality and applies without distinction to operatorswho might be interested in that activity, whether they are established in Finland orin another Member State.

29.

    However, such legislation constitutes an impediment to freedom to provide servicesin that it directly or indirectly prevents operators in other Member States fromthemselves making slot machines available to the public with a view to their use inreturn for payment.

30.

    It is therefore necessary to examine whether that obstacle to freedom to provideservices can be permitted pursuant to the derogations expressly provided for by theTreaty, or whether it may be justified, in accordance with the Court's case-law, byoverriding reasons relating to the public interest.

31.

    In that regard, Articles 55 (now Article 45 EC) and 56 of the EC Treaty, which areapplicable pursuant to Article 66 of the EC Treaty (now Article 55 EC), permitrestrictions which are justified by virtue of a connection, even on an occasionalbasis, with the exercise of official authority or on grounds of public policy, publicsecurity or public health. Furthermore, it is clear from the Court's case-law (see,to that effect, Case C-288/89 Collectieve Antennevoorziening Gouda [1991]ECR I-4007, paragraphs 13 to 15) that obstacles to freedom to provide servicesarising from national measures which are applicable without distinction arepermissible only if those measures are justified by overriding reasons relating to thepublic interest, are such as to guarantee the achievement of the intended aim anddo not go beyond what is necessary in order to achieve it.

32.

    According to the information contained in the order for reference and in theobservations of the Finnish Government, the legislation at issue in the mainproceedings responds to the concern to limit exploitation of the human passion forgambling, to avoid the risk of crime and fraud to which the activities concerned giverise and to authorise those activities only with a view to the collection of funds forcharity or for other benevolent purposes.

33.

    As the Court acknowledged in paragraph 58 of the Schindler judgment, thoseconsiderations must be taken together. They concern the protection of therecipients of the service and, more generally, of consumers, as well as themaintenance of order in society. The Court has already held that those objectivesare amongst those which may be regarded as overriding reasons relating to thepublic interest (see Joined Cases 110/78 and 111/78 Ministère Public v VanWesemael [1979] ECR 35, paragraph 28; Case 220/83 Commission v France [1986]ECR 3663, paragraph 20; and Case 15/78 Société Générale Alsacienne de Banquev Koestler [1978] ECR 1971, paragraph 5). However, it is still necessary, as statedin paragraph 31 of this judgment, that measures based on such grounds guaranteethe achievement of the intended aims and do not go beyond that which is necessaryin order to achieve them.

34.

    As noted in paragraph 21 of this judgment, the Finnish legislation differs inparticular from the legislation at issue in Schindler in that it does not prohibit theuse of slot machines but reserves the running of them to a licensed public body.

35.

    However, the power to determine the extent of the protection to be afforded bya Member State on its territory with regard to lotteries and other forms ofgambling forms part of the national authorities' power of assessment, recognisedby the Court in paragraph 61 of the Schindler judgment. It is for those authoritiesto assess whether it is necessary, in the context of the aim pursued, totally orpartially to prohibit activities of that kind or merely to restrict them and, to thatend, to establish control mechanisms, which may be more or less strict.

36.

    In those circumstances, the mere fact that a Member State has opted for a systemof protection which differs from that adopted by another Member State cannot

affect the assessment of the need for, and proportionality of, the provisions enactedto that end. Those provisions must be assessed solely by reference to the objectivespursued by the national authorities of the Member State concerned and the levelof protection which they are intended to provide.

37.

    Contrary to the arguments advanced by the appellants in the main proceedings, thefact that the games in issue are not totally prohibited is not enough to show thatthe national legislation is not in reality intended to achieve the public interestobjectives at which it is purportedly aimed, which must be considered as a whole. Limited authorisation of such games on an exclusive basis, which has the advantageof confining the desire to gamble and the exploitation of gambling within controlledchannels, of preventing the risk of fraud or crime in the context of suchexploitation, and of using the resulting profits for public interest purposes, likewisefalls within the ambit of those objectives.

38.

    The position is not affected by the fact that the various establishments in which theslot machines are installed receive from the licensed public body a proportion ofthe takings.

39.

    The question whether, in order to achieve those objectives, it would be preferable,rather than granting an exclusive operating right to the licensed public body, toadopt regulations imposing the necessary code of conduct on the operatorsconcerned is a matter to be assessed by the Member States, subject however to theproviso that the choice made in that regard must not be disproportionate to theaim pursued.

40.

    On that point, it is apparent, particularly from the rules on slot machines, that theRAY, which is the sole body holding a licence to run the operation of thosemachines, is a public-law association the activities of which are carried on under thecontrol of the State and which is required, as noted in paragraph 5 of thisjudgment, to pay over to the State the amount of the net distributable proceedsreceived from the operation of the slot machines.

41.

    It is true that the sums thus received by the State for public interest purposes couldequally be obtained by other means, such as taxation of the activities of the variousoperators authorised to pursue them within the framework of rules of a non-exclusive nature; however, the obligation imposed on the licensed public body,requiring it to pay over the proceeds of its operations, constitutes a measure which,given the risk of crime and fraud, is certainly more effective in ensuring that strictlimits are set to the lucrative nature of such activities.

42.

    In those circumstances, in conferring exclusive rights on a single public body, theprovisions of the Finnish legislation on the operation of slot machines do notappear to be disproportionate, in so far as they affect freedom to provide services,to the objectives they pursue.

43.

    Accordingly, the answer to be given to the national court must be that the Treatyprovisions relating to freedom to provide services do not preclude nationallegislation such as the Finnish legislation which grants to a single public bodyexclusive rights to operate slot machines, in view of the public interest objectiveswhich justify it.

Costs

44.

    The costs incurred by the Finnish, Belgian, German, Spanish, Irish, Luxembourg,Netherlands, Austrian, Portuguese, Swedish and United Kingdom Governments andby the Commission, which have submitted observations to the Court, are notrecoverable. Since these proceedings are, for the parties to the main proceedings,a step in the action pending before the national court, the decision on costs is amatter for that court.

On those grounds,

THE COURT,

in answer to the questions referred to it by the Vaasan Hovioikeus by order of21 March 1997, hereby rules:

The Treaty provisions relating to freedom to provide services do not precludenational legislation such as the Finnish legislation which grants to a single publicbody exclusive rights to operate slot machines, in view of the public interestobjectives which justify it.

KapteynPuissochet Jann Gulmann Murray Edward Ragnemalm Sevón Wathelet

Delivered in open court in Luxembourg on 21 September 1999.

R. Grass

G.C. Rodríguez Iglesias

Registrar

President

1: Language of the case: Finnish