The Court of Justice for the European Union (CJEU) has ruled that Hungary’s licensing framework for online gambling placed overly restrictive and unfair conditions on operators from other European Union countries looking to enter the market.

In particular, the CJEU found that Hungary’s licensing regime was not compatible with Article 56 of the Treaty on the Functioning of the European Union, which prevents member states from disrupting cross-border trade and services.

Background

Under Hungarian law in force in June 2014, only “trustworthy” operators that had been providing gambling services in Hungary for a period of at least ten years could qualify for a licence (the June 2014 law). The “trustworthy” condition was subsequently amended to include operators providing licensed gambling services in any EU member state for three years (the August 2014 law).

Malta-based gambling operator Unibet was investigated by Hungarian regulators in the summer of 2014, following which the regulators discovered that Unibet was operating a Hungarian-language site allowing Hungarian customers access to gambling content but did not hold a Hungary-issued licence. Hungarian regulators blocked access from Hungary to the Unibet websites, as well as imposing a fine on Unibet.

Hungarian gambling licensing requirements breach EU law

The CJEU found that both the June 2014 law and August 2014 law breached EU law on freedom to provide services:

  • The June 2014 law was discriminatory as the 10-year local operating requirement effectively made it impossible for operators from other Member States to obtain a licence.
  • The August 2014 law was not considered discriminatory; however, the lack of detail in the licensing procedure and the technical conditions having to be fulfilled by operators caused the licensing rules to be non-transparent and deterred applications by operators from other Member States.

Penalties invalid

The CJEU ruled that the penalties imposed by the Hungarian regulator were invalid because they were imposed pursuant to a licensing framework that was in breach of EU law. The decision confirms that website blocking is a sanction, and such a sanction can only be imposed if the underlying legislation (whose infringement has been sanctioned) complies with EU law. It is likely that gambling operators targeting other EU member states whose regulatory framework has not been approved by the European Commission may use this judgment to defend themselves against similar kinds of sanctions. Challenging such types of sanctions may also be used as tool to ask a national court (and possibly, on referral, the CJEU) to check the compatibility of the underlying legislation.