Secondary Lotteries: The experience in the Czech Republic

This article is written by Jan Chudoba, Head of Legal Department, SAZKA, Czech Republic, and is based on the presentation he made at EL Legal and Regulatory Affairs Seminar (Vienna, Nov. 23 & 24).

Secondary or synthetic lotteries, as they are also sometimes known, are a relatively new kind of gambling games, usually described as betting on the outcomes of official draws of licensed lottery operators. The question stands –  whether the secondary lotteries are to be perceived as a new, innovative way of playing lotteries (as suggested by the currently best-known operator, company ‘Lottoland’), or if they simply represent an illegal business practice?  Furthermore, what are the underlining business and legal practices adopted by the secondary lotteries’ operators? I would like to propose an answer to these questions, deriving from the Czech experience with the secondary lotteries.

jan

Jan Chudoba, Head of Legal Department, SAZKA

Company SAZKA, Czech Republic’s biggest lottery operator established in 1956, first faced Lottoland’s activities in the Czech Republic on the occasion of SAZKA’s marketing event celebrating the Eurojackpot lottery launch in October 2014.  During a show organized by SAZKA in the Prague’s city centre, hostesses in Lottoland’s branded dresses started offering to the participants an option to play Eurojackpot via the internet on Lottoland’s websites. Such marketing practises by themselves can hardly be considered as a fair competition. Most importantly, internet gambling (with the exception of online sports betting) is still prohibited in the Czech Republic. Not even SAZKA, as a member of the Eurojackpot partnership and the official license holder for the operation of Eurojackpot in the Czech Republic, is thus allowed to offer Eurojackpot online.

Disregarding the legal restrictions, Lottoland introduced its new website “lottoland.cz” enabling Czech citizens to “play” Eurojackpot online, while assuring them that such offering is compliant with the Czech laws thanks to Lottoland’s respective license granted by the Government of Gibraltar. However, the Ministry of Finance that is the regulatory body for the Czech gambling market, did not share Lottoland’s legal opinion and issued a public statement declaring Lottoland’s activities unlawful while warning Czech players that their participation in illegal gambling could also raise charges against them. Accordingly, Czech police initiated a criminal prosecution of Lottoland for unlawful operation of a lottery or other like game and, as a result, the domain name “lottoland.cz” was blocked. The content of the blocked website was, naturally, immediately moved to Lottoland’s “.com/cs” domain and Lottoland in turn also registered a new domain “sportka.org”. For better understanding, Sportka was established in by SAZKA in 1957 and continues to be SAZKA’s traditional and most popular lottery game. On this new domain Lottoland started offering “a new on-line game” called “Sportovka 6 from 49”.  The fact that the matrix of SAZKA’s game Sportka is also 6 from 49 is probably not a surprise. Again, this business practise can hardly be understood as a fair competition or any sort of bona fide action.

Consequently, SAZKA immediately sought remedy through preliminary injunction issued by a competent Czech court. SAZKA then filed a petition against Lottoland for violation of trademark rights. At the same time, SAZKA also initiated domain name arbitration which ended successfully with the domain sportka.org transferred to SAZKA.

At the time of this writing (end of November 2016) the criminal prosecution of Lottoland was suspended, because Lottoland does not possess any property in the Czech Republic, nor do any of its representatives have a physical presence there, and the cooperation with Gibraltar’s authority was, according to the Czech police, fruitless and complicated.  Moreover, Lottoland has breached preliminary injunction by its website offer of a new game Sportovka, which is in fact betting on the outcome of SAZKA’s game Sportka. As civil proceedings and enforcement of the court’s decision can be quite time consuming, SAZKA relies on newly introduced restrictive measures contained within the new Czech Gambling Act, effective as of January 1, 2017, mainly on the instruments of IP and payments blocking.

Finally, it is important to bear in mind that the new Czech Gambling Act was confirmed by the European Commission to be fully in compliance with European law and, as of the beginning of next year, it sets out the same conditions for all EU/EEA gambling operators. From this perspective, it will be interesting to see whether Lottoland will be able to obtain the license for its business activity.  So far, its main argument for not having license in the Czech Republic was the inconsistency of Czech gambling law with the EU laws (a common argument proffered by many unlicensed operators). With the new Act in effect, Lottoland’s true motivation will become clear: either it will obtain the Czech license and comply with all the regulatory and tax requirements, or it will become openly illegal in the Czech Republic.

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Synopsis

Français
Loteries secondaires : l’expérience en République tchèque.  Les loteries secondaires sont des jeux de hasard relativement nouveaux, généralement décrit comme pariant sur les résultats des tirages officiels des opérateurs de loterie agréés. La question est de savoir si les loteries secondaires doivent être perçues comme une nouvelle manière innovante de jouer aux loteries (comme le suggère l’opérateur le plus célèbre à ce jour, la société Lottoland), ou si elles représentent simplement une pratique commerciale illégale ? En outre, quelles sont les pratiques commerciales et juridiques adoptées par les opérateurs de loteries secondaires ? Lottoland a ignoré les restrictions légales et les lois tchèques dans la mesure où ils font la promotion et la vente de produits de loterie en République Tchèque. Les poursuites pénales de Lottoland ont été suspendues, car Lottoland ne possède pas de propriété en République tchèque, aucun de ses représentants n’y est physiquement présent et la coopération avec l’autorité de Gibraltar était, selon la police tchèque, infructueuse et compliquée. En outre, Lottoland a enfreint l’injonction préliminaire par l’offre de son site Web d’un nouveau jeu Sportovka, qui revient en fait à parier sur l’issue du jeu Sportka de SAZKA. Étant donné que les procédures civiles et l’exécution des décisions du tribunal peuvent prendre beaucoup de temps, SAZKA s’appuie sur des mesures restrictives nouvellement introduites contenues dans la nouvelle loi tchèque sur les jeux de hasard relative aux instruments de propriété intellectuelle et au blocage des paiements. La Commission européenne a confirme que la nouvelle loi tchèque sur le jeu était entièrement conforme au droit européen. Il sera intéressant de voir si Lottoland sera en mesure d’obtenir la licence pour son activité. Jusqu’à présent, son principal argument pour ne pas avoir de licence en République tchèque était l’incohérence de la loi tchèque sur le jeu par rapport à la législation de l’UE (un argument commun invoqué par de nombreux opérateurs sans licence). Avec la nouvelle loi en vigueur, la vraie motivation de Lottoland deviendra claire : soit elle obtiendra la licence tchèque et se conformera à toutes les exigences réglementaires et fiscales, soit elle deviendra illégalement ouverte en République tchèque.
Español
Loterías secundarias: La experiencia de la República Checa.  Las loterías secundarias son un tipo de apuesta relativamente nuevo, y suelen describirse como apuestas sobre resultados de sorteos oficiales u operadores de lotería licenciados. La pregunta es: ¿se perciben las loterías secundarias como una forma nueva e innovadora de jugar a la lotería (tal como sugiere Lottoland, el operador más conocido en la actualidad), o no son más que una práctica de negocio ilegal? Es más, ¿cuáles son los negocios sobresalientes y prácticas legales que adoptan estos operadores de loterías secundarias? Lottoland ha ignorado las restricciones legales y las leyes checas en la medida en que promociona y vende productos de lotería en el territorio de la República Checa. Sin embargo, el proceso judicial contra Lottoland se suspendió; la empresa no posee ninguna propiedad en la República Checa, ninguno de sus representantes tiene presencia física en el país y la cooperación con las autoridades de Gibraltar fue, según la policía checa, complicada e infructuosa. Lottoland ha incumplido, además, los requerimientos preliminares, ofreciendo en su página web un nuevo juego llamado Sportovka, que consiste en apostar sobre el resultado del juego Sportka de SAZKA. Los procedimientos civiles y la resolución judicial pueden alargarse en el tiempo, así que SAZKA confía en las nuevas medidas restrictivas, aprobadas por la nueva Ley de Juego checa, relativas a los instrumentos de IP y el bloqueo de pagos. La Comisión Europea confirmó que la nueva Ley de Juego checa se encuentra en total cumplimiento con la legislación europea. Será interesante ver si Lottoland es capaz de conseguir la licencia para su actividad empresarial. Hasta el momento, su argumento principal para carecer de licencia en la República Checa era la incoherencia de la ley de juego checa con la legislación europea (un argumento habitual entre muchos de los operadores sin licencia). Bajo los efectos de la nueva ley, la auténtica motivación de Lottoland se hará evidente: o la empresa obtiene la licencia checa y cumple con los requisitos impositivos y legales, o se convierte en una empresa abiertamente ilegal en la República Checa.
Deutsch
Sekundäre Lotterien: Das Erlebnis in der Tschechischen Republik.  Sekundäre sind eine relativ neue Art von Glücksspielen, in der Regel als Wetten auf die Ergebnisse der offiziellen Ziehungen der lizenzierten Lotterie-Betreiber beschrieben. Es stellt sich die Frage, ob die sekundären Lotterien als neue, innovative Art des Lotteriespiels wahrgenommen werden sollen (wie es der derzeit bekannteste Betreiber, das Unternehmen „Lottoland“ suggeriert hat), oder ob sie einfach eine illegale Geschäftspraxis darstellen? Was sind die zugrundeliegenden Geschäfts- und Rechtspraktiken, die von den Betreibern der sekundären Lotterien verabschiedet wurden? Lottoland hat die gesetzlichen Beschränkungen und die tschechischen Gesetze über die Art und Weise, wie sie Lotterieprodukte im Land Tschechien fördern und verkaufen, unberücksichtigt gelassen. Die Strafverfolgung von Lottoland wurde jedoch ausgesetzt, weil Lottoland in der Tschechischen Republik keinen Besitz hat und auch keiner seiner Vertreter dort eine physische Präsenz hat und die Zusammenarbeit mit Gibraltars Autorität nach Ansicht der tschechischen Polizei erfolglos und kompliziert war. Darüber hinaus hat Lottoland eine vorläufige einstweilige Verfügung durch seine Website-Angebote für ein neues Spiel Sportovka erwirkt, was in der Tat Wetten auf die Ergebnisse des SAZKA-Spiels Sportka bedeutet. Da Zivilverfahren und die Vollstreckung der Entscheidung des Gerichts sehr zeitraubend sein können, setzt SAZKA auf neu eingeführte restriktive Maßnahmen, die im neuen tschechischen Glücksspielgesetz über die Instrumente der IP- und Zahlungsblockierung enthalten sind. Das neue tschechische Glücksspielgesetz wurde von der Europäischen Kommission bestätigt, um in vollem Einklang mit dem europäischen Recht zu sein. Es wird interessant zu sehen sein, ob Lottoland die Lizenz für ihre Geschäftstätigkeit erhalten kann. Bisher war das Hauptargument, in Tschechien keine Lizenz zu besitzen, die Widersprüchlichkeit des tschechischen Glücksspielrechts mit den EU-Gesetzen (ein gemeinsames Argument vieler nicht lizenzierter Betreiber). Mit dem neuen Gesetz wird Lottolands wahre Motivation klar: Entweder wird es die tschechische Lizenz erhalten und alle regulatorischen und steuerlichen Anforderungen erfüllen, oder es wird in der Tschechischen Republik offen illegal sein.

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