UK Law: Are you part of the the Supply Chain Gang?

In a series of articles, David Clifton, director at licensing and gambling consultancy Clifton Davies, takes a look at the changes to the UK’s gambling licensing laws which are due to be in place by October.

The requirement for suppliers to be licensed has been extended until early next year – is this feasible or is there still confusion over which elements of the supply chain needs to get a licence?

With effect from 30 January 2015, a new LCCP condition will come into effect requiring that “all gambling software used by the licensee must have been supplied by a holder of a gambling software operating licence”.

The Gambling Commission takes the view that this period will give:

• “time for software suppliers to apply for a licence as they are not covered by the transitional arrangements” (no continuation licence being available for gambling software supply) and
• “time to adapt their own controls to ensure they meet the licence requirement”.

Notwithstanding the Commission’s “What is gambling software?” advice note published in June, confusion still seems to exist over which elements of the supply chain will be caught by the licensing requirement. In an attempt to resolve such confusion, the Commission has said that:

• it does not expect to require a business to hold a gambling software licence if the extent of its involvement in the supply chain is that it purchases or otherwise acquires gambling software from a person and sells or otherwise supplies it to a third party without any involvement itself in its manufacture, adaptation or installation; however, this is subject to the exception that the final supplier to a British licensed operator will require a gambling software licence even if it actually performs no development/manufacturing, adaptation or installation activity, and

• when considering who requires a gambling software licence, it is interested in where the ultimate control of the development of the product sits and it will be looking to determine whether the contract between the parties “in essence involves purchase of a product or merely payment for time and expertise”.

The Commission now takes the view that in circumstances where:

• a business is purchasing gambling software and the overall control, design and development of the product sits with the third party (the development company) then the development company needs a gambling software licence,
• a business (company Y) is purchasing time and/or skills and company Y retains control over the design and content of the product and the contracted third party is working to specific parameters, then company Y requires the gambling software licence and the contracted third party does not, and
• the third party is only providing part of a game, such as artwork, under the control and design specifications of Company Y, then this indicates Company Y is in control and is the entity to hold a gambling software licence whereas the third party does not.

When determining where control sits (and therefore who needs a licence), the Commission will want to understand (and will expect the contract between the parties to record):

• which company is responsible for the design and functionality of the software?
• which company is responsible for approving design changes?
• which company is responsible for the functionality and acceptance testing?
• which company is responsible for the quality assurance/regulatory compliance testing of the product?
• which company retains the IP for the functionality of the product?
• and what does the contract say in terms of responsibilities and liabilities?

In the time that remains available before 30 January 2015, it would be sensible for operators and software suppliers alike to review their commercial contracts to establish whether, taking into account the above “indicators”, they involve the purchase of a product or merely payment for time and expertise and, if necessary, to take legal advice sooner rather than later on whether application for a gambling software licence is going to be required.

Tomorrow I will be looking at the implications for affiliates.

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Anyone wanting to contact David about the issues raised in this week’s series of Clifton Davies’ articles can email him at [email protected] or via the website at www.cliftondavies.com