Australian business owners are all aware of the need to adhere to the consumer guarantees set out under the Australian Consumer Law. The Federal Court, however, made several key findings in ACCC v Valve affecting the responsibility of foreign-owned online companies that carry on business in Australia.

The Australian Consumer Law

Scheule 2 of the Competition and Consumer Act 2010 (Cth) contains the Australian Consumer Law (ACL) which commenced in 2011. It prescribes detailed requirements for those who supply goods or services to consumers under Part 3.2 Division 1, particularly in relation to consumer guarantees.

Background

The Respondent, Valve, is a company based in the US which operates an online game distribution platform called Steam. The Steam network contains about 4,000 video games with more than 2 million Australian subscriber accounts. Through this network, Valve sells digitally downloadable computer games to Australian consumers

The ACCC first commenced proceedings against Valve in August 2014 after asking Valve to institute a series of steps that would provide refunds to Australian consumers. Its failure to do so caused ACCC to initiate a claim that Valve made false or misleading representations to Australian consumers within its Steam Subscriber Agreements (SSAs) and Refund Policies. The key problematic terms were that:

  • Consumers were not entitled to a refund for any games sold by Valve via Steam; and
  • Statutory guarantees that goods would be of acceptable quality were excluded, restricted or modified.

Significantly in June 2015, Valve instituted its refund policy. However, the Court held that a subsequent change to its policy would not retrospectively extinguish Valve’s contraventions. Hence, the case continued to plow through the judicial system despite continuous delays.

The final allegations that the ACCC made against Valve was that:

  • It contravened s 64 of the ACL by making misrepresentations in relation to the acceptable quality guarantee in s 54, which cannot be modified or excluded; and
  • It contravened ss 18 and 29 by making misleading/deceptive representations about the existence or effect of the consumer guarantees;

Issues

The case raised three key issues, namely:

  • Application of proper law – whether the law with the closest and most real connection was the law of Washington State;
  • Supply of goods – whether supply of games and software was a supply of goods; and
  • Question of jurisdiction – whether Valve’s conduct was in Australia and if they carried on a business in Australia.

Application of Proper Law

Section 67 of the ACL provides for the conflict of laws. It states that if a contract for the supply of goods or services contains a term that purports to, or has the effect of, substituting the provisions of the law of a foreign country for the consumer guarantees under the ACL, the ACL provisions would apply despite that term. Valve argued that this term did not apply as it only related to circumstances where the proper law of the contract was the law of Australia and under their SSAs, the proper law was that of Washington State.

The Court agreed that the proper law of contract for the SSAs was that of Washington State as it had the closest and most real connection with the transactions. However, it also determined that s 67 was not limited to cases where the proper law was that of Australia. It held that even if the proper law was that of Washington State, the ACL would still apply under s 67 since the specific choice of law clause in the SSAs purported to ‘substitute, or have the effect of substituting’ Washington State law for the ACL’s consumer guarantees.

Supply of Goods

One of Valve’s defence points was that the substance of its transaction is one for the supply of services and it therefore did not supply goods. The Court rejected this argument outright on the basis that it reversed the proper enquiry of determining whether there is a supply of goods first and not services.

The Court looked at the definition of goods under section 2 of the ACL which includes ‘computer software’. To determine if there had been a supply of goods, the Court took into account the fact that Valve provided more than 4,000 games to its consumers that contained an essential component of computer software and that the phrase was frequently used in its SSAs and Refund Policies. The Court further clarified that although not everything Valve supplied was a good, the salient point was that the core of Steam’s supply to its subscribers was the provision of games and therefore the supply of computer software.

Question of Jurisdiction

The Court rejected both of Valve’s claims that they did not engage in conduct in Australia and that they did not carry on business in Australia. It took into account the company’s significant Australian context, including that:

  • Valve had significant personal property in Australia (e.g. servers);
  • It had 2.2 million subscriber accounts in Australia; and
  • Steam content was deposited on Valve’s three servers in Australia.

Furthermore, chat logs between Australian consumers and Steam were made specifically for individual Australian consumers, and a consumers’ act of purchasing a game constructed a relationship with Valve. Meaning Valve intended to make representations to each Australian consumer and that consumers relied on this conduct.

Valve was also seen to ‘undoubtedly’ have carried on a business in Australia due to its large customer base, servers stored, personal property, its expenses incurred in Australia for its servers storage and its relationships with third-party content delivery providers and service providers in Australia.

The Court’s Decision

The Court, having dealt with the three issues, held that the representations made by Valve were misleading or deceptive conduct. The Court applied an objective test based on the facts and circumstances of the conduct to decide if the conduct viewed as a whole had a tendency to lead a person into error. The Court confirmed that intention was irrelevant and that an incorrect statement of the law can constitute misleading and deceptive conduct.

Ultimately, the Court found that within the SSA and Refund Policy, Valve made false or misleading representations to consumers on the following:

  • Consumers were not entitled to a refund for downloaded games; and
  • Statutory guarantees that goods would be of acceptable quality were excluded, restricted and modified.

It, therefore, contravened sections 18 and 29 of the ACL.

Key Takeaways

The findings from this case have the strongest implications for foreign online businesses, establishing that even online software gaming companies based in foreign countries are subject to Australia’s consumer protection laws, including the consumer guarantees.

For businesses, particularly those engaged in the online gaming and software industry, the key points to note are that:

  • Even if a contract’s proper law is based in foreign law, the contract’s choice of law clause will not be enough to exclude the business from the ACL’s consumer guarantees;
  • The ACL’s inclusion of ‘computer software’ under its definition of goods includes digitally downloaded games; and
  • Although a company is registered outside of Australia and only operates online, factors such as a significant Australian consumer base, personal property, and strong trade relationships may still mean it is conducting business within Australian borders.

The case has provided greater clarity for foreign businesses on their responsibilities and liabilities. Significantly, it shows the Australian judiciary taking another step towards establishing clearer principles around the online business forum, an industry that has been slow to see law develop.

What do you think? Tag us on Twitter @legalvision_au and let us know or ask our consumer lawyers. 

Lachlan McKnight

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