Australia: ACL reach broadened as ACCC wins case against Valve Corporation

Key Points:

Overseas online sellers now have some clarity about their obligations to comply with the Australian Consumer Law.

The Federal Court has clarified some important questions about the reach of the Australian Consumer Law (ACL) and its application to online distribution to Australian consumers where the provider is based outside Australia (Australian Competition and Consumer Commission v Valve Corporation (No 3) [2016] FCA 196).

The Australian Competition and Consumer Commission took action against Valve Corporation alleging Valve had made misleading representations about consumer guarantees. Valve operates an online game distribution network known as Steam out of Washington State in the United States.

The case answered the following questions:

  • Does the ACL apply to transactions involving sales to Australian consumers from a foreign corporation of computer software?
  • Can a foreign company operating mainly outside Australia be engaging in conduct in Australia or carrying on business in Australia?
  • Does the online distribution of games involve the supply of a good?

Steam Subscription Agreements and the ACL contraventions

The Federal Court found that Valve had misled consumers about their ACL consumer guarantee rights by the terms and conditions of its Steam Subscription Agreements (SSAs) and by statements in two of its refund policies. The misleading representations were said to have been made in (i) the SSAs, (ii) the Steam Refund Policies displayed on the Steam website from 1 January 2011, and (iii) during online "chats" between three Australian consumers and Steam Support staff.

Those representations found to be misleading were:

  • that consumers had no entitlement to a refund from Valve for digitally downloaded video games they had purchased from Valve via the Steam website or Steam in any circumstances;
  • that Valve had excluded, restricted or modified statutory guarantees and/or warranties of acceptable quality; and
  • that, from about 1 January 2011, a consumer had no entitlement to a refund for digitally downloaded video games purchased from Valve via the Steam website or through the Steam Client (the online video game delivery platform).

Valve's conduct contravened sections 18(1) and 29(1)(m) of the ACL by the terms and conditions in its SSAs and also by the statements in two of its refund policies which broadly concerned availability of refunds. However, the conduct of Valve's Stream Support representatives in online chats did not contravene the ACL (though this applied only to the particular three Australian consumers in the litigation).

Did Valve's conduct amount to a "supply of goods"?

Valve's argument that there was no supply of goods to any consumer was rejected by the Court.

When the ACL was enacted at the start of 2011, the definition of "goods" was extended to include "computer software" (although "computer software" itself is not defined in the ACL). The Court found that computer software comprises instructions or programs that make hardware work. The evidence was that that non-executable data was not computer software, but that computer software made non-executable data work (ie. one of the most fundamental things that Valve provided to its customers contained an essential component of "computer software").

The judge placed significance on the fact that games were able to be played "offline". A contractual licence to use goods is, essentiality, a hire without a bailment. Further to this, it was held that the verification requirement that Valve imposes upon consumers who wish to play Steam game when they connect to the internet does not prevent the computer software from being "supplied". As such, the Federal Court found that there was a "supply of goods".

Although not everything Valve supplied was a good, the important point is that at the core of Stream's supply to its subscribers was the provision of games. At the heart of the provision of games was the supply of computer software. The Federal Court found it noteworthy that the three consumers who gave evidence for the ACCC all said that they considered that the basic thing that they were purchasing was computer software.

Was Valve's conduct in Australia? Was Valve carrying on business in Australia?

Section 131(1) of the Competition and Consumer Act (CCA) applies the ACL as a law of the Commonwealth to the conduct of corporations and in relation to contraventions of Chapters 2, 3 and 4 of the ACL by corporations. Section 4 of the CCA defines a corporation to include a foreign corporation, and section 5 of the CCA extends the application of the ACL to the engaging in conduct outside Australia by bodies corporate incorporated or carrying on business within Australia. One of the key issues for the trial judge to decide upon was whether Valve's conduct was "in Australia".

Valve submitted that it did not engage in conduct in Australia because it:

  • was a foreign corporation;
  • had business premises and staff located outside Australia;
  • had no real estate in Australia;
  • hosts the website outside Australia;
  • provides support services outside Australia;
  • did not have Steam content "preloaded or stored" on Valve's servers in Australia; and
  • received payment for subscriptions is made in US dollars and proceeds in Washington State.

However, the trial judge found that Valve engaged in conduct in Australia because the following factors involved a significant Australian context and displayed a strong connection to Australia, including:

  • significant personal property, namely servers, in Australia worth $1.2 million;
  • 2.2 million subscriber accounts in Australia;
  • support services outside Australia provided to the 2.2 million accounts in Australia;
  • Stream content is deposited on Valve's three servers in Australia; and
  • made payments to the Australian bank account of an Australian company (Equinix).

Having found that the Valve engaged in conduct in Australia, the Court found that the ACL applied to that conduct. It was therefore not necessary for the court to answer the question whether Valve carried on a business in Australia because this issue would only have arisen had the trial judge concluded that Valve's conduct was not in Australia. However, as both parties dealt with the issue in detail, the trial judge provided views on whether Valve carried on a business in Australia.

The Federal Court noted that in the ordinary sense of carrying on a business, Valve undoubtedly carried on a business in Australia. These reasons were similar to the strong connection stated above and also included the fact that Valve entered into contracts with third party services providers. Ultimately, the Federal Court held that even if Valve did not engage in conduct in Australia, the ACL was engaged because it was an incorporated body which was carrying on a business in Australia.

Key lessons from the Valve decision for foreign companies selling online

The case answered the following questions:

  • Does the ACL apply to transactions involving sales to Australian consumers from a foreign corporation of computer software? Yes. The ACL can reach both foreign companies and sellers of computer software.
  • Can a foreign company operating mainly outside Australia be engaging in conduct in Australia or carrying on business in Australia? Yes. By making representations to Australian consumers, a foreign company can be said to be engaged in conduct in Australia. A company is also likely to carry on a business in Australia when it has millions of Australian subscriber accounts (in Valve's case, 2.2 million), generates large Australian revenues, has valuable personal property in Australia, has business relationships in Australia, and incurs tens of thousands of dollars of monthly expenses in Australia.
  • Does the online distribution of games involve the supply of a good? Yes. Games supplied by Steam required computer software to make them work and consist of computer software and other assets, for example, music, images and the content of Steam's content servers is the software for the game. A contractual licence falls within the meaning of "supply". Computer software is a good within the meaning of the ACL, and Valve supplied goods to Australian consumers, together with other matters such as non-executable data and services.

You might also be interested in...

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions