Australia: Businesses beware – are you caught by the ACL? Implications of the ACCC v Valve decision

The Australian Consumer Law, including the consumer guarantees can apply to the supply of goods by an overseas online platform even if the contract is governed by foreign law. Online and international businesses should consider whether they are subject to the ACL and amend their customer agreements to ensure compliance.

INTRODUCTION AND BACKGROUND

The respondent, Valve Corporation (Valve), is a company based in Washington in the USA. Valve operates an online game distribution network known as Steam. Steam contains approximately 4,000 video games and has approximately 2.2 million Australian subscriber accounts.

On 24 March 2016, Justice Edelman of the Federal Court held that Valve engaged in deceptive and misleading conduct by representing to Australian consumers that they were not entitled to a refund in whole or part for defective video games.1 This decision resolves uncertainty as to whether the consumer guarantees under the Australian Consumer Law (ACL) apply to the supply of software by an overseas online platform. The Federal Court has confirmed the ACCC's broad view on the application of the ACL.

IMPLICATIONS

Specifically, this decision confirms that:

  1. the ACL applies to transactions involving sales to Australian consumers by an online overseas provider regardless of the proper law of the contract;
  2. a foreign company operating outside of Australia will be regarded as carrying on business in Australia if the company makes repeated sales, generates revenue and has business relationships in Australia; and
  3. the supply of computer software will be considered the supply of goods for the purposes of the ACL. This is the case even when the software is provided on a licensed basis.

We address each of these issues in more detail below.

The Federal Court's decision reinforces that foreign based businesses selling goods and/or services to Australian consumers can be subject to ACL obligations, including the consumer guarantees. In response to this decision, businesses (especially online and international businesses) should consider whether they are carrying on business in Australia and subject to the ACL. If so, businesses should amend their customer agreements accordingly to ensure compliance with the ACL.

WHAT ABOUT THE PROPER LAW OF THE CONTRACT?

Valve submitted that the Steam Subscriber Agreement (SSA) is not a contract to which the consumer guarantees in the ACL applied because the proper law is the law of Washington State in the USA, not Australia.

Section 67 of the ACL provides:

If:

  1. the proper law of a contract for the supply of goods or services to a consumer would be the law of any part of Australia but for a term of the contract that provides otherwise; or
  2. a contract for the supply of goods or services to a consumer contains a term that purports to substitute, or has the effect of substituting, the following provisions for all or any of the provisions of this Division:
    1. the provisions of the law of a country other than Australia;
    2. the provisions of the law of a State or a Territory;

    the provisions of this Division apply in relation to the supply under the contract despite that term.

Valve submitted that, by implication and not by express words, section 67 of the ACL excludes the consumer guarantees where the proper law of the contract is not the law of an Australian jurisdiction.

While the Court accepted that the proper law of the contract is Washington State, it rejected Valve's construction of section 67 of the ACL. The Court focussed on subsection 67(b) to find that the ACL was extended to a consumer contract, regardless of the proper law of the contract. Further, the Court held that Valve's position was contrary to the context, history and purpose of the section.

DID VALVE'S CONDUCT OCCUR IN AUSTRALIA OR IS VALVE CARRYING ON BUSINESS IN AUSTRALIA?

The ACL applies to companies or persons carrying on business in Australia or engaging in conduct in Australia. Valve:

  • was not incorporated in Australia;
  • had no Australian based staff;
  • had no real estate in Australia; and
  • hosts its website outside of Australia.

Despite these circumstances, the Federal Court found that Valve's conduct did occur in Australia and consequently, the ACL applied. At the core of the Court's reasoning was that Valve:

  • had more than 2 million user accounts in Australia;
  • generated potentially millions of dollars in revenue from Australian consumers;
  • owned, and used, content servers in Australia, with an original retail value of US$1.2million. The ACCC compared these content servers to 'digital warehouses';
  • had contractual relationships with businesses based in Australia, including providers of content servers; and
  • paid tens of thousands of dollars monthly to Australian companies in expenses for running its business in Australia.

Although the issue of whether Valve was carrying on business in Australia would only arise if the Court concluded that Valve's conduct was not in Australia, the Court considered this issue as the parties dealt with it in comprehensive detail.

Valve had argued that merely receiving orders and providing goods to Australian consumers was not sufficient to be considered to be carrying on business in Australia. Rather, the act of carrying on a business must involve some element of commercial enterprise to make a profit. The ACCC argued that carrying on business merely amounted to selling to Australian consumers.

The Federal Court endorsed a broad test of "carrying on business", specifically whether an entity had engaged in a series or repetition of acts commonly involved in activities undertaken for the purpose of profit.2 Accordingly, although in obiter, the Court found that Valve was carrying on business in Australia, for similar reasons to those listed above.

WAS THERE A SUPPLY OF GOODS BY VALVE?

The Federal Court rejected Valve's argument that its conduct did not amount to a supply of 'goods' within the meaning of section 2(1) of the ACL. Importantly, this is the first case to consider the extended definition of 'goods' in the context of 'computer software' for the purposes of the ACL. Although 'computer software' is included in the definition of 'goods' in the ACL, 'computer software' is not defined.

Valve submitted that it provided a 'service' and not a 'good'. The 'service' being in the form of a licence agreement to play the games and use other functions on the Steam platform. Valve contended that whilst the download of digital bits was part of the transaction, it was not the essential element being contracted for. Rather, by subscribing to the Steam service, or in purchasing a game, the consumer was entering into a contract for a licence to play the game on the Steam platform and other services related to the game. Valve emphasised that Steam games require that the user play the game through the Steam platform and be verified each time that they play the game. However, the Court held that this submission omits the fact that a consumer can play games in 'offline mode' without a connection to the internet and without verification of their account.

Ultimately, the Court held that computer software is the coded instructions or programs that make hardware work. The Court rejected Valve's argument for the following reasons:

  • the definition of 'goods' in the ACL includes 'computer software';
  • given that the games could be played offline and without verification by the Valve servers, the core element of the supply was the computer software;
  • the term 'supply' is defined to include a hire or an agreement to hire and the licensing arrangement was essentially that of a hire without a bailment; and
  • the ACL expressly provided that a reference to a supply of goods included goods supplied with services.

The Court held that the core element of the supply was computer software, being the games themselves.

NEXT STEPS

In the ACCC media release, Rod Sims, the ACCC Chairman noted that "Consumer issues in the online marketplace are a priority for the ACCC and we will continue to take appropriate enforcement action to hold businesses accountable for breaches of the ACL".

Please contact us if you would like to discuss whether your business is subject to the ACL and whether your business needs to amend its customer agreements to ensure compliance with the ACL.

Footnotes

1 ACCC v Valve Corporation (No 3) [2016] FCA 196 (Valve Case).

2 Valve Case at [197].

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Most awarded firm and Australian deal of the year
Australasian Legal Business Awards
Employer of Choice for Women
Equal Opportunity for Women
in the Workplace (EOWA)

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
 
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”

Mondaq Advice Centre (MACs)
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
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.