Australia: Australian Court Holds U.S. Online Company Liable For Breach Of Australian Consumer Law

The Federal Court of Australia has held that United States company Valve Corporation, through its online gaming platform, engaged in misleading or deceptive conduct and made false or misleading representations to Australian consumers. The Court determined Valve violated the consumer guarantees imposed under the Australian Consumer Law (the ACL). The decision confirms that overseas companies can be liable for an ACL violation even when supplying Australian consumers online and that those violations may include merely making statements inconsistent with the ACL's protections.

Background

The ACL imposes certain consumer guarantees in the sale of products and services, regardless of any other warranties provided by suppliers or manufacturers. These include, for example, that the goods are of acceptable quality and that, where a seller later makes additional promises, verbally or in writing, those promises will be met. For breach of such statutory guarantees, consumers have a right to a remedy, such as refund, repair or replacement. The ACL makes attempts to restrict these consumer guarantees unenforceable.

Valve is based in the U.S. state of Washington, where it operates an online game distribution platform. "Steam" has over 125 million users worldwide, including 2.2 million in Australia. Through this platform, Australian consumers can buy downloadable computer games.

The Australian Competition and Consumer Commission (ACCC) initiated proceedings against Valve in August 2014. ACCC alleged that Valve made false or misleading representations inconsistent with the guarantee of acceptable quality under the ACL. ACCC also alleged that Valve engaged in misleading or deceptive conduct, including through its subscription and license agreements and in online customer service chats. For example, the ACCC claimed that Valve represented to Australian consumers that "ALL STEAM FEES ARE PAYABLE IN ADVANCE AND ARE NOT REFUNDABLE IN WHOLE OR IN PART," which fails to reflect that a refund is a remedy available to consumers for a failure by a good or service of the guarantees provided under the ACL and that suppliers are unable to limit. Further it is a contravention to misrepresent a consumer's rights to the remedy provided by the ACL.

Application of ACL to a U.S. company

Contending the ACL did not apply to it, Valve argued:

  1. Valve's conduct did not occur in Australia, and Valve did not carry on business in Australia.
  2. The contracts entered into between Valve and its customers were not caught by the ACL, because the contracts were governed by the law of Washington State.
  3. Valve did not "supply goods" for the purposes of the ACL, but provided a service including only a license to use the software.

(1) Valve's conduct and business in Australia. Valve argued it does not do business in Australia. Valve based its defense on the facts that its business premises and staff are in the U.S., it has no real estate in Australia, its websites are hosted offshore, content is not preloaded or stored on servers in Australia, and subscription payments are made in U.S. dollars and processed in Washington.

Although accepting these facts, the Federal Court found that other factors determined that Valve's conduct nevertheless occurred in Australia:

  • Valve owned servers in Australia worth $1.2 million, which had been configured by an employee who had travelled to Australia.
  • Valve had 2.2 million subscriber accounts in Australia, a significant source of revenue.
  • Valve's outside-U.S. support services did provide support for Australian subscribers.
  • When subscribers in Australia requested content, the content was deposited on Valve's Australia servers, where it would remain for a period of time.
  • Valve made payments of tens of thousands of dollars per month to the Australian bank account of an Australian company for rack space and power for its servers.

Against this background, the Court found that making representations through Steam to Australian consumers, who agreed to the terms and downloaded Valve's software in Australia, and in online chats with individual Australian consumers involved conduct in Australia. Even if the conduct had not occurred in Australia, the Court determined that Valve would have been subject to the ACL as it was carrying on business in Australia. The Court relied on the factors listed above, as well as Valve's relationships with Australian content delivery providers who provided proxy caching and contracts with third party service providers in Australia.

(2) Governing law of contract. Valve also pointed to its customer contracts, whose choice-of-law clause provide that "this Agreement shall be deemed to have been made and executed in the State of Washington" and that "any dispute arising hereunder shall be resolved in accordance with the law of Washington." While the Court agreed that Washington law had the closest connection to contracts, the Court rejected the argument that this provided an exception to the ACL consumer guarantees.

Valve's supply of goods in Australia. While the ACL definition of "goods" explicitly includes "computer software," Valve argued that it was not caught by the relevant provisions relating to "supply of goods," because Valve supplies a service that includes only a license to access the video games. The Court determined that "supply" under the ACL included supply through licensing and that the licensing arrangement was essentially that of a hire without a bailment. Additionally, the Court determined that "supply of goods" included goods supplied with services. The Court observed that consumers could play Steam games in offline mode, suggesting that the consumer had been supplied with the software which could be used by them without further communication with Valve's servers.

(3) Valve's misleading representations about the consumer guarantees. Having found that the ACL applied to Valve, the Court found that Valve had made false or misleading representations to consumers, including statements that consumers were not entitled to a refund for downloadable games purchased from Valve via Steam or any Steam fees in any circumstances; and Valve had contractually excluded or restricted the statutory consumer guarantees.

The Court determined these were misleading, as the ACL entitles consumers to refunds in some circumstances and does not allow the statutory consumer guarantees to be excluded or restricted. Although the ACCC did not allege that Valve's goods had in fact failed to meet the consumer guarantees in this case, Valve's violation was that it had misrepresented the existence and effect of the consumer guarantees. The Court found that other, qualifying statements by Valve, such as global statements that "Valve's obligations are subject to existing laws" and disclaimers would "apply to the maximum extent permitted by applicable law," did not save the offending messages.

The Court has not yet determined the remedies, particularly the extent of any pecuniary payable which it will hear in due course. By way of guidance as to the possible penalties that Valve may be required to pay, in 2013, the ACCC secured an AUD3 million pecuniary penalty against Hewlett-Packard Australia Pty Ltd in relation to its representations to Australian consumers that their rights were limited to Hewlett-Packard's global terms and refunds policy which were inconsistent with the ACL consumer guarantees.

Ramifications

Following the Court ruling, the ACCC stated that this decision "reinforces that foreign based businesses selling goods and/or services to Australian consumers can be subject to ACL obligations, including the consumer guarantees." Foreign corporations will not always be able to use choice of law clauses to exclude the application of the consumer guarantees under Australian law. Relying on a worldwide standard form of terms and conditions could expose a foreign company to prosecution. Businesses supplying products in multiple jurisdictions must consider whether their terms of sale comply with the law in each jurisdiction in which they may be found to operate.

ACCC warned, "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." This proceeding against Valve is the latest in a series of actions initiated by the ACCC since 2013 to enforce consumer guarantees, which rank high among ACCC's enforcement priorities.

The Court's 24 March 2016 decision can be found on its website.

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.

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