Australia: Valve Ordered To Pay $3 Million For Misleading Australian Gamers On Steam

Last Updated: 16 May 2018
Article by Darron Saltzman and Lachlan Sadler

The Full Court of the Australian Federal Court has, in Valve Corporation v Australian Competition and Consumer Commission [2017] FCAFC 224, upheld a decision that Valve misled Australian consumers by representing that they were not entitled to refunds for games purchased on Steam, Valve's online distribution platform. The Full Court confirmed the order that Valve pay a pecuniary penalty of $3 million for its contraventions of the Australian Consumer Law (ACL).

BACKGROUND

Valve's business

Valve Corporation (Valve) is a company based in Washington State in America that operates an online game distribution network known as Steam. Customers download the Steam Client program and then purchase games via the platform which are added to users' Steam Libraries and are then available to be downloaded and played (usually online but sometime in offline mode also). Only a minority of games offered on Steam are authored by Valve.

Valve boasts approximately 118 million active subscribers worldwide, roughly 2.2 million of whom are located in Australia. Valve's business premises, staff and infrastructure (comprising website servers, software and subscription servers) are located outside of Australia, however Valve does have content servers (to host the Valve video games and other content available on Steam) both outside and in Australia. The content servers in Australia provide the content to both the Australian customers and others in the Asian region. Other game servers and supporting equipment are also located in Australia.

Alleged misrepresentations made by Valve

The Australian Competition and Consumer Commission (ACCC) alleged that Valve engaged in misleading and deceptive conduct and misrepresentation (in breach of sections 18 and 29(1)(m), respectively, of the ACL) by misrepresenting that Australian customers were not at any time entitled to refunds for games purchased from Steam. In fact, under various non-excludable statutory guarantees imposed by the ACL, such as that of acceptable quality, Australian consumers are entitled to refunds in certain circumstances.

The ACCC's case focused on a statement contained in the Steam Subscriber Agreement between Valve and its customers (SSA) (in capital letters) that "ALL STEAM FEES ARE PAYABLE IN ADVANCE AND ARE NOT REFUNDABLE IN WHOLE OR IN PART" and one in the Steam Refund Policy (SRP), which similarly stated (from 2011-2013) - "We do not offer refunds for purchases made through Steam" and (from 2013-2014) - "We do not offer refunds or exchanges on games".

The ACCC also alleged that Valve employees had misled three identified Australian consumers who had sought refunds via Steam's online customer support system.

The primary judge held that Valve had contravened the ACL

At first instance ([2016] FCA 1553) Justice Edelman found that Valve had engaged in misleading and deceptive conduct and misrepresentation by making the misrepresentations contained in the SSA and SRP. His Honour dismissed the ACCC's claim based on the online customer support conversations.

Justice Edelman imposed a pecuniary penalty of $3 million and made a declaration that Valve had contravened the ACL. His Honour further ordered an injunction to restrain further unlawful conduct, the publication of a corrective notice, and the implementation of a compliance program by Valve for its employees.

APPEAL AND CROSS-APPEAL

Valve appealed the entire judgment, while the ACCC cross-appealed in relation to two of the customer support misrepresentations.

The five grounds of appeal and one ground of cross-appeal considered by the Full Court

(1)      The ACL did not apply to Steam

Valve's first ground of appeal was that the consumer guarantees contained in the ACL did not apply to games offered via Steam, with the result that the alleged misrepresentations could not have breached the ACL.

The primary judge found that the statutory consumer guarantees imposed by the ACL applied to the SSA due to section 67 of the ACL. Section 67 of the ACL provides that the consumer protection provisions of the ACL (including the statutory guarantees) will apply to a contract for the sale of goods or services if:

  1. but for an express term of the contract, any Australian law would be the proper law of the contract; or
  2. the contract purports to substitute otherwise applicable Australian laws with the laws of another place.

The SSA provided that it was governed by Washington State law.

The Full Court rejected Valve's argument that section 67 only applied to contracts governed by Australian law, and that since the trial judge had found that the governing law of the SSA was the law of Washington State, section 67 therefore did not apply. The Full Court held that this interpretation of section 67 was not supported by the text of the provision, was inconsistent with its purpose (to ensure that parties can not "contract out" of the ACL guarantees), and was particularly problematic given the legislative shift from contractual implications to direct guarantees. This ground of appeal was therefore rejected.

(2)      The alleged misrepresentations had not been made in Australia

Valve's second ground of appeal was that the misrepresentations had not been made in Australia and therefore could not contravene the ACL. Valve argued that the representations had been made in Washington State, as this is where the relevant material was uploaded.

By stating the question to be answered when an issue arises as to the place where the representations were made as "where in substance [were] the representations...made?", the Full Court held (based partly on an analysis of the place where a defamatory publication is made)   that "if the respondent is based overseas and has a relationship with customers in Australia, it is likely that representations addressed to those customers will be taken to have been made in Australia, being the place where the customer accesses and reads the representations on his or her computer. This is likely to be the case even if the representations are available to be accessed by consumers in other countries around the world."

The Full Court held that the representations contained in the SSA were accessible in Australia and were therefore made in Australia, for the purpose of determining liability under the ACL. Valve had 2.2 million subscribers in Australia and these consumers had to enter into a contract with Valve and to agree to the SSA before purchasing a game on Steam. Similarly, the misrepresentation contained in the SRP, which was addressed to all Steam customers via the Steam website, was also made in Australia when it was accessed and read by Australian customers.

This ground of appeal was therefore also dismissed.

(3)      Valve did not carry on business in Australia

Even if Valve had succeeded in its argument that the relevant conduct did not occur in Australia, it separately needed to establish that it did not carry on business in Australia in order to avoid liability under the ACL. The ACL expressly applies to companies (wherever incorporated or domiciled) which carry on business in Australia regardless of whether the specific conduct in question occurred in Australia.

Given the Full Court's finding that the misrepresentations had been made in Australia it was therefore not necessary to consider this ground, however the Full Court nevertheless found that Valve did, (even as a U.S. corporation based in Washington State with its website hosted in Washington State and with no employees or other "presence" in Australia), carry on business in Australia. It has an ongoing "business presence" in Australia as it:

  • has approximately 2.2 million customers in Australia;
  • makes Steam content available for download from Australian servers;
  • owns significant personal property (servers) in Australia;
  • incurs significant monthly expenses in Australia running the Australian servers;
  • has relationships with Australian content delivery providers; and
  • has contracts with third party service providers who provide content in Australia.

The fact that it has no physical premises or employees in Australia did not prevent this finding.

(4)      The representations were not misleading

Valve claimed that a reasonable consumer would interpret the representations as describing its "default global position" on refunds, rather than its specific policy for Australian customers with the result that even if the representations were not correct for Australia they were not misleading.

This was rejected due to factors such as the capitalisation of the statement in question in the SSA and the unqualified nature of the representation in the SRP that Valve was not required to provide refunds. The Full Court held that the words "except as expressly set forth in this agreement" in the SSA also emphasised that unless an exception was found within the SSA itself the fees would not be refundable, and an express exclusion in the SRP of that exception for EU customers reinforced the message that the no refunds position otherwise applied to Australian customers.

Valve claimed that a clause in the SSA that a provision will be enforced to the maximum extent possible contextualised the representation, but the Full Court disagreed on the basis that a reasonable consumer would be unlikely to reconcile the capitalised statement with this un-emphasised statement appearing separately towards the end of the agreement.

(5)      Valve customer support employees had misled particular consumers

The ACCC cross-appealed that Valve employees had misled three Australian customers, Mr Phillips, Mr Miles, and Mr Miller, each of whom had contacted Steam support to request refunds for purchased games that were not playable on their computers. Valve support staff effectively told each of these customers that "we cannot offer a refund for this transaction".

Mr Miles, seeking a refund of $15.99 for the game "Legends of Dawn", responded prophetically with "I'm not a lawyer, but I do know there are laws regarding this sort of thing". Also, Mr Miller, requesting a total refund of $13.35 for multiple games, agreed to troubleshoot the games provided that Valve "pay me as a contractor for the time I am using to do so" at an hourly rate of $55.

The Full Court accepted the primary judge's approach of treating the online chats as a single ongoing conversation and upheld the finding that the Valve employees represented that Valve was not prepared to offer refunds in these particular circumstances, rather than that Valve had a general no refund policy. Consequently, the ACCC's cross-appeal was rejected.

(6)      The penalties and non-pecuniary relief were inappropriate

Valve argued that the penalties imposed against it were excessive. The Full Court however held that Valve had shown no error in the primary judge's determination of $3 million as a pecuniary penalty and that the amount was not excessive. 

The Full Court determined that the trial Judge had appropriately considered factors such as the need for deterrence and the size of Valve's business in Australia. Further, the Full Court was critical of Valve's belief that Australian law did not apply to it, despite never seeking Australian legal advice, which demonstrated "a very poor culture of compliance in relation to Australian operations".

The Full Court noted that Valve had done "relatively little" to train its staff about Australian legal requirements, even after the primary decision. In particular, the ACCC had, after the initial judgment was handed down, issued Valve with a notice to produce documents recording action taken by Valve to inform its staff on the rights of Australian consumers. Valve's response was that it had nothing to produce but that it had issued oral compliance instructions. The Full Court expressed its concern that Valve had only decided to issue oral, rather than written, guidance to its staff after the initial decision, which Valve sought to defend on the basis that "they're a pretty efficient bunch".

The Full Court also found that the non-pecuniary remedies, including the publication of a consumer rights notice and the implementation of an ACL compliance program, were also appropriate even though Valve had since changed the terms of the SSA.

OUTCOME

The appeal and cross-appeal were therefore both dismissed, with appeal costs awarded against Valve and cross-appeal costs awarded against the ACCC.

As a final note, Valve ultimately accepted the requested returns of Mr Miller and Mr Phillips. Mr Miles has yet to receive his $15.99 refund.

Lessons for overseas companies with Australian customers

  1. The application of the Competition and Consumer Commission Act 2010 (CCA) as a whole, including the ACL, cannot be excluded by contract or otherwise (e.g., choice of applicable law or domicile of a party to the arrangements in question).  
  2. Foreign companies which "carry on business in Australia" will be subject to the CCA, including the ACL.  
  3. The decision confirms that communications will be held to have been made in Australia, for the purposes of the ACL, where they are made online and downloaded or accessed in Australia (wherever the content is uploaded and wherever the website is hosted). All businesses with Australian customers – whether based in Australia or not - should therefore ensure that their online business activities comply with the relevant provisions of the ACL, including those proscribing misleading and deceptive conduct and misrepresentation, the consumer guarantees and the provisions covering express warranties and warranties against defects.  
  4. Statements in consumer contracts for the supply of goods or services to the effect that "terms will be enforced to the maximum extent possible under local laws" will be strictly interpreted and applied, and will not necessarily extend to the whole of the contract or to other provisions in a contract not intended to be covered by the qualification.  
  5. By analogy with this decision, Australian businesses engaging with customers or potential customers outside Australia should ensure they are operating in compliance with the laws of the various countries where their actual or potential customers are located. It cannot be presumed that a choice of law provision in a contract or the domicile of an individual or company will conclusively limit or identify what laws will apply to a cross-border arrangement.  

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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