Overseas suppliers of software and related services regularly query whether they are required to comply with the Australian Consumer Law (ACL), particularly where the contracts to which they are a party are governed by foreign laws.

The Federal Court of Australia recently held in Australian Competition and Consumer Commission v Valve Corporation (No 3) [2016] FCA 196 that the ACL applied to the online supply of software to consumers in Australia by a company based in the United States, notwithstanding that the relevant supplies of goods took place pursuant to contracts that were subject to foreign laws.

Valve Corporation (Valve) was found to have engaged in misleading or deceptive conduct and to have made false and misleading representations to Australian consumers in relation to the availability of refunds for fees which the consumers had paid to Valve.

Background to Valve Corporation case

Valve is based in the State of Washington in the United States. It operates an online computer game distribution network called "Steam". Valve has many millions of subscribers in countries around the world, including over 2 million subscribers in Australia. Subscribers are able to buy or download games online through the Steam network.

In this case, Valve made various representations, including through the terms of agreements between it and subscribers in Australia, to the effect that any fees paid by subscribers to Valve were non-refundable.

Section 54 of the ACL provides a guarantee that goods supplied by a person in trade or commerce will be of an "acceptable quality". If the goods supplied meet a number of requirements they are said to have "acceptable quality". One such requirement, for example, is the freedom from defects in the sense provided in section 54. The ACL also provides that the consumer guarantees cannot be modified or excluded (section 64) and that where a consumer has right to reject goods supplied to them, consumers will also have a right to elect to have a refund.

The Australian Competition and Consumer Commission brought a proceeding against Valve arguing that the ACL applied to Valve and that the conduct of and representations made by Valve to subscribers in Australia in relation to matters arising in circumstances where goods are not of "acceptable quality" were false and misleading representations regarding the existence or effect of the consumer guarantees and were also misleading or deceptive.

Valve put forward a number of arguments as to why the ACL did not apply to it and as to why it said its conduct and the relevant representations were not in breach of the law. These arguments were to a large extent all rejected by the Court.

The relevant provisions in the ACL which were considered in this case apply to conduct which occurs in trade or commerce within Australia, or between Australia and places outside Australia. For the ACL to be engaged,, the Court considered Valve had engaged in conduct in Australia, or, alternatively, that Valve had been carrying on a business in Australia.

What amounts to "conduct in Australia"

Valve argued that it had not engaged in conduct in Australia on the basis that it was a foreign corporation, its business premises and staff were located in the US, it held no real estate in Australia, its website was hosted offshore and content was not "pre-loaded or stored" on its servers in Australia. Valve also pointed out that subscription payments were made in US dollars and processed in the State of Washington.

The Court determined otherwise, holding that Valve's conduct had occurred in Australia.

Valve owned and used servers in Australia which had been configured by an employee who had travelled to Australia. Valve had local content delivery networks. It had over 2 million subscriber accounts in Australia which were the source of significant revenue. When subscribers in Australia requested content, the content was "deposited" onto local servers where it would remain for a period of time. Valve made numerous payments to a local company over a period of time for the use of storage racks for its servers. Representations were made through its online game delivery platform which specifically targeted Australian consumers. In downloading games, subscribers would select "Australia" as their country of residence. The Court also found that the agreement formed between Valve and local subscribers when subscribers downloaded the delivery platform established a sufficiently direct relationship between the company and Australia. Additionally, there was evidence that Valve priced games differently in Australia and from time to time particular content might not be made available in Australia.

What amounts to "carrying on a business in Australia"

Given the Court's conclusion that Valve's conduct occurred in Australia, it was not strictly necessary for the purposes of the case to find that Valve had been "carrying on business within Australia" within the meaning of the ACL. However, the Court still addressed the issue. The Court held that there was little direct authority on the meaning of the phrase in the relevant context of the ACL. The Court held in an ordinary sense "carrying on business" required "a series or repetition of acts" involving "activities undertaken as a commercial enterprise in the nature of a going concern, that is, activities engaged in for the purpose of profit on a continuous and repetitive basis".

The Court held that Valve had been "carrying on business within Australia". The reasons provided for that finding included many of the same matters underlying the conclusion that Valve's conduct had occurred in Australia. The Court also pointed to relationships between Valve and local content delivery providers and other contracts Valve had entered into with third party services providers in Australia.

What amounts to a "supply of goods" to a licensee?

The ACCC had to establish that Valve had supplied "goods" because it has accepted that the relevant sections of the ACL could only apply on the facts if section 54 was applicable (which only covers the supply of goods).

Since January 2011, the ACL has defined "goods" to include "computer software". Valve argued that it had not supplied "goods" in part on the basis of a distinction which it sought to draw between the supply of a licence to use software and the supply of software itself. Valve argued it had not supplied software (ie, "goods") because it had only supplied was a mere licence.

The Court held the supply of goods by licence was a relevant supply of goods within the meaning of the ACL.
Valve had pointed out that the licence to use software was conditional on events such as Valve firstly verifying the software through a process of communication involving its offshore servers. The Court held conditional events did not prevent a supply constituting a supply of goods. Almost every licence is conditional on some event. The Court noted that in some cases consumers could play Steam games locally without an internet connection, without further communicating with Valve's servers and without having their account and subscription verified. This demonstrated that consumers had been supplied with software.

The Court held that at the core of Valve's supply to consumers was the provision of games and at the heart of the provision of games was the supply of software.

Lessons for online suppliers of software

Foreign corporations, including online suppliers of computer software, should bear the ACL in mind, including the Australian consumer guarantees, in relation to any conduct in which they may engage in Australia or any conduct involving Australian consumers.