In a first of its kind in Australia, the ACCC has successfully prosecuted US based online gaming giant Valve Corporation (Valve) for breaching the consumer guarantees regime in the Australian Consumer Law (ACL). On 24 March 2016, the Federal Court found Valve had engaged in misleading conduct and made false and misleading representations regarding the application of the consumer guarantees to their Australian based consumers.

The decision is a timely reminder about the potential liability that foreign corporations could face under the ACL. The decision is also a warning to software providers (including Software as a Service (SaaS) providers) whose scope of liability under the ACL may now potentially be wider than previously thought.

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

Background

Valve is a software and technology company domiciled in the USA. It operates an online computer game distribution platform known as ‘Steam’. Steam is the largest digital gaming distribution platform in the world with about 51% global share of the digital game distribution market and over $3 billion in global revenue. We understand it currently has about 125 million subscribers worldwide with approximately 2.2 million of these being Australian consumers. Despite the significant number of Australian customers, Valve does not have an office or any employees located in Australia. All relevant agreements with customers stipulate that the governing law of contractual relationships is the law of Washington, USA.

The proceedings

In August 2014, the ACCC commenced proceedings against Valve alleging that Valve made representations to Australian customers in a variety of media (including subscription and licence agreements, on the Steam website as well as in online customer service chat logs) that:

  • customers were not entitled to a refund for any games sold through the Steam platform in any circumstances;
  • Valve had excluded or restricted the operation of the statutory guarantee regarding acceptable quality;
  • Valve was not under any obligation to repair replace or provide a refund for a game where the consumer had not first attempted to fix the problem with the computer game developer; and
  • the statutory consumer guarantees didn’t apply to games sold by Valve.

Valve chose to defend the allegations arguing that the consumer guarantee of acceptable quality in section 54 of the ACL did not apply to Valve for three main reasons. It argued that:  

  1. the contracts entered into between Valve and its customers were not contracts to which the ACL applied because the law which has the closest and most real connection to those contracts is the law of Washington State (Proper law argument);
  2. it did not supply “goods” for the purposes of the ACL, but rather a service. It argued that what it was supplying was not software, but rather a right to use the software (via a licence agreement) and that this constituted a “service” under the ACL (No supply of “goods” argument); and
  3. its conduct did not occur in Australia and that it does not carry on business in Australia (No conduct or business in Australia argument).

Findings of the Federal Court in relation to Valve’s primary arguments

The Federal Court rejected each of the above arguments. A summary of the Federal Court’s findings in relation to each of Valve's arguments is set out below.

Click here to view table

Impact on foreign Corporations

The judgment is a timely reminder to foreign corporations who engage with Australian consumers that they can be subject to ACL obligations, including the consumer guarantees. The broad interpretation of section 67 of the ACL also means that they will not be exempt from those obligations even where the proper law of their relevant contracts with consumers is a jurisdiction other than Australia. When making representations to actual or potential customers, foreign corporations should consider where that representation is, or is likely to be, received by potential customers. If representations are received by customers in Australia, the conduct is likely to be taken to have occurred in Australia, irrespective of the foreign corporation’s usual place of business.

Even where the conduct does not take place in Australia, if a foreign corporation carries on business in Australia, that conduct will nonetheless attract scrutiny under the ACL. Accordingly, the following factors will also be relevant in determining the scope of liability for foreign corporations under the ACL:  

  • the number of Australian consumers they engage in trade or commerce with and the revenue earned;
  • whether the corporation maintains or stores any content, data, servers or other infrastructure in Australia (whether on its own or via third party arrangements);
  • whether the corporation owns significant personal or property interests in Australia; and
  • whether the corporation engages in other business (related or unrelated to the relevant conduct) in Australia.

Impact on software providers

The Federal Court decision is also the first to apply the extended definition of “goods” in the ACL which now includes “computer software”. Although the consideration of computer software as a “good” under the ACL is uncontroversial, Justice Edelman’s decision has potentially widened the scope of the definition of goods to also include software provided by way of a licence. This potentially captures SaaS and other similar "service" providers.

Valve argued that what it was doing was providing a licence to use its computer software and that it was not supplying the actual computer software to its customers. In that sense, Valve argued that it was providing customers a service which allowed them to access and use its software for a limited time and in accordance with the licence terms and conditions. In rejecting Valve’s arguments, Justice Edelman likened a contractual licence to use a good (like software) to a “hire without bailment”. Accordingly, given the broad definition of supply, which includes supply by way of sale, exchange, lease, hire or hire purchase, he decided that a licence to use software constituted the supply of goods for the purposes of the ACL. Although the decision was influenced by facts particular to Valve (for instance, the ability of gamers to use elements of the software in “offline” mode, which meant that some part of the software was actually downloaded onto the customer’s computer), there is now an open question as to whether providers of “as a service” products (for example SaaS, Infrastructure as a Service, etc.) could be similarly caught by the ACL.

Until we have further clarity on this issue, software vendors and “as a service” providers should be alert to the fact that their business activities may now be subject the full complement of consumer guarantees which apply to the supply of goods (as opposed to the limited set of guarantees which apply to services).

The proceedings against Valve is the latest in a string of enforcement actions initiated by the ACCC since 2013 targeting consumer guarantees. With the consumer guarantees (particularly in the online marketplace) continuing to rank highly on the ACCC’s enforcement priorities, now is an opportune time for businesses to review their practices and policies with regard to the ACL.

We have developed an interactive guide to the consumer guarantees that may assist you in understanding the broad reach of the consumer guarantees regime as well as your obligations under it. It will also assist in determining your potential liability and may help to identify compliance risks within your organisation.