On 28 August 2014, the ACCC commenced proceedings in the Federal Court of Australia against American company Valve Corporation (Valve), alleging that Valve had made false or misleading representations to Australian consumers regarding its refund policy and the application of the consumer guarantee provisions in the Australian Consumer Law (the ACL).1

The case is significant particularly for direct selling businesses based overseas that provide goods or services to Australian consumers. Importantly, the fact that the ACCC has instituted proceedings against an American based company with no physical presence in Australia is a clear indication that the ACCC is becoming less hesitant in seeking to enforce the ACL against overseas companies.

Who is Valve?

Valve, which is based in Seattle, owns and operates the online computer game distribution platform, ‘Steam’ which has distributed digital computer games to 65 million users around the world, including in Australia. Valve has no physical presence in Australia.

The ACCC’s allegations – Valve’s refund policy

The key elements of the ACCC’s claim is that Valve made false or misleading representations to Australian Steam customers which suggested that:

  • customers would not be entitled to a refund for any games sold via the Steam platform in any circumstance;
  • Valve had excluded, restricted or modified statutory guarantees and/or warranties that goods would be of acceptable quality;
  • Valve was not under any obligation to repair, replace or provide a refund for a game where the consumer had not contacted and attempted to resolve the problem directly with the computer game developer; and
  • the statutory consumer guarantees under the ACL did not apply to games sold and distributed by Valve.2

Despite the fact that Valve’s refund policy states clearly that refunds are not provided “unless required by local law”, the ACCC considers that it is focused on the “bigger issue” at hand and that one disclaimer in the refund policy is not enough to ignore language contained in the rest of the policy which excludes warranties and denies consumer rights.3

The Law – What does the ACL say?

The ACL sets out a number of statutory consumer guarantees which cannot be excluded, restricted or modified.  For example, the ACL states that, if a person supplies, in trade or commerce, goods to a consumer, there is a guarantee that the goods will be of acceptable quality.4  Further, the ACL states that consumers may require a supplier to remedy a failure to comply with a consumer guarantee5 and that, if the failure is a major failure, the consumer is entitled to insist on a refund or replacement.6  Critically, these statutory consumer guarantees cannot be excluded, restricted or modified and any term of a contract which attempts to do so will be void.7

The ACCC has alleged that Valve’s Refund Policy is misleading by stating that Valve is under no obligation to repair, replace or provide a refund for a game and that the statutory consumer guarantees do not apply to games sold by Valve.

What is the ACCC seeking?

The ACCC has indicated that it is seeking from Valve, declarations, injunctions, pecuniary penalties, disclosure orders, adverse publicity orders, non-party consumer redress, a compliance program and costs.

Specifically, the ACCC is requesting that Valve:

  • provide an email address that will allow Valve to deal directly with refunds sought by Australian customers in accordance with the provisions of the ACL, rather than require the customer to seek out first the assistance of the game developer;
  • provide a 1800 phone number to help consumers address any refund issues;
  • provide an Australian PO Box address for consumers to contact Valve directly with refund concerns; and
  • appoint a representative or contact officer to reply to consumers regarding information or questions about refunds and the Valve Refund Policy.

If the Federal Court finds in favour of the ACCC, Valve will need to implement these changes within 30 days of the court order.

The ACCC is also seeking an order that Valve appoint an independent auditor to review its consumer refund policy within 180 days of any potential court order.  The independent auditor will then report back to the ACCC on the operation of the revised Refund Policy.8

Further, if the Federal Court finds that the consumer guarantee provisions have been breached, there exists the possibility that Valve will face significant fines of up to $1.1 million, in respect of each offence.

Progress of ACCC proceedings

At a preliminary directions hearing on 23 September, Valve requested that the parties enter into mediation discussions, with a representative of Valve’s defence team indicating that the company believed the matter could be resolved with the ACCC out of court.  Valve has indicated in various press statements that it has every intention to cooperate and work closely with the Australian regulator on the matter.

As at the date of writing, Valve has not pressed its request for  mediation proceedings to go ahead, instead filing its defence statement on 29 October 2014.  The ACCC filed its reply on 7 November and a further directions hearing is set to take place on 17 December.

We will keep you updated as the how the proceedings progress.

What does this mean for direct selling companies?

The case is significant for direct selling businesses based overseas that provide goods or services directly to Australian consumers.  Importantly, the fact that the ACCC has instituted proceedings against an American based company with no physical presence in Australia is a clear indication that the ACCC is becoming less hesitant in enforcing the provisions of the ACL against overseas companies.

In the past, there has been some uncertainty as to the extent to which the Australian consumer protection laws apply to sales made over the internet by overseas businesses. However, the ACCC’s action and comments in press releases confirm the ACCC’s intention to apply the provisions of the ACL to conduct engaged in by a company located outside of Australia, as long as the company is carrying on business within Australia.9

In forming this position, the ACCC is relying on section 5 of the Competition and Consumer Act 2010 (Cth) (the Act) which states that the Act (and therefore the provisions of the ACL) “extends to the engaging in conduct outside Australia by bodies corporate incorporated or carrying on business within Australia”.10  Accordingly, the ACCC argues that Valve’s conduct of selling and distributing games to Australian consumers, despite being located overseas, constitutes “carrying on business within Australia” and therefore falls within this extended application of the Act.

By commencing proceedings against an offshore company, the ACCC is sending a strong message to all businesses that, if you are going to do business in Australia (even from offshore), it is necessary for you to comply with the ACL. Further, it is necessary to consider Australian legal requests before adopting a global refund policy to supplies of goods made to Australian consumers.

Further, the proceedings against Valve demonstrate the importance of ensuring the accuracy and truth of any statement in a contract for sale of goods or services with a customer.  Certainly, the claim reinforces the ACCC’s strong stance that it will take enforcement action against all suppliers of goods and services (whether located in Australia or overseas) that fail to comply with the statutory consumer guarantees provisions in the ACL.If the Federal Court concludes that Valve has breached the ACL, it will be of particular interest to see how any order against Valve will be enforced, given that Valve has no presence or assets in Australia.