In December 2017, the Full Federal Court dismissed an appeal by Valve Corporation against a ruling that it engaged in misleading or deceptive conduct and made false or misleading representations about consumer guarantees. This case is particularly instructive for foreign businesses operating in Australia and businesses providing digital content to consumers online.
This case is particularly instructive for foreign businesses operating in Australia and businesses providing digital content to consumers online.
Valve Corporation (Valve) is a video game developer and global digital distribution company based in the United States. As part of its worldwide business operations, Valve operates Steam, a digital gaming subscription service. In Australia alone, Steam has over 2 million subscribers.
Subscribers obtain access to the video games on Steam after entering into a “Steam Subscriber Agreement” and “Licence Agreement” (collectively, the Agreements) which, in part, made the following representations:
From about January 2011, a number of Valve’s Australian customers complained to Valve that they were unable to fully utilise their subscription as the games they had purchased failed to operate correctly. Valve refused to give any refunds, directing the complainants to the terms of the Agreements.
In 2014, the ACCC took up the subscribers’ case and commenced proceedings against Valve. The ACCC alleged Valve had breached the ACL by engaging in misleading or deceptive conduct and making false or misleading representations about consumer guarantees.1
At trial, Justice Edelman, who has since been appointed to the High Court, found that Valve had engaged in the alleged conduct and ordered a pecuniary penalty of $3 million. Valve subsequently appealed to the Full Federal Court. In December 2017, the Full Federal Court upheld Justice Edelman’s decision and affirmed the penalty ordered.
At first instance and on appeal Valve contended that it was headquartered in the United States and subscribers had agreed that the ‘proper law’ of the Agreements was that of the State of Washington in the United States. As a result, it was not subject to the ACL because s 67, headed “Conflict of law”, provided that where the objective proper law of a contract is not Australian law, the consumer guarantees regime does not apply.
While acknowledging the proper law of (or the law with the “closest and most real connection” to) the Agreements was Washington State, Justice Edelman and the Full Federal Court nonetheless rejected Valve’s arguments. Rather than limiting the scope of the consumer guarantee regime, s 67 was found to be a provision designed to prevent parties from trying to “contract out” of those guarantees.
Valve also argued that, assuming the erroneous representations were made, the relevant conduct did not occur in Australia. Alternatively, it argued that Valve did not “carry on business” in Australia. Both arguments were unsuccessful, with the Full Court concluding:
While not contested on appeal, it remains relevant that at first instance Valve also argued it was substantially supplying a ‘service’ to consumers rather than ‘goods’. This distinction was potentially critical given the supply of ‘goods’ attracts certain different and additional consumer guarantees under the ACL – such as guarantees that goods are of an acceptable quality and/or fit for purpose.
The argument was rejected by Justice Edelman.
Under the ACL ‘goods’ are defined to include ‘computer software’ (although ‘computer software’ itself is not defined). The Court held that computer software contains a set of instructions or programs that facilitate the operation of hardware. In this case, Steam supplied games to its subscribers and at the heart of the provision of games was the supply of computer software or ‘goods’. In reaching this conclusion, the Court noted the following:
This analysis highlights the complexity surrounding digital content and consumer rights, a complexity that produced UK consumer law amendments in 2015 to introduce clear legal rights for consumers of digital content such as online films and games, music downloads and e-books.2 The application of consumer guarantees to digital content was also identified as an area for future examination in the ACL review completed by Consumer Affairs Australia and New Zealand in March 2017.3
On 19 January 2018, Valve filed its application seeking special leave to appeal against the Full Court’s decision in the High Court.
We await any further developments in this rapidly evolving area of the law.
1 While the consumer guarantees in the ACL set out standards for goods and services supplied to consumers and the remedies available to consumers when these standards are not met, there are no financial penalties available for a breach. This explains the approach adopted by the ACCC, as financial penalties of up to $1.1m per offence are available if there is a finding of false or misleading representations.
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