Australia: Businesses beware – are you caught by the ACL? Implications of the ACCC v Valve decision

The Australian Consumer Law, including the consumer guarantees can apply to the supply of goods by an overseas online platform even if the contract is governed by foreign law. Online and international businesses should consider whether they are subject to the ACL and amend their customer agreements to ensure compliance.

INTRODUCTION AND BACKGROUND

The respondent, Valve Corporation (Valve), is a company based in Washington in the USA. Valve operates an online game distribution network known as Steam. Steam contains approximately 4,000 video games and has approximately 2.2 million Australian subscriber accounts.

On 24 March 2016, Justice Edelman of the Federal Court held that Valve engaged in deceptive and misleading conduct by representing to Australian consumers that they were not entitled to a refund in whole or part for defective video games.1 This decision resolves uncertainty as to whether the consumer guarantees under the Australian Consumer Law (ACL) apply to the supply of software by an overseas online platform. The Federal Court has confirmed the ACCC's broad view on the application of the ACL.

IMPLICATIONS

Specifically, this decision confirms that:

  1. the ACL applies to transactions involving sales to Australian consumers by an online overseas provider regardless of the proper law of the contract;
  2. a foreign company operating outside of Australia will be regarded as carrying on business in Australia if the company makes repeated sales, generates revenue and has business relationships in Australia; and
  3. the supply of computer software will be considered the supply of goods for the purposes of the ACL. This is the case even when the software is provided on a licensed basis.

We address each of these issues in more detail below.

The Federal Court's decision reinforces that foreign based businesses selling goods and/or services to Australian consumers can be subject to ACL obligations, including the consumer guarantees. In response to this decision, businesses (especially online and international businesses) should consider whether they are carrying on business in Australia and subject to the ACL. If so, businesses should amend their customer agreements accordingly to ensure compliance with the ACL.

WHAT ABOUT THE PROPER LAW OF THE CONTRACT?

Valve submitted that the Steam Subscriber Agreement (SSA) is not a contract to which the consumer guarantees in the ACL applied because the proper law is the law of Washington State in the USA, not Australia.

Section 67 of the ACL provides:

If:

  1. the proper law of a contract for the supply of goods or services to a consumer would be the law of any part of Australia but for a term of the contract that provides otherwise; or
  2. a contract for the supply of goods or services to a consumer contains a term that purports to substitute, or has the effect of substituting, the following provisions for all or any of the provisions of this Division:
    1. the provisions of the law of a country other than Australia;
    2. the provisions of the law of a State or a Territory;

    the provisions of this Division apply in relation to the supply under the contract despite that term.

Valve submitted that, by implication and not by express words, section 67 of the ACL excludes the consumer guarantees where the proper law of the contract is not the law of an Australian jurisdiction.

While the Court accepted that the proper law of the contract is Washington State, it rejected Valve's construction of section 67 of the ACL. The Court focussed on subsection 67(b) to find that the ACL was extended to a consumer contract, regardless of the proper law of the contract. Further, the Court held that Valve's position was contrary to the context, history and purpose of the section.

DID VALVE'S CONDUCT OCCUR IN AUSTRALIA OR IS VALVE CARRYING ON BUSINESS IN AUSTRALIA?

The ACL applies to companies or persons carrying on business in Australia or engaging in conduct in Australia. Valve:

  • was not incorporated in Australia;
  • had no Australian based staff;
  • had no real estate in Australia; and
  • hosts its website outside of Australia.

Despite these circumstances, the Federal Court found that Valve's conduct did occur in Australia and consequently, the ACL applied. At the core of the Court's reasoning was that Valve:

  • had more than 2 million user accounts in Australia;
  • generated potentially millions of dollars in revenue from Australian consumers;
  • owned, and used, content servers in Australia, with an original retail value of US$1.2million. The ACCC compared these content servers to 'digital warehouses';
  • had contractual relationships with businesses based in Australia, including providers of content servers; and
  • paid tens of thousands of dollars monthly to Australian companies in expenses for running its business in Australia.

Although the issue of whether Valve was carrying on business in Australia would only arise if the Court concluded that Valve's conduct was not in Australia, the Court considered this issue as the parties dealt with it in comprehensive detail.

Valve had argued that merely receiving orders and providing goods to Australian consumers was not sufficient to be considered to be carrying on business in Australia. Rather, the act of carrying on a business must involve some element of commercial enterprise to make a profit. The ACCC argued that carrying on business merely amounted to selling to Australian consumers.

The Federal Court endorsed a broad test of "carrying on business", specifically whether an entity had engaged in a series or repetition of acts commonly involved in activities undertaken for the purpose of profit.2 Accordingly, although in obiter, the Court found that Valve was carrying on business in Australia, for similar reasons to those listed above.

WAS THERE A SUPPLY OF GOODS BY VALVE?

The Federal Court rejected Valve's argument that its conduct did not amount to a supply of 'goods' within the meaning of section 2(1) of the ACL. Importantly, this is the first case to consider the extended definition of 'goods' in the context of 'computer software' for the purposes of the ACL. Although 'computer software' is included in the definition of 'goods' in the ACL, 'computer software' is not defined.

Valve submitted that it provided a 'service' and not a 'good'. The 'service' being in the form of a licence agreement to play the games and use other functions on the Steam platform. Valve contended that whilst the download of digital bits was part of the transaction, it was not the essential element being contracted for. Rather, by subscribing to the Steam service, or in purchasing a game, the consumer was entering into a contract for a licence to play the game on the Steam platform and other services related to the game. Valve emphasised that Steam games require that the user play the game through the Steam platform and be verified each time that they play the game. However, the Court held that this submission omits the fact that a consumer can play games in 'offline mode' without a connection to the internet and without verification of their account.

Ultimately, the Court held that computer software is the coded instructions or programs that make hardware work. The Court rejected Valve's argument for the following reasons:

  • the definition of 'goods' in the ACL includes 'computer software';
  • given that the games could be played offline and without verification by the Valve servers, the core element of the supply was the computer software;
  • the term 'supply' is defined to include a hire or an agreement to hire and the licensing arrangement was essentially that of a hire without a bailment; and
  • the ACL expressly provided that a reference to a supply of goods included goods supplied with services.

The Court held that the core element of the supply was computer software, being the games themselves.

NEXT STEPS

In the ACCC media release, Rod Sims, the ACCC Chairman noted that "Consumer issues in the online marketplace are a priority for the ACCC and we will continue to take appropriate enforcement action to hold businesses accountable for breaches of the ACL".

Please contact us if you would like to discuss whether your business is subject to the ACL and whether your business needs to amend its customer agreements to ensure compliance with the ACL.

Footnotes

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

2 Valve Case at [197].

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.

Most awarded firm and Australian deal of the year
Australasian Legal Business Awards
Employer of Choice for Women
Equal Opportunity for Women
in the Workplace (EOWA)

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions