Foreign entities beware: consumer guarantees in the online marketplace heating up

The decision in Australian Competition and Consumer Commission v Valve Corporation (No 3) [2016] FCA 196 serves as a warning to foreign corporations of the broad application of the Australian Consumer Law (ACL) to the online marketplace and marks the first time a court has used the extended definition of ‘goods’, in the ACL, to include ‘computer software’.

Under the ACL, consumers are afforded the benefit of automatic guarantees when they purchase goods and/or services (for example that the goods/services are fit for purpose). Any attempt by a supplier to restrict, modify or exclude these guarantees will be unenforceable.

The decision highlights that foreign corporations, operating online platforms for Australian consumers, can be subject to provisions of the ACL. Further, the judgment indicates that courts are likely to construe the ACL provisions broadly, provided this gives effect to the purpose of the ACL, so that foreign corporations may be regarded as being ‘engaged in conduct’ or ‘carrying on business’ in Australia. Mr Rod Sims, Chairman of the Australian Competition and Consumer Commission (ACCC), has confirmed that:

“Consumer issues in the online marketplace are a priority for the ACCC and [the ACCC] will continue to take appropriate enforcement action to hold businesses accountable for breaches of the ACL” .¹

Facts

The respondent, Valve Corporation (Valve), a company based in Washington State, USA, is the operator of a worldwide online game distribution network known as Steam. Steam provides about 4,000 games for download or purchase to around 2.2 million subscribers in Australia (and more than 100 million worldwide). Additionally, the website offers accompanying, non-game related products such as a chat function, music player, support service and community groups.

The applicant, ACCC, issued proceedings against Valve alleging that Valve acted contrary to the ACL in making misleading or deceptive representations to consumers in various versions of its Steam Subscriber Agreement and its Steam Refund Policy, and in chat logs with Australian consumers.

Valve challenged the ACCC’s claim on several grounds including that:

• its conduct did not occur in Australia;
• it does not carry on business in Australia; and
• it does not ‘supply goods’ within the meaning of the ACL.

Federal Court decision

The Honourable Justice Edelman of the Federal Court found Valve contravened sections 18(1) and 29(1)(m) of the ACL, in that it engaged in misleading or deceptive conduct and made false or misleading representations to Australian consumers in various versions of its subscriber agreement and refund policy in relation to consumers’ entitlement to a refund and about the application and existence of the consumer statutory guarantees and/or warranties.

Aside from the Court’s finding that certain conduct of Valve was contrary to the ACL, a significant part of the judgment related to the application of the ACL to a foreign corporation and whether Valve supplied goods. These issues are addressed below.

‘Conduct in Australia’

Valve asserted that it did not engage in conduct in Australia because it is a foreign corporation with foreign business premises, staff and support services. Further, subscription payments are made by users in US dollars and Valve holds no real estate in Australia.

The court recognised that although Valve did hold legitimate connections with the USA, the contextual background to Valve’s conduct largely occurred in Australia. For example, Valve provided products and support services for 2.2 million Australian subscribers. Additionally, Valve held considerable personal property in the form of US $1.2 million worth of servers in Australia on which content was deposited for Valve’s consumers. Given these significant connections with Australia, and that the representations in question were made to Australian consumers, the court found that Valve’s conduct occurred in Australia and was subject to the ACL provisions.

‘Carry on business’ in Australia

Notwithstanding the above finding, the court considered, in the alternative, whether Valve ‘carried on business’ in Australia. In the absence of a definition and binding authority, the court applied the ordinary meaning of the words and considered the same connecting factors it assessed in determining whether there was ‘conduct in Australia’. Further, the court noted the various third party relationships Valve has with Australian companies. The court found that even if Valve did not engage in conduct in Australia, the ACL applied because Valve was an incorporated body carrying on business in Australia.

‘Supply goods’

In 2011, the definition of ‘goods’ under the ACL was expanded to include ‘computer software’. The court found that, although the website had a variety of purposes, the core purpose of the Steam website was the provision of video games. Given that video games are made up of computer software, the games constituted ‘goods’ for the purpose of the ACL.

However, Valve argued that it did not ‘supply goods’ as it merely provided a service (specifically a licence for consumers to access video games). The court rejected this argument on the basis that, pursuant to the ACL, a supply of goods includes an agreement to supply goods or services and to find otherwise would be contrary to the purposes of the ACL.

Practical implications

• The ACCC considers consumer issues in the online marketplace to be a priority.
• Foreign corporations may engage in conduct in Australia and/or carry on business in Australia even if they do not have a physical presence in Australia.
• Foreign corporations that supply goods online to Australian consumers (including computer software) should be aware of the statutory protections afforded to consumers under the ACL. Acting contrary to provisions of the ACL and simply seeking to rely upon worldwide standard form terms and conditions, will expose a foreign corporation to the risk of prosecution by the ACCC, damages, injunctions and/or cost orders.
• Particular attention should be placed on consumer guarantees when drafting terms and conditions which apply to Australian consumers, to ensure they do not contain misrepresentations about consumer rights contained under the ACL.

¹https://www.accc.gov.au/media-release/federal-court-finds-valve-made-misleading-representations-about-consumer-guarantees