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Mainly intellectual property (IP) issues Down Under

Print outs of third party websites ruled inadmissible

Mortimer J has ruled that print outs of third party websites are inadmissible as hearsay and, if not, excluded under s 135 of the Evidence Act as unduly prejudicial.

Shape Shopfitters is suing Shape Australia for infringement of several registered trade marks which, it says, include SHAPE as the essential feature and the usual passing off-type actions.[1] Both are in the commercial construction business. Shape Australia used to be called ISIS Group Australia, but changed its name in October 2015, as her Honour said “for reasons that are immediately obvious.”

Shape Shopfitters is contending that the use of “Shape” in Shape Australia’s name is likely to lead people to think that Shape Shopfitters is the “shopfitting” arm of Shape Australia, which it is not.

As part of its defence Shape Australia sought to lead evidence of ASIC and Australian Business Register records of other companies and businesses with the word SHAPE in their name. Shape Australia also sought to introduce print outs of the websites of various businesses resulting from Google searches such as “shape building”.[2] Some, but not all, of the print outs were from the Wayback Machine. The print outs purported to be of businesses called Shape Consulting, Shape Builders Pty Ltd, Shape Joinery & Design Pty Ltd, Shape Fitouts Pty Ltd and Shape Finance (Aust) Pty Ltd. You will immediately appreciate that Shape Australia was hoping to show that “shape” itself was not distinctive or to rely on the well-known proposition from the Hornsby Building Information case.[3]

Mortimer J noted that no objection was taken to the ASIC or Australian Business Register print out – presumably, because they were official records.[4]

However, the print outs of the websites of the businesses themselves were hearsay. They were being advanced to show that there were other businesses out there claiming to have and use the names appearing in the print outs. At [24], her Honour ruled:[5]

the evidence sought to be adduced by the respondent is clearly hearsay within the meaning of s 59 of the Evidence Act. The statements made on various internet sites of other corporations or business entities (including the archived material to which Mr Henry deposes in [24] of his affidavit)[6] constitute a previous representation made by the person or persons who constructed the website, wrote the text and inserted the graphics. The purpose of adducing evidence of those statements of text and graphics is to prove the existence of a fact it can reasonably be supposed was intended by the drafter of the text and the person who constructed the graphics. The fact is that there were business entities trading on the dates specified (between August and October 2016) in the industries and markets set out on the pages exhibited by Mr Henry, in the locations those webpages identified using the names those webpages identified. It is the actual existence of those business entities, the names they were using, the industries and markets in which they were trading, the services they were offering and the locations in which they were offering those services which the respondent in my opinion seeks to use as part of its case to prove that there was no confusion in the marketplace generated by its use of the word “shape” in SHAPE Australia.

Even if the print outs were not hearsay, Mortimer J would have excluded them under s 135 if the Evidence Act on the basis that their probative value was substantially outweighed by the danger of prejudice to Shape Shopfitting.

the evidence … constitutes no more than a snapshot of what was available through a series of internet searches on a particular date, without any context being available to be tested about the nature of the businesses these searches have turned up. The probative value of such searches is limited on any view. The applicant’s case is a very specific one about what participants in the commercial construction industry may or may not be led to believe concerning the relationship between the applicant and the respondent, and whether the applicant might be seen as no more than a “specialist shop fitting arm” of the respondent. To have evidence in the nature of single date extracts of internet searches showing businesses using the word “shape”, without calling evidence from witnesses who operate or control those businesses, and allowing the applicant to test the similarities or differences between those businesses and its own, between the customer base(s) of those business and its own, and in turn between those businesses and the respondents, is in my opinion to create a danger of unfair prejudice to the applicant. Snapshots of internet searches on particular dates, all of which are between just under and just over a year after the respondent adopted the name “SHAPE Australia” contribute little by way of proof as to what participants in the commercial construction industry were likely to believe about the commercial relationship between the applicant and the respondent since 26 October 2015, but it is not the kind of evidence the applicant can test as it should be able to.

What Shape Australia should have done was get affidavits, or subpoena, from (1) witnesses from the companies it wished to prove existed and (2) consumers who might be searching for the relevant services.

Now, depending on which side of the case you find yourself, you will be cheering or in tears. But, at the very least one might wonder if that correct approach is really conducting litigation “as quickly, inexpensively and efficiently as possible”? It will be very interesting to see how her Honour deals with Shape Australia’s substantive arguments whether it’s name is too similar to Shape Shopfittings’? Meanwhile, the Registrar can treat the Wayback Machine as valid evidence.

Shape Shopfitters Pty Ltd v Shape Australia Pty Ltd (No 2) [2017] FCA 474


  1. In which I include the usual misleading or deceptive conduct actions under the Australian Consumer Law too.  ?
  2. It is not clear whether the search was just of the two words or the two words in quotation marks.  ?
  3. At [25].  ?
  4. At [13].  ?
  5. Noting that at least 2 prior decisions had ruled internet archive materials inadmissible: Athens v Randwick City Council [2005] NSWCA 317 and E & J Gallo Winery v Lion Nathan Australia Pty Limited [2008] FCA 93.  ?
  6. I.e., the Wayback Machine print outs.  ?

The Federal Circuit Court can grant Mareva injunctions

The Federal Circuit Court can issue mareva injunctions[1] under s 14 and s 15 of the Federal Circuit Court Act 1999.

Mr Vartzokas is an architect. Through his company he agreed to provide architectural services in connection with the development of a 5 storey apartment block in Prospect Rd Adelaide to the developer, Nazero Contructions Pty Ltd.

He provided the services and sent in his bill for $48,100.

Mr Younan seems to have been the principal of Nazero Constructions and was the person with whom Mr Vartzokas dealt.

With some difficulty, Mr Vartzokas managed to extract payments totalling $25,000 from Mr Younan. When Mr Vartzokas sent in his final bill for the remaining $23,100 with the final drawings, the drawings were endorsed with the statement:[2]

These drawings are the copyright property of the architect and are not to be reproduced or copied without prior written license of the architect.

Needless to say (this is a court case afterall), Mr Vartzokas was not paid his outstanding $23,100.

Instead, he was contacted by a Mr Chen on behalf of Yi Hong Pty Ltd, which was about to purchase the Prospect Rd property and wanted to engage Mr Vartzokas to provide further architectural services in relation to it.

Mr Chen provided Mr Vartzokas with copies of the working drawings for the property which Mr Chen had obtained from Mr Younan in connection with the proposed purchase and wanted Mr Vartzokas to work on.

Mr Vartzokas recognised the drawings as being the ones he had prepared for Mr Younan and Nacero Constructions. Only the authorship was attributed to “JB Archi-Build”!

Unbeknownst to Mr Vartzokas, around the time Mr Vartzokas was having trouble extracting his initial payments from Mr Younan, Mr Younan caused a new company, Nazero Group SA Pty Ltd to be incorporated. Nazero Constructions sold the Prospect Rd property to Nacero Group for $1,017,500. Nacero Constructions then changed its name to Zeecat Constructions.

When Mr Chen provided the “JB Archi-Build” drawings to Mr Vartzokas, Mr Vartzokas discovered the existence of Nacero Group and that it was in the process of selling the Prospect Rd property to Yi Hong for $1,190,000. Settlement on the contract was due the next day following the hearing.

Mr Vartzokas sued seeking a mareva injunction to require the proceeds from the sale (after paying out the bank holding a registered mortgage over the property) be paid into the Federal Circuit Court pending trial of Mr Vartzokas’ copyright infringement claims.

Judge Brown granted the mareva injunction ex parte. On the question whether Mr Vartzokas had demonstrated a real risk that the assets would be dissipated and the Court’s process frustrated, his Honour pointed to the sneaky swap in ownership of the Prospect Rd property between Mr Younan’s companies, his failure to pay all Mr Vartzokas’ bills and continued use of the drawings without payment or recognition:

[35] I am also satisfied that the applicant has established a prima facie case that there is a real risk of assets being dissipated, if the relief sought is not granted. In my view, the significant evidence in this regard arises as a consequence of the change of name of Nazero Constructions Pty Ltd, which coincided with that entity not honouring the invoices submitted to it by the applicant. This failure to pay its debt, to the applicant, ultimately led to the winding up of the company concerned.

[36] More significantly, after the company had been liquidated, Mr Younan incorporated an entity with a similar name and transferred the land at Prospect to it. At the same time, Mr Younan appears to have been intent on developing the land in a similar manner to that which envisaged the intellectual input of Mr Vartzokas, but without either payment or recognition to him.

[37] In all these circumstances, I am satisfied that there is a significant risk that, if the injunction sought is not made, the proceeds of sale of the Prospect property will not be available to the applicant to either satisfy any award of damages to which he is entitled or to provide any accounting for the profits made on the sale of the land concerned, which, at least on a prima facie basis, seems to have included his architectural designs to be utilised on the property’s development.

His Honour also noted there was no prejudice to third parties as the bank mortgagee would get paid its due before money’s were paid into court.

Vartzokas Architects Pty Ltd v Nacero Group SA Pty Ltd [2017] FCCA 849


  1. Yes, I know we are supposed to call them an asset preservation order, but really ….  ?
  2. The usual implied licence can be excluded by an express written term to the contrary: Devefi v Mateffy Perl Nagy  ?

Kickass Torrents website blocked – third party injunctions

Burley J has granted Universal Music’s application[1] ordering the ISPs to block access to Kickass Torrents’ websites.

This is the second decision under s 115A of the Copyright Act 1968 empowering copyright owners (and their agents) to seek injunctions against third parties (i.e. ISPs and telcos) to block access to offshore infringing websites.

Putting to one side stylistic matters, his Honour’s orders appear in substance to be the same as the orders previously made by Nicholas J against “solarmovie” and “The Pirate Bay” (some discussion here).[2]

The Copyright Council also reports that Roadshow Films has brought a new case seeking third party blocking injunctions against 41 websites including “Watchseries”, “Putlocker” and “MegaShare”.

Universal Music Australia Pty Limited v TPG Internet Pty Ltd [2017] FCA 435 (Burley J)


  1. and also the applications by APRA and various other copyright holders.  ?
  2. The ISPs get 10 business days, rather than 7, to respond to applications by the copyright owners to extend the injunctions to “whack-a-mole” sites – see paragraph 12.  ?

$3 million!

Last year, we looked at the ACCC’s successful prosecution of Valve (provider of the online gaming platform, Steam) for breach of the consumer guarantees in the ACL. Valve’s contracts for example provided that all fees were payable in advance and not refundable. Valve’s main line of defence was that it was in the US state of Washington and so not bound by the ACL.

On 23 December 2016, the Court fined Valve $3 million for its breaches: $2.2 million for the contraventions involving the Steam Subscriber Agreement and $800,000 for the contraventions involving the Steam Refund Policy.

This was in a context where, while,the number of accounts developed over the 3 year period of the misconduct, Valve had some 2.2 million Australian accounts (I.e, about $1.36 per account) and had received communications about refunds from over 21,000 accounts. What is more, despite its no refunds policy wording, it had actually paid refunds to some 15,000 accounts. Another factor was Valve’s high-handed approach to its legal position in Australia; apparently deciding it had no liability as a matter of policy without reference to Australian legal advice.

Australian Competition and Consumer Commission v Valve Corporation (No 7) [2016] FCA 1553 (Edelman J)

Productivity Commission’s Final Report

Updated to fix some broken links

The Productivity Commissions’s final report into “Intellectual Property Arrangements” has been published.

An overview and  recommendations is here.

The full report is here.

The key points sign off with a stirring call to action – or harbinger of what’s to come:

Steely resolve will be needed to pursue better balanced IP arrangements.

The Government has announced it is undertaking further consultations with us about the Commission’s recommendations and wants to hear your views by 14 February 2017. I wonder how many bunches of roses they will receive?

 

Third party website blocking – down under

Nicholas J has published his reasons granting the film companies injunctions against the ISPs ordering them to block access to third party offshore “solarmovie”, pirate bay, torrenz, torrenthound and isotorrent sites.

Roadshow Films Pty Ltd v Telstra Corporation Limited [2016] FCA 1503

Apportionment of liability for IP infringement

Beach J has ordered that Lucky Homes (the builder) and Mr Mistry (the owner) pay Henley Arch $34,400 by way of compensatory damages and, respectively, $25,000 and $10,000 additional damages. There was no apportionment of liability under the Wrongs Act. Instead, Beach J also ordered that the builder pay to Mr Mistry however much he pays of the compensatory damages and half of the additional damages he pays.

Time and space mean that this post will look at the apportionment issue. Issues arising from the damages findings may get covered in a later post.

Some facts

In 2010/2011, the Mistrys had Henley Arch build them a home. In 2013, they started negotiating with Henley Arch for it to build another home, their dream home, based on another Henley plan, the Amalfi. They requested, and Henley arranged for, a number of modifications to the basic plan. Their preferred facade would have cost $10,000 more than the “basic” facade.

In October 2013, just before they were to sign the final contracts with Henley, they were introduced to Lucky Homes. Lucky Homes was prepared to build the home with their preferred facade and “some” changes for pretty much the same price as the “basic” facade that Henley would build. The Mistrys got Lucky Homes to build the house for them instead.

Apportionment

Perhaps the point of most general application to all IP statutes is Beach J’s ruling that the state law provisions allowing liability to be apportioned between wrongdoers under s 24AI of the Wrongs Act 1958 (Vic) had no application to copyright infringement.

As is often the case in these types of cases, the builder – Lucky Homes – says the owners – the Mistrys – told me they owned the copyright and, of course, the Mistrys claim Lucky Homes the builder said he would make sufficient changes that there would not be any copyright issue.

While not impressed with the witnesses for either camp, Beach J accepted the Mistrys’ version of events this time.

The Mistrys had provided Lucky Homes with a copy of Henley’s pro forma plan for the Amalfi rather than the customised version Henley had modified to meet their particular requirements. The pro forma plan had Henley’s copyright notice clearly marked on it. Mr Shafiq, for Lucky Homes, had annotated the pro forma plan with the various changes the Mistrys wished to make, such as converting a powder room to a prayer room. According to the Mistrys, Mr Shafiq told them he would make 15 or 20 changes so that the redesign would not infringe Henley’s copyright. Mr Shafiq had also tried to persuade the drafting service Lucky Homes used to lie about which drawings had been used as the starting point for the building plans.

Following the findings of infringement and how much damages would be, the first question was whether there was power to apportion liability.

The Copyright Act, like the other Commonwealth intellectual property statutes – the Patents Act 1990, the Trade Marks Act 1995, the Designs Act 2003, the Plant Breeders Rights Act 1994, does not include provisions to apportion liability.[1] So, the Mistrys invoked the Victorian Wrongs Act.

Section 24AF provides that an apportionable claim is:[2]

(a) a claim for economic loss or damage to property in an action for damages (whether in tort, in contract, under statute or otherwise) arising from a failure to take reasonable care; and

(b) a claim for damages for a contravention of section 18 of the Australian Consumer Law (Victoria).

Beach J said neither of these requirements were satisfied. In particular, at [266] a claim for copyright infringement is not a claim for failure to take reasonable care.[3] And at [267], the Mistry’s attempt to invoke s 87CD of the Competition and Consumer Act 2010 was “misconceived”. Moreover, his Honour at [267] considered that the Copyright Act provides a complete scheme for a copyright owner to recover damages from both the primary infringer and an authoriser. Therefore, it “overrode” the provisions of the (State enacted) Wrongs Act.[4] Accordingly, apportionment was not possible. However, the respondents could (and did) cross-claim against each other.[5]

The cross-claims

Lucky Homes cross-claimed against the Mistrys on the basis that the building contract included a warranty and indemnity that the Mistrys owned the copyright in the plans they provided.

That didn’t get up in view of the copyright notice on the pro forma plans and the Judge’s acceptance of the Mistrys’ case that Lucky Homes through Mr Shafiq had claimed it could change the plans sufficiently to avoid infringement.

Conversely, those findings meant that the Mistrys’ cross-claim for misleading or deceptive conductive succeeded. Therefore, Beach J ruled that Lucky Homes should pay the Mistrys all of the moneys they paid to Henley on the compensatory damages.

Beach J also ordered Lucky Homes to pay Mr Mistry half the additional damages he pays. Mr Mistry was entitled only to damages for loss (i.e., here the additional damages he was ordered to pay to Henley) to the extent the loss was causally connected to Lucky Homes’ misleading or deceptive conduct. His Honour considered that much of Mr Mistry’s conduct that warranted the award of additional damages against Mr Mistry was not causally connected to Lucky Homes’ misleading or deceptive conduct. So, on a “rough and ready assessment … given the modest amounts involved” his Honour arrived at 50%.

Henley Arch Pty Ltd v Lucky Homes Pty Ltd [2016] FCA 1217


  1. Unlike s 236 of the Australian Consumer Law through s 87CD of the Competition and Consumer Act 2010.  ?
  2. Disregarding irrelevant exceptions.  ?
  3. Don’t rush off to add negligence claims to your pleadings now. Although not referred to by Beach J (as it wasn’t in issue), s 24AF(3) says that the fact that a claim is an apportionable claim under s 24AF(1) does not limit liability under any other law. That appears to mean that liability for infringement would stand even if the negligence claim could be apportioned.  ?
  4. Presumably on the basis of s 109.  ?
  5. A practical consequence of this is that the copyright owner can get its money from either or both sets of respondents. That is, vis a vis Henley, both Lucky Homes and the Mistrys are on the hook for all the compensatory damages awarded. If only one has the money to pay the award, Henley could be paid the full amount by that party and the “paying” party would be left to try to recover a proportion from the impecunious respondent.  ?

The patent was not infringed

Thank you to all those readers who expressed a view in last Tuesday’s poll. The good news is that better than 80% of you answered correctly. According to the traditional view, recently applied by Rares J, there would be no infringement in Australia in the circumstances outlined.

On the traditional view, a patent (like any other intellectual property right in Australia) is a territorial right. A patent, of course, confers the exclusive right to exploit the claimed invention in the patent area. Exploit in this context meaning:

(a) where the invention is a product–make, hire, sell or otherwise dispose of the product, offer to make, sell, hire or otherwise dispose of it, use or import it, or keep it for the purpose of doing any of those things; or

(b) where the invention is a method or process–use the method or process or do any act mentioned in paragraph (a) in respect of a product resulting from such use.

Under the old form of the patent grant, the patentee was granted the exclusive right to make, use, exercise and vend the invention. In BASF v Hickson, the House of Lords ruled that a defendant in England, who entered into a contract with another party to make some goods for that third party in Switzerland and deliver them to that third party in Switzerland, did not infringe even though the third party subsequently imported the goods into England.[1] Lord Davey said:[2]

It must be such a vending as will be in a sense a working or use and exercise of the invention in this country or an appropriation by the vendor of some advantage which the patentee can derive from such use and exercise. A contract to deliver the goods abroad does not in any way interfere with the patentee’s rights to work and utilize his invention in this country. It is a contract to do a perfectly lawful act, and whether the contract be made in this country or abroad does not in itself affect the patentee’s monopoly of working his invention. Nor is it material to consider whether or when the property in the goods passed to the purchaser. It is lawful to be the owner of the goods if made and situate abroad, and neither the vendor nor the purchaser in my opinion thereby infringes the patent. The goods may or may not be afterwards brought into this country, and a different question will then arise, but that is no concern of the vendor after he has parted with them. I am of opinion that “vending the invention” in the common form of patent is confined to selling goods made or brought into this country ….

Load and Move has a patent in Australia for spreaders and tipplers, which are apparently used in the loading and tipping of shipping containers. CTS, another Australian company, entered into a contract with a mine in Eritrea to supply the mine with spreaders and tipplers which Load and Move considered would infringe its patent. However, CTS agreed to have the spreaders and tipplers made in China and delivered to the port in China FOB or ex works for delivery directly to the mine in Eritrea. The spreaders and tipplers would never come into Australia.

Load and Move was seeking preliminary discovery from CTS to establish whether payments for the contract with the Eritrean mine were received in Australia.

Rares J has refused preliminary discovery.

One of the conditions that must be established to obtain preliminary discovery is that the applicant reasonably believes it has a right to obtain relief against a prospective respondent.[3]

Rares J began by pointing out that a subjective belief that one’s right was being infringed was not enough; the belief had to be reasonably held. That required the existence of facts from which a reasonable person could form the required belief. That is, the belief was tested objectively.

Here, the question was whether there were facts from which a reasonable person could conclude that Load and Move’s patent was being infringed in Australia. In light of BASF v Hickson, however, Rares J held that a reasonable person could not hold such a view.

Load and Move Pty Ltd v Container Rotation Systems Pty Ltd
[2016] FCA 843

ps Sorry no post on Friday: let’s just say there was a synchronisation glitch.


  1. The third party would infringe by importing.  ?
  2. Badische Anilin Und Soda Fabrik v Hickson [1906] AC 419 at 422 – 423 cited by Rares J in Load and Move at [26].  ?
  3. FCR r 7.23.  ?

Court of Appeal orders ISPs to block access to trade mark infringing websites

The Court of Appeal[1] has confirmed that the court’s general power to grant injunctions can be invoked by trade mark owners to get orders against ISPs to block internet access to website that have infringing content.

The interesting point (for Australians) is that, like Australia, UK law has a specific statutory power authorising injunctions against ISPs to block access only to websites that infringe copyright. There is no corresponding provision in the Trade Marks Act 1994 (UK). Instead, section 37(1) of the Senior Courts Act 1981 (previously the Supreme Court Act 1981) provides:

The High Court may by order (whether interlocutory or final) grant an injunction … in all cases in which it appears to be just and convenient to do so.

The IPKat has a preliminary summary here.

The main question the Court of Appeal’s decision raises for us is whether an Australian court might be persuaded to make similar orders against ISPs to block access to website which infringe trade marks (or other IP). Australian courts have powers to grant injunctions corresponding to s 37 of the Superior Courts Act.[2]

On the other hand, Parliament has also only recently introduced the specific statutory provision in the context of copyright infringement and that provision is tightly focused for policy reasons against overseas websites which have infringement as their primary focus.

And, it appears that the Court of Appeal was heavily influenced by the obligations imposed on national law by art. 11 of the EU’s Enforcement Directive to require ISPs to take steps to stop infringing activity. That specific legislated obligation does not apply here. That there may be different philosophies at play may also be seen in what appears to be the different approach in the EU to the liability of market operators for infringing conduct by stall holders.[3]

A second point emerging from a very quick skim of the 214 paragraphs is that Kitchin and Jackson LJJ held that the ISPs should be liable for the costs of implementing and maintaining the blocks. Briggs LJ dissented on this point insofar as it required the ISPs to bear the costs of complying (apart from designing and installing the software). As Jackson LJ pithily put it in agreeing with Kitchin LJ, that is “part of the price which the ISPs must pay for the immunities which they enjoy”. This may point up another difference in the legal environment: ISPs in the EU have assumed obligations to block access to websites such as those dealing in paedophilia. In addition, the safe harbours regime for ISPs applies generally, not just for copyright infringement as in Australia.

Finally, so far, there haven’t been any orders in the site blocking cases brought under s 115A yet.

If you have a comment or a question, please feel free to post it in the comments section. Or, if you would prefer, email me.

Cartier International AG v British Sky Broadcasting Limited [2016] EWCA Civ 658


  1. For England and Wales, not New South Wales, Victoria, Queensland or ….  ?
  2. Australian courts have corresponding powers: for example, s 23 of the Federal Court of Australia Act 1977 provides “The Court has power, in relation to matters in which it has jurisdiction, to make orders of such kinds, including interlocutory orders, and to issue, or direct the issue of, writs of such kinds, as the Court thinks appropriate.” There are, of course, counterpart provisions in the Federal Circuit Court Act and the State Supreme Court Acts: see Victoria and NSW.  ?
  3. Compare this CJEU decision to Dowsett J’s decision at first instance.  ?

The Consumer Guarantees in the ACL apply to computer games downloaded from overseas’ vendors

The ACCC – the consumer watchdog – has successfully sued Valve for misleading or deceptive conduct in relation to its Steam gaming platform. The representations were along the lines of statements made in the terms and conditions like:

“ALL STEAM FEES ARE PAYABLE IN ADVANCE AND ARE NOT REFUNDABLE IN WHOLE OR IN PART”.

The ACCC’s case was that such statements were misleading because they were inconsistent with a consumer’s rights to return defective goods and receive a refund. These rights arose (in the case of defective goods) since s 54 of the Australian Consumer Law incorporates into all supplies of goods in trade or commerce to consumers in Australia a guarantee that the goods are of acceptable quality. If they are not, s 259, amongst other things, confers a right of action for compensation where the deficiency in quality could not be remedied or was a major failure and s 263 provides an entitlement to a refund.

Valve is based in Washington State, USA. It argued its arrangements with Australians were not subject to the Australian Consumer Law. There were 3 reasons:

  1. Valve’s conduct did not occur in Australia and it did not carry on business in Australia;
  2. The Steam Subscriber Agreement was governed by the law of Washington State in the USA and so the Australian Consumer Law did not apply; and
  3. The software games were not “goods”.

Conflicts of law rules did not exclude Australian Consumer Law

In (very) broad terms, section 67 of the Australian Consumer Law says that the consumer guarantee provisions of the Australian Consumer Law continue to apply where the proper law of the contract would be Australia (but for the terms of the contract which provide otherwise) or the terms of the contract provide that the laws of some other country govern the contract.

As noted above, Valve’s contract with subscribers (i.e., someone who “buys” a game through Steam to download or play) provided that the governing law of the contract was the law of the state of Washington in the USA and its courts had exclusive jurisdiction.

The parties accepted that this clause could not be relied on in face of s 67. However, Valve argued that nonetheless the “proper law” of the contract was the law of the state of Washington and not somewhere in Australia.

Edelman J noted that at common law, the proper law of a contract was that which had the closest and most real connection with the transaction. This was determined by consideration of:

matters including (i) the places of residence or business of the parties, (ii) the place of contracting, (iii) the place of performance, and (iv) the nature and subject matter of the contract (437). Each of these is considered in turn.

Valve’s customers, at least those who gave evidence for the ACCC, were resident in NSW, Victoria and Tasmania. Valve, however, had its offices in Washington State, USA and did not have offices in Australia. Edeleman J acknowledged also that it was seeking to enter into contracts with people from all over the world and was aiming to do so on consistent terms.

His Honour next considered that the place of contracting was Washington State as that was the place where the electronic communication from the customer was received to form the contract. That is, presumably, the transaction was one where the customer made an offer to “buy” the game and the contract was formed when Valve accepted the transaction in Washington State.[1]

So, while the proper law of the contract was Washington State, USA, s 67 of the ACL applied.

Valve was carrying on business in Australia

Even though his Honour found that the proper law of the contract was Washington State in the USA, Edelman J nonetheless found that Valve both engaged in conduct in Australia and was carrying on business in Australia and so subject to the Australian Consumer Law.

You can see where this is going at [4]:

…. There are some difficult issues involved in determining whether “conduct” is in Australia, but even if Valve’s conduct was not conduct in Australia, the Australian Consumer Law would apply if Valve carried on business in Australia. Valve said that it does not carry on business in Australia despite Valve (i) having more than 2 million user accounts in Australia, (ii) generating potentially millions of dollars in revenue from Australia, (iii) owning, and using, servers in Australia, with original retail value of US $1.2 million, (iv) having relationships with businesses in Australia, and (v) paying tens of thousands of dollars monthly to Australian companies in expenses for running its business in Australia.

conduct in Australia

Despite the difficulties in determining where conduct takes place, Edelman J was able to find that Valve engaged in conduct in Australia. The conduct in question was the making of representations. The representations were made in the place(s) where they were received (otherwise, if no-one saw or heard the representation, there would be no conduct). Here, however, representations about “no refunds” were made directly to customers in Australia in “chat” sessions and when they signed up for accounts and “bought” games to download: [2]

…. The purchase of a game also required a consumer to click on a box that agreed to the terms of the SSA. The consumer provided Valve with his or her location as Australia at the time of purchase. Indeed, Valve priced some games differently in Australia (ts 120–121). The consumer might be told by Valve that “This item is currently unavailable in your region” (Court Book 347).

carrying on business in Australia

Accepting that “carrying on business” could have different meanings depending on the context, Edelman J accepted the approach advanced earlier by Merkel J in Bray:

… the ordinary meaning of “carrying on business” usually involves (by the words “carrying on”) a series or repetition of acts. Those acts will commonly involve “activities undertaken as a commercial enterprise in the nature of a going concern, that is, activities engaged in for the purpose of profit on a continuous and repetitive basis” ….

That was undoubtedly the case here. See the matters referred to in paragraph 4 above.[3]

Software downloads are “goods”

Computer programs are specifically included in the definition of “goods” for the purposes of the ACL. Valve argued, however, that what it was really supplying were services including the motion picures and audio which portrayed the images and sounds which the gamer interacted with.

Edelman J agreed that the film and audio files were not a computer program for these purposes, adopting the definition of a computer program as a set of instructions from the Copyright Act.

Under the ACL, however, it is not a question whether the supply is substantially a supply of services. Rather, the question is whether or not it involves a supply of goods. If so, the way the definitions are written, it doesn’t matter whether there is also a supply of services.

Valve further contended that it did not supply goods as all the subscriber had was a licence to use the software and, citing Cowell, a bare licence is purely a contractual right; not the supply of any property. One problem with this argument was that s2 of the ACL defined supply to include lease, hire or hire-purchase; terms sufficiently wide to encompass a licence. Another problem was that the argument did not take into account that subscribers could download games to play offline. They “physically” had the goods.

Valve therefore breached the consumer warranties implied by the ACL into each arrangement.

Interesting question whether foreighn companies systematically supplying goods or services over the internet to Australia will need to be registrered as a foreign company carrying on business in Australia under s 601CD of the Corporations Act? One may wonder about the practical ramifications flowing from that.

Australian Competition and Consumer Commission v Valve Corporation (No 3) [2016] FCA 196 (Edelman J)


  1. OK, that is an old-fashioned characterisation of the contractual formation, but Edelman J relied more specifically on UNCITRAL Model Law on Electronic Commerce 1996 with additional article 5bis as adopted in 1998 and the electronic transaction provisions in Australian laws such as Electronic Transactions Act 1999 (Cth) s 14B.  ?
  2. Ward Group v Brodie & Stone was distinguishable, at least because in Valve, there were (2.2 million) real purchasers. Gutnick was also distinguished as directed to different issues.  ?
  3. Catalogued again at [199] – [204].  ?
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