IPwars.com

Mainly intellectual property (IP) issues Down Under

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].  ?

Authentic TPP text (legally verified)

Prof. Sam Ricketson pointed out to me that DFAT posted the legally verified version of the TPP on its website back on 26 January 2016.

This is the legally verified English text, but there will be equally authentic French and Spanish versions too. However, the English version prevails if there are any inconsistencies.

The legally verified text supersedes the version published back in November 2015.

Australia Wins Philip Morris’ Challenge Against tobacco plain packaging

The IPkat reports that Australia has won the claim Philip Morris brought against the Tobacco Plain Packaging laws under the investor dispute resolution clause of the Australia – Hong Kong Business Investment Treaty.

As the IPkat’s report notes, the dispute resolution panels under the WTO are still in train.

The official Text Of The Trans Pacific Partnership (TPP) Has Now Been Published

Full text of TPP here.

IP chapter here.

Lid dip: Prof. Cotter

TPP Workshop

The University of Melbourne’ Global Economic Law Network is holding a Workshop on the TPP (DFAT page, Wikipedia):

TPP Revealed

Friday 13 November.

Apparently, it is expected that the TPP itself will be published a few days before.

For details and registration (including registration fee) click here.

Productivity Commission to review all IP laws

The Harper Review[1] recommended that the Government should direct the Productivity Commission to undertake an overarching review Australia’s IP laws.

The Treasurer and the Minister for Small Business have now announced that review.

According to the Harper Review:

an appropriate balance must be struck between encouraging widespread adoption of new productivity-enhancing techniques, processes and systems on the one hand, and fostering ideas and innovation on the other. Excessive IP protection can not only discourage adoption of new technologies but also stifle innovation.

Given the influence of Australia’s IP rights on facilitating (or inhibiting) innovation, competition and trade, the Panel believes the IP system should be designed to operate in the best interests of Australians.

The Panel therefore considers that Australia’s IP rights regime is a priority area for review. (emphasis supplied)

In reaching that view, the Harper Review flagged concern about entering into new treaties with extended IP protections.

The terms of reference state:

In undertaking the inquiry the Commission should:

  1. examine the effect of the scope and duration of protection afforded by Australia’s intellectual property system on:

    a. research and innovation, including freedom to build on existing innovation;

    b. access to and cost of goods and services; and competition, trade and investment.

  2. recommend changes to the current system that would improve the overall wellbeing of Australian society, which take account of Australia’s international trade obligations, including changes that would:

    a. encourage creativity, investment and new innovation by individuals, businesses and through collaboration while not unduly restricting access to technologies and creative works;

    b. allow access to an increased range of quality and value goods and services;

    c. provide greater certainty to individuals and businesses as to whether they are likely to infringe the intellectual property rights of others; and

    d. reduce the compliance and administrative costs associated with intellectual property rules.

Then follows a catalogue of 9 matters for the Commission to have regard to. These include the Government’s desire to retain appropriate incentives for innovation, the economy-wide and distributional consequences of recommendation and the Harper Review’s recommendations in relation to parallel imports.[2]

The Commission must report within 12 months.


  1. The Competition Policy Review, recommendation 6.  ?
  2. Rec. 13 and section 10.6 of the Competition Policy Review: i.e., repeal any remaining restrictions unless the benefits outweigh the costs and the objectives of the restrictions can only be achieved by restricting competition. Cue diatribe about “restricting competition” especially given the oft mouthed formula that IP rights rarely (if ever) restrict competition.  ?

Plain Packaging: WTO dispute panel appointed

Five countries have brought WTO Complaints against Australia’s plain packaging rules for tobacco products.

On 25 April 2014[1], the Dispute Settlement Body under the Dispute Settlement Understanding established panels to determine the complaints brought by Cuba, the Dominican Republic, the Ukraine, Honduras and Indonesia.

On 5 May[2], the Director-General formally announced the 3 member Panel who will hear the disputes:

In addition to the 5 complainants, some 25 other polities have “reserved their third party rights”:

Argentina, Brazil, Canada, Chile, China, the European Union, Guatemala, India, Japan, Korea, Malaysia, Mexico, New Zealand, Nicaragua, Norway, Philippines, the Russian Federation, Singapore, Chinese Taipei, Thailand, Trinidad & Tobago, Turkey, the United States, Uruguay and Zimbabwe

Typically, there should be a decision within 6 months (but there is also an appeal process). Typical timeline


  1. Not sure if that is an auspice.  ?
  2. Another date freighted with history.  ?

Major sporting events

Did you know there was a Major Sporting Events (Indicia and Images) Protection Bill 2014? (From which you may deduce that I didn’t). It was introduced into Parliament on 26 March 2014.

It is designed to provide protections for certain indicia associated with the upcoming:

  • Asian Football Championships to be held in Australia in 2015;
  • the ICC World Cup to be held in Australia and New Zealand in 2015; and
  • the 2018 Commonwealth Games on the Gold Coast,

against ‘ambush marketing’. As the EM states:

The Event owners have sought a commitment from the government to protect against the unauthorised commercial use of certain indicia and images associated with the respective events to help them secure and maintain event sponsorship.

If sponsors do not have certainty that they are the only businesses that can directly benefit from association with the Events, they may withdraw their sponsorship or decide not to support the Events. A decrease in sponsorship revenue could increase the need for financial assistance from the Australian Government and/or state and territory governments to stage the events.

The Bill has been modelled on the (now repealed) legislation for the protection of the Sydney Olympic games in 2000 (here and here) and the Melbourne Commonwealth Games in 2006.

As the Simplified Outline explains in clause 15:

Generally speaking, a person cannot use a major sporting event’s 5 protected indicia or images for commercial purposes during the 6 event’s protection period, unless the person is an official user for 7 the event (that is, either an event body or an authorised person for 8 the event).

The remedies provided include injunctions, damages, corrective advertising and a regime for Customs seizure.

Clause 14 explains that:

Doing any of the following is not alone sufficient to suggest the existence of a sponsorship arrangement, or the provision of other support, for the purposes of paragraph 12(1)(c):

(a) using protected indicia or images for the primary purpose of criticism or review;

(b) using protected indicia or images for the primary purpose of providing information, including through reporting news and 14 presenting current affairs.

Major Sporting Events (Indicia and Images) Protection Bill 2014

Explanatory Memorandum

IP and antitrust in Australia

Wow! I think this is a first in Australia: the ACCC – Australia’s competition “watchdog” – is suing Pfizer for antitrust breaches over its (then expiring) patent for Lipitor.[1]

According to the ACCC’s press release:

At its peak, Lipitor was prescribed to over one million Australians with annual sales exceeding AU$700 million.

Pfizer had a patent over the active ingredient, atorvastatin, but it expired in May 2012.

Early in 2012 (before the patent expired), the ACCC alleges that Pfizer offered to supply Lipitor to pharmacies at “significant discounts and the payment of rebates previously accrued” so long as they agreed to buy from Pfizer a minimum volume of up to 12 months’ generic atorvastatin after the patent expired.

The ACCC alleges this constituted a misuse of market power contrary to s 46 and exclusive dealing contrary to s 47 of the Competition and Consumer Act because:

(1) the offers were made before the patent expired and so at a time when other generic suppliers could not make offers; and

(2) “Pfizer engaged in this conduct for the purpose of deterring or preventing competitors in the market for atorvastatin from engaging in competitive conduct, as well as for the purpose of substantially lessening competition”.

If the ACCC is right, it wants penalties, declarations and costs. Under the Act, the pecuniary penalties could be up to the greater of $10 million, 3 times the benefit gained from the contravention or 10% of annual turnover.

More generally, as the ACCC’s chairman flagged:

This case also raises an important public interest issue regarding the conduct of a patent holder nearing the expiry of that patent and what constitutes permissible competitive conduct.

Now, patentees’ efforts, while their patent is in force, to tie customers into taking the product after the patent has expired, were so controversial that, just over one hundred years ago, Parliaments introduced legislation to permit licensees to terminate patent licences once the patent expired.[2]

Beyond that, s 46 also prohibits any corporation from taking advantage of a substantial degree of power in a market for the purpose of:

(a) eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market;

(b) preventing the entry of a person into that or any other market; or

(c) deterring or preventing a person from engaging in competitive conduct in that or any other market.

So, to contravene s 46, the ACCC will have to establish two conditions:

(1) Pfizer had a substantial degree of power in a market; and

(2) it took advantage of that power for an anti-competitive purpose.

The first issue turns on what is the market: the market for Lipitor or some wider market such as a market for the treatment of high cholesterol? This question highlights the reference in the ACCC’s press release to the succes of Lipitor “at its peak”. I don’t know much about the market for treatment of high cholesterol but, by the time Pfizer did this allegedly dastardly deed, there were presumably some alternatives to prescribing Lipitor.[3]

In an earlier proceeding involving copyright,[4] the Full Court of the Federal Court held that a record company which had less than 20% of the market did not have a substantial degree of power in the market. So, unless the ACCC can tie the market narrowly to the market for Lipitor, it may well face considerable difficulties.[5]

Those difficulties may mean that the s 47 allegation has greater significance as, in that earlier case, the Full Federal Court still found the record companies contravened s 47 even though they did not have market power. Although their conduct could not have the effect of substantially lessening competition (because they did not have sufficient market power), their purpose was anti-competitive.

Plainly, Pfizer was trying to sign up the pharmacies to this deal so that they would not buy at least the minimum amount from these generic suppliers who were apparently waiting in the wings, but is that anti-competitive? Maybe it depends on how large the minimum requirement is in relation to the pharmacy’s expected needs for the period. But, it was only for 12 months!

Normally,[6] one would expect the pharmacies could readily calculate whether they were better off taking the deal or continuing to pay the “list” price for Lipitor and then taking advantage of spot prices in the market after the patent expired. If the alleged contravention, however, was that Pfizer refused to supply Lipitor at all while the patent was in force unless the pharmacies agreed to buy “generic” Lipitor after the patent’s expiry, that might have put the pharmacies in a very difficult position of being unable to fill prescriptions.

A further potential complication is that s 47 does not apply to conditions in a licence (or assignment) of a patent to the extent the conditions related to the patented invention or articles made by the use of the patented invention. No-one really knows what that means. Could a pharmacy that agrees to buy Lipitor from Pfizer be a licensee? Certainly, in keeping the drug for sale and selling it, the pharmacy would be exploiting the patent (while it was still in force), but has an implied licence to do those acts. Could agreement to buy “generic” Lipitor after the patent has expired relate to the invention?

At this stage, the parties have filed their respective pleadings,[7] discovery is taking place to be followed by affidavits and a return to Court for further directions in September.

The ACCC’s press release

Lid dip: Patentology


  1. Federal Court Proceeding No. NSD 146/2014, filed on 13 February 2014.  ?
  2. As this case demonstrated, however, it has limited effect.  ?
  3. And it may often be the case that different drugs have different side effects or have particular advantages over other treatments so it is not quite the same as comparing, say, Pink Lady apples with Fuji apples or ….  ?
  4. Universal Music Australia Pty Ltd v Australian Competition & Consumer Commission [2003] FCAFC 193  ?
  5. That said, the price of Lipitor in Australia, even off-patent, has managed to attract unfavourable headlines.  ?
  6. Maybe there is some complexity arising from the arcane operations of pricing under the Pharmaceutical Benefits Scheme?  ?
  7. If anyone cares to provide a copy, I’d love to read them :-).  ?

The (online) price of things in Australia

Last year, a Parliamentary Committee discovered that Australians pay much higher prices for software and other technology than consumers in other countries.[1]

Now (well, last month), the Fairfax media claimed that Australians are paying much higher prices  for fashion from overseas chains than they charge in their online stores too. Apparently, up to 35% more – although, looking at the unit prices, I wonder if that is before or after postage or delivery has been included.


  1. The [Copyright Society of Australia][csa] held a seminar on the report, the transcripts of which will be published in a forthcoming issue of the Copyright Reporter.  ?