Goods

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)