12 May, 2016
The Australian Federal Court has clarified when a foreign corporation supplying goods to Australian consumers will be subject to the Australian Consumer Law (ACL). In Australian Competition and Consumer Commission v Valve Corporation (No. 3) [2016] FCA 196, Justice Edelman found that Valve Corporation (the Company) was subject to the ACL notwithstanding its incorporation in Washington State and its lack of physical presence in Australia. The decision makes clear that foreign suppliers will not be able to rely on ‘choice of law’ provisions or arguments relating to the proper law of a contract to shield them from the operation of the ACL.
FACTS
The Company sells digitally downloadable computer games via its online game distribution platform, Steam, to 125 million users worldwide, approximately 2.2 million of whom are Australian consumers. The Company has no physical retail stores in Australia.
The Company sales terms and policies included representations that consumers were not entitled to a refund for digitally downloaded games in any circumstances, and that statutory guarantees and/or warranties of acceptable quality were excluded. The Australian Competition and Consumer Commission (ACCC) commenced proceedings against the Company alleging that these representations were misleading or deceptive as Australian consumers would have the benefit of the consumer guarantee under the ACL that any goods supplied would be of acceptable quality.
In response, the Company argued that the ACL and this consumer guarantee did not apply to it because:
- the proper law of each consumer contract was that of Washington State;
- the supply of digitally downloadable computer games is not a ‘supply of goods’ but a supply of services (which are not subject to the guarantee of acceptable quality); and
- this conduct did not occur within Australia, nor was the Company carrying on business in Australia.
DECISION
Justice Edelman found that the Company had engaged in misleading and deceptive conduct by representing to Australian consumers that the statutory guarantees in the ACL did not apply to the Company’s provision of software. Moreover, he found that the ACL did apply to the Company, rejecting each of the Company’s arguments for the following reasons:
1. THE APPLICABLE LAW
The Company’s contracts contained a clear choice of law clause in favour of Washington State, and Justice Edelman agreed with the Company that the proper law of these contracts was therefore that of Washington State. However, his Honour found that ‘the proper law of the contract’ is not determinative of the application of the ACL.
The consumer guarantees in the ACL will apply despite any term of a contract that purports to substitute the ACL’s consumer guarantees with the law of a foreign country even where ‘the proper law of a contract’ is not Australia.
2. THE SUPPLY OF GOODS AND DIGITALLY DOWNLOADABLE COMPUTER GAMES
Justice Edelman found that Steam was providing games to its subscribers and at the heart of this was the supply of computer software. Subscribers were required to download and install ‘Steam Client’ software to be able to access games and then to play a game they needed to download the game. The digitally downloadable games contained an essential component of computer software and while each game also included a non-executable data component (i.e., music, html images), those components require the software to function. His Honour noted that ‘software’ was expressly included within the definition of ‘goods’ in the ACL in 2011.
The Company argued that consumers were not ‘supplied’ with these goods because generally consumers had to log on to the Steam website to verify their account prior to playing a game. Additionally, the Company described the supply of digitally downloadable computer games as a non-exclusive, non-assignable licence to access the games. Justice Edelman noted that as consumers could access games in offline mode without communicating with Steam servers online showed that they had been supplied provided with software. His Honour rejected the argument that a mere license is insufficient to constitute a ‘supply’. Justice Edelman also had regard to the Company’s own documents which referred to software being provided by Steam.
In reaching this conclusion, Justice Edelman noted that the proper construction of the ACL requires courts to first determine whether a supply is of goods, and only if it is not, then consider whether it is a supply of services. He found it unnecessary to consider the Company’s submission that the supply of digitally downloadable content is a service, because it is first and foremost there was a supply of goods.
3 . THE SUPPLY OF GOODS ‘IN AUSTRALIA’
a. Was the Company’s representations conduct in Australia?
Justice Edelman held that each representation involved conduct ‘in Australia’ by the Company, finding that each representation was intended to be made to Australian consumers. His Honour observed that representations made on Steam Client and in chat logs were specifically directed at individual Australian consumers; however representations made on the Steam website – including through the Steam Subscriber Agreement and Steam Refund Policy – were general representations to the world at large. However, such representations became ‘conduct in Australia’ once a relationship with individual Australian consumers was established. This relationship was established through:
- consumers selecting their country as Australia prior to downloading games;
- the Company pricing some games differently in Australia;
- the Company limiting the availability of certain games within Australia; and
- consumers accepting Steam’s terms and conditions from Australia.
b. Was the Company carrying on business in Australia?
Justice Edelman also found that even if such conduct had not occurred ‘in Australia’, the Company was nevertheless ‘carrying on business’ in Australia and therefore the ACL applied to the Company’s conduct outside Australia, given that:
- the Company had a large number of Australian customers who produced significant revenue;
- the Company had three servers in Australia in which content was routinely deposited;
- the Company had significant personal property located in Australia;
- the Company incurred significant expenses in Australia, paid into Australian bank accounts;
- the Company relied on relationships with third party members of content delivery providers in Australia; and
- the Company knew its their third party service providers had servers located in Australia.
IMPLICATIONS
This decision has significant implications for foreign suppliers, particularly those operating online, as it is now clear that the reach of the ACL consumer guarantee provisions is extensive. Classifying a supply contract as a mere licence or expressly choosing the law of a foreign country will not be sufficient to exclude the ACL. In addition, the supply of digitally downloadable content by a foreign corporation to consumers in Australia may be sufficient to enliven the ACL, irrespective of whether a foreign corporation’s conduct emanates from overseas.
For further information, please contact:
Toby Patten, Baker & McKenzie
toby.patten@bakermckenzie.com
