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Supplying goods overseas? Misleading and deceptive conduct, consumer guarantees and why you need to consider the ACL

Foreign corporations that supply goods, including computer software, to Australian Consumers online should be aware of the protections afforded to consumers under Australian Consumer Law.

This case highlights that foreign corporations that operate online platforms for Australian consumers can be subject to Australian Consumer Law (ACL). The ACL provides automatic guarantees to consumers when they purchase goods and/or services, and any attempt by a supplier to restrict, modify or exclude these guarantees will be unenforceable. This is the first time the courts have applied the extended definition of ‘goods’ to include ‘computer software’ in the ACL, and the judgment indicated ACL provisions will be construed broadly by the courts in order to give effect to the purpose of the legislation.

These particular proceedings were brought by the Australian Competition and Consumer Commission (ACCC) against Valve – a foreign entertainment and software company located in the USA that sells digitally downloadable computer games through “Steam”, an online computer game distribution platform used worldwide – and by 2.2 million consumers in Australia. Valve has no physical presence in Australia.

The Contravention of Australian Consumer Law:

The ACCC brought the action because they found Valve had made false or misleading representations in the Steam Subscriber Agreement, the Steam Refund Policy, and in online chats between Steam and consumers, being:

• Firstly, consumers were not entitled to a refund for digitally downloaded games purchased from Valve via the Steam website or Steam Client (in any circumstances);
• Secondly, Valve excluded statutory guarantees and/or warranties that would be of acceptable quality; and
• Thirdly, Valve had restricted or modified statutory guarantees and/or warranties of acceptable quality.

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…

The question for the trial judge was whether Valve ‘engaged in conduct’ for the purposes of the ACL within Australia. Valve argued it did not, because it was a foreign corporation with all business staff and premises outside of Australia, had no real estate in Australia, hosts the website and provides support services from outside Australia, did not have stream content stored on servers in Australia, and received subscription payment in US dollars.

However, the Court found Valve had engaged in conduct for the purposes of the ACL because there was a strong connection between Valve and Australia, and so the ACL protections applied. The Court came to this conclusion because:

• Valve held significant personal property and servers in Australia worth 1.2 million dollars;
• 2 million Australian subscriber accounts, with support services outside Australia provided to those accounts in Australia;
• Stream content is deposited on Valve’s three servers in Australia; and
• Valve made payments to the Australian bank account of an Australian company.

It was not necessary to decide whether Valve ‘carried on business’ in Australia, however the Federal Court said that Valve had undoubtedly carried on a business in Australia, in the ordinary sense of carrying on a business, for similar reasons as above.

Did Valve ‘supply goods’?

Valve argued that because it did not ‘supply goods’, and only provided a service to Australian consumers. This was rejected by the Court on the basis that a supply of goods includes an agreement to supply goods or services, and to decide otherwise would not be agreeable to the purposes of the ACL. The distribution of online games can therefore constitute the supply of a good, and a contractual license falls within the meaning of ‘supply’.

The ACCC considers consumer issues in the online marketplace to be a priority.

The ACCC Chairman Rod Sims in a recent ACCC Media Release that “Consumer issues in the online marketplace are a priority for the ACCC and we will continue to take appropriate enforcement action to hold businesses accountable for breaches of the ACL.”

In conclusion:

The Federal Court found Valve had breached Australian Consumer Law and made misleading representations about consumer guarantees. This means that foreign corporations that supply goods – including computer software, must be aware of the ACL and the guarantees and protections given to consumers. Corporations operating in the online marketplace must ensure that terms and conditions do not contain misrepresentations about consumer rights, in order avoid possible prosecution by the ACCC, which could result in damages, injunctions and/or cost orders being awarded against them.

This is general advice only. Liability limited by a scheme approved under Professional Standards Legislation. 

Published May 4, 2016