US giant, Valve Corporation, fined over $US2 million for its no refund policy

The Law

Australia has very strong consumer protection laws, contained in the Australian Consumer Law (ACL). One consumer ‘guarantee’ requires that goods be of ‘acceptable quality’ (for example, fit for purpose, free from defects etc.). This guarantee applies to goods of a kind ‘ordinarily acquired for personal, domestic or household use or consumption’ (consumer goods) whatever their value, but also extends to non-consumer goods provided that their price is up to $AU40,000, with some exceptions. This means that the ACL can also catch many B2B transactions.

It is not legally possible to exclude these guarantees for consumer goods, although careful drafting can limit liability in the case of non-consumer goods. If a business says that a consumer is not entitled to a refund on consumer goods under any circumstances, or says that all liability to a consumer is excluded, this is likely to amount to a false or misleading representation in breach of the ACL.

The Valve litigation

Since 2014, Australia’s consumer watchdog, the Australian Competition and Consumer Commission (ACCC), has been prosecuting US company Valve Corporation, which operates the well-known online game distribution network called ‘Steam’. In this case, Australian Competition and Consumer Commission v Valve Corporation (No 7) [2016] FCA 1553, the ACCC claimed that Valve had engaged in misleading and deceptive conduct and made false representations in breach of the ACL. This breach was due to Valve’s no refund and exclusion of liability policies which did not take into account the ACL’s consumer guarantees, and apply to software as a ‘good’ under the ACL.

Conduct in Australia

The significance of the litigation is that Valve, a US company with no personnel in Australia, was found by the Federal Court to be subject to the ACL because:

  • It was held to have been carrying on business in Australia due to significant connections with Australia, including 2.2 million Australian subscribers and $1.2 million worth of equipment in Australia which was hired from an Australian company.
  • Irrespective of whether it carried on business in Australia, Valve’s conduct occurred in Australia as:
    • Australian customers, who had downloaded the Steam video game delivery platform and accepted the terms of the Subscriber Agreement, had a direct relationship with Valve. The Court noted that the background to this finding was Valve’s ‘significant Australian context’.
    • In the case of representations made on the Steam website, although they were made to the world at large, by the time an Australian consumer had purchased a game or downloaded the platform, having provided their location as Australia, they had established a relationship with Valve and Valve’s representations on its website in Australia.

The big question for other foreign companies that do not have such significant connections to Australia, is whether purely entering into contracts to supply goods to Australians over the Internet will constitute conduct in Australia sufficient to attract the application of the ACL. If so, their international exclusion of liability terms may breach Australian law. The Federal Court did not address this question in the Valve litigation, but there is a significant risk that the ACL would apply in such circumstances.

The penalty case

On 23 December 2016, the Federal Court fined Valve Corporation in excess of $US2 million ($AU3 million) for its no refund policy. This penalty was very high, partly because of the size of Valve, the length of time over which the misrepresentations were made (over 3.5 years), its poor compliance culture and its lack of contrition. However, it was not surprising. False or misleading representations as to goods or services carry a maximum penalty of $AU1.1 million for corporations and $AU220,000 for individuals for each contravention. Valve arguably had committed thousands of contraventions.

In addition to the multi-million dollar penalty, the Court ordered Valve to:

  • Post a Consumer Rights Notice on its website for 12 months, advising that the Court had found that it had engaged in misleading conduct contrary to the ACL and explaining the guarantee of acceptable quality.
  • Undertake a compliance program aimed at giving employees of Valve and others awareness of Valve’s responsibilities under the ACL.
  • Pay legal costs to the ACCC.

Trying to exclude all liability for, or refusing refunds for, defective goods is risky. Australian consumer laws can be substantially different to the equivalent overseas laws. If an overseas company is dealing with Australian consumers, or supplies non-consumer goods worth up to AU$40,000, it is advisable that its agreements and policies be reviewed for compliance with Australian laws.