Steam-powered penalty for Valve’s online games
Following an earlier finding on 24 March 2016 (see our blog post here) that Valve Corporation (Valve) had made false and misleading representations in its consumer agreements and refund policies, the Federal Court of Australia has now ordered Valve to pay a pecuniary penalty of $3 million. The Court also made orders restraining Valve from engaging in similar conduct in the future, requiring it to establish an Australian Consumer Law Compliance Program, and publish a notice on its website regarding consumer rights in Australia.
Valve is a software company based in the United States that operates an online computer game platform called ‘Steam.’ With over 100 million subscribers worldwide during the relevant time period, the dispute related specifically to the entitlement of Australian consumers to refunds under the Steam Subscriber Agreement (SSA) and the Steam Refund Policy (SRP).
In essence, Valve had represented to consumers in the SSA and SSP that it was not obliged to offer a refund in circumstances where it was in fact required to do so under the statutory consumer guarantees provided for under the Australian Consumer Law (ACL). Section 29(1)(m) of the ACL prohibits false or misleading representations concerning “the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy” (including the consumer guarantees under the ACL).
Interestingly, $3 million was the precise amount sought by the ACCC, and significantly higher than $250,000, which was the figure submitted by Valve to be the appropriate penalty. Notably, Valve’s own counsel accepted during the hearing that $250,000 was “next to nothing” for a corporation of Valve’s size.
The Court’s reasoning
In making their submissions on penalty the parties focussed on seven different factors, each of which was addressed by the Court:
Edelman J’s decision as to the appropriate total penalty (which Valve may still appeal) did not turn on the representations in the SSA and SSP being characterised as a particular number of individual contraventions, or a number of separate courses of conduct. He did note however that, if required to specify other than one course of conduct, he would consider it appropriate that the $3 million penalty comprise $2.2 million for the SSA contravention and $800,000 for the SSP contravention.
In arriving at the total penalty figure, Edelman J pointed out the difficulty in relying on the level of penalties imposed in a very small number of allegedly comparable cases – this difficulty of “incommensurability” means that the utility of the other cases is “seriously restricted”.
Having said that, his Honour agreed with some comparisons drawn by the ACCC to the Federal Court’s decision in Hewlett-Packard. In that case, a penalty of $3 million was ordered against another large company for misrepresentations concerning remedies available to consumers.
The Valve case is one of a number of recent examples where the ACCC has made use of the prohibition on false or misleading representations as a mechanism to secure penalties against parties in relation to conduct breaching other provisions of the ACL that do not attract penalties, such as the general prohibition on misleading or deceptive conduct, the consumer guarantees, certain product safety provisions and unfair contract terms provisions.
Even though only a very small proportion of overall Steam subscribers were located in Australia in the relevant period, the judgment serves as a warning to other large overseas businesses carrying on business in Australia that a proactive, rather than simply reactive, approach to compliance with the Australian Consumer Law will assist in avoiding breaches of the ACL and the significant penalties that can follow.
The ACCC had previously appealed Edelman J’s judgment on penalty in the Reckitt-Benckiser case, with the Full Court ordering a penalty of $6 million (the amount sought by the ACCC) in place of Edelman J’s original figure of $1.7 million. The judgment will be one of Edelman J’s last as a Justice of the Federal Court of Australia, before he is sworn in as a Justice of the High Court of Australia on 30 January 2017.