Game over: overseas video game retailer ordered to pay $3 million for misleading Australian gamers

The Federal Court ordered an American video game giant to pay a $3 million penalty for misleading Australian consumers in a decision that sends a strong message to overseas traders to comply with the Australian Consumer Law.

Australian Competition and Consumer Commission v Valve Corporation (No 7) [2016] FCA 155

Valve Corporation (Valve) is an American video game developer and publisher best known for the first-person shooter series Half-Life, Counter-Strike, Team Fortress and Portal. It operates the online gaming platform “Steam” and has over 100 million subscriber accounts worldwide.

In March 2016, the Federal Court found that Valve had breached the Australian Consumer Law (ACL) by making false or misleading representations in its subscriber agreement and refund policy as to consumers’ rights regarding refunds of games that were not of acceptable quality.

On 23 December 2016, in Australian Competition and Consumer Commission v Valve Corporation (No 7) [2016] FCA 1553, Justice Edelman ordered Valve to:

• pay a pecuniary penalty of $3 million;
• not make any similar representations to Australian consumers for 3 years;
• publish a consumer rights notice on its website for 12 months; and
• establish and implement an Australian Consumer Law Compliance Program to be undertaken by each of its employees.

In determining an appropriate pecuniary penalty, Justice Edelman noted the following:

• The nature and extent of Valve’s contraventions were “significant“. The evidence indicated that the box signifying approval of the terms and conditions in Valve’s subscriber agreement had been ticked 24.9 million times by Australian consumers and “even if a very small percentage of Valve’s consumers had read the misrepresentations then this might have involved hundreds, possibly thousands, of consumers being affected“.

• Although there was no evidence that Valve’s contraventions caused profits to Valve or loss to consumers, “the misrepresentations were a significant part of Valve’s business process involved in making profits“. Valve obtained profit from Australian consumers who were entitled to a refund but were either deterred from seeking a refund or had been refused a refund and had then abstained from taking any further action.

• Valve had a “very poor” culture of compliance. It did not obtain legal advice about the applicability of Australian Law and held the view that even if it did obtain legal advice it might have ignored it. This lack of a culture of compliance “permeated from the levels of senior management“.

• Despite being one of the leading global online entertainment platforms for video games, Valve only had 325 employees, 324 of whom operated from a single office in Washington. “Valve’s streamlined size relative to its massive customer base means that its terms and conditions and policies assume considerable importance“.

• There was a distinct lack of mitigating factors to discount Valve’s penalty. Valve did not admit culpability and “there was no evidence that Valve was contrite for its contraventions“. Valve engaged in “extremely minimal levels of co-operation” with the ACCC, and “contested liability on almost every imaginable point, including jurisdictional issues“.

A question was raised as to whether Valve’s contravention of the ACL could be regarded as one or two courses of conduct. At a high level of generality, Valve’s conduct could be regarded as a single contravention stemming from its policy decision not to offer consumers an entitlement to refunds. At a lower level of generality, Valve’s misrepresentations appeared in two separate documents, which were provided to consumers at different stages of the transaction and could be thus regarded as two courses of conduct. Justice Edelman ultimately held that “the difference in characterisation makes little difference in this case…this was a case where there were potentially many thousands of contraventions“.

Justice Edelman considered that the $3 million penalty was appropriate if Valve’s conduct constituted a single course of conduct and that if there were two courses of conduct, then the penalty comprised a $2.2 million penalty for the misrepresentations in the subscriber agreement (which was acknowledged by Australian consumers 24.9 million times) and $800,000 for the refund policy (found on the Steam website). Moreover, the $3 million penalty was at a “meaningful level“; effective to act as a general deterrent.

His Honour also considered “the lack of a compliance culture within Valve” to be a particularly compelling justification to grant an injunction and require Valve’s employees to undertake an ACL compliance program. Valve reserved its rights to appeal.

This case, and the significant penalties imposed, sends a strong message to overseas online traders that they must comply with the ACL when selling to Australian consumers.