Insights Valve fine provides stark warning to digital distributors

Valve Corporation, the games developer and founder of the successful digital distribution platform, Steam, has been fined over $2.1 million dollars for breaching Australian consumer law.  The decision has potentially wide reaching implications for digital software and service distributors operating and dealing with consumers internationally and emphasises the need to seek appropriate advice when setting up business in new territories.

Steam, which generated revenue of approximately $3.5 billion in 2016, facilitates the distribution of a large number of gaming and eSports titles globally.  The Valve case focused on the Steam refund policy, or rather, the lack of one.  Under Australian law, consumers can receive a refund or replacement at their option if a product has a major fault and this right can not be excluded, restricted or modified.  This law applies to any business providing goods or services within Australia.  As a result, by selling to Australian consumers, Valve was bound by the relevant laws and was in clear breach of these despite having no physical presence in the country.

Laws requiring refunds are not particularly unusual but there are obviously significant commercial and practical difficulties in ensuring software is fault free or of a sufficient quality.  Despite these difficulties, Valve has, since June 2015, introduced a thorough refund scheme for all purchases via Steam.  Even taking this into account, the Federal Court still found that the relevant breaches of consumer law (which related to consumer transactions between 2011 and 2014) were significant enough to warrant the level of fine.

While $2 million is no doubt a drop in the ocean compared to the revenue Valve generates from Steam, it represents the maximum amount of fine requested by Australia’s competition regulator and demonstrates the disdain that the Federal Court Judge had for the US tech giant’s disregard of Australian law.  Valve had essentially pleaded ignorance, claiming it was not aware of the Australian laws as it had not taken legal advice before starting business in Australia.  This did not wash well with the court and effectively exacerbated the penalty that was ultimately issued.

Digital distribution, whether it’s of content or services, has now overtaken more traditional distribution methods and gives businesses the ability to quickly reach consumers directly anywhere in the world.  Valve’s Steam platform is not unique and neither is pro-consumer law, which exists in some form or another in many developed countries.  Many media, technology and gaming businesses operate platforms with similarities to Steam and this recent decision should prove to be a stark warning of the need to be aware of and comply with local laws when operating internationally.