Australian Regional Update - Games Industry Law Summit 2018

HWL Ebsworth Lawyers
Presented by Michael Boughey
3 May 2018
Australia Regional Update
Games Industry Law Summit

Topics
 Introduction to Australian law and games industry
 Consumer protection
 Loot boxes
 Privacy
 Tax on digital products
 Classification/censorship
 Encryption

Introduction to Australian law
3
 Federal system with multiple
jurisdictions
 Commonwealth
 Six states
 Two territories
 Law is descended from English
common law
 Now a combination of codified
and uncodified laws

Intellectual property
 Regulated by Federal legislation
 Copyright Act, Trade Marks Act, Patents Act, Designs Act
 Signatory to all major conventions and treaties:
– Berne Convention
– Paris Convention
– Patent Cooperation Treaty
– TRIPS Agreement
 Uniform Dispute Resolution Policy (UDRP)/Australian Domain Name
Dispute Resolution Policy (auDRP)
4

Games industry
 Retail market growing strongly
 Estimated revenue AU$3.23 billion (€2 billion) in 2017
 Digital sales vs retail sales: approximately 2:1
5

Local developers
 Pre-GFC: independents, work-for-hire, subsidiaries:
– Team Bondi (Rockstar): LA Noire
– Pandemic (EA): Star Wars: Battlefront, Destroy All Humans
– Krome: Ty the Tasmanian Tiger, Legend of Spyro
– 2K Australia (Irrational): BioShock series
– Blue Tongue (THQ)
 Now, few major studios, mostly indie/mobile:
– Halfbrick: Fruit Ninja, Jetpack Joyride
– Hipster Whale: Crossy Road / Disney Crossy Road
– Defiant Development: Hand of Fate
7

Australian wildlife
Eastern Brown Snake
Eastern Brown Snake (Psedonaja textilis) by Aaron Gustafson
www.flickr.com/photos/aarongustafson/1507112723/
Licensed (CC BY-SA 2.0) https://creativecommons.org/licenses/by-sa/2.0/
8

Australian wildlife
Funnel Web Spider
Spider 3 by Brenda Clarke www.flickr.com/photos/brenda-starr/3488032252/
Licensed (CC BY 2.0) https://creativecommons.org/licenses/by/2.0/
9

Australian wildlife
Saltwater Crocodile
Saltwater Crocodile(Crocodylus porosus) by Bernard Dupont
https://www.flickr.com/photos/berniedup/10106331165/
10

Australian wildlife
Blue-ringed Octopus
Greater blue-ringed octopus (Hapalochlaena lunulata) by Rickard Zerpe
https://www.flickr.com/photos/krokodiver/16219454856/
11

Australian consumer protection
Australian Competition and Consumer Commission
Welcome to the ACCC
We are Australia’s competition regulator and national consumer law champion
We promote competition and fair trading
12

Australian Consumer Law (ACL)
 Schedule 2 to the Competition and Consumer Act 2010 (Cth)
 Provides Australian consumers with a wide range of protections and
remedies
 Generally cannot be contracted out of
 Approach:
– Recognises that consumers are at a disadvantage dealing with
corporations
– Directly intervenes in the contractual relationship to add protection for
consumers
13

ACL Consumer guarantees
 Guarantees automatically apply to all consumer contracts for the
supply of goods or services
 Goods are guaranteed to (among other things):
– be of acceptable quality
– match any description or sample provided
 ‘Goods’ include software - whether supplied on a physical disk or
downloaded
 Similar guarantees for services
 Double risk:
– Exposure to consumer claims
– Prosecution by ACCC for misleading consumers about their rights
14

Consumer claims
 If goods fail to meet a guarantee, supplier will need to provide a remedy
 If ‘minor’ problem, supplier can choose repair, replace or refund
 If ‘major failure’, consumer can reject goods and choose refund or
replacement – or ask for compensation for drop in value
 Major failure:
– If a reasonable consumer would not have bought the goods if they had
known about the problem; or
– If the goods are significantly different from the description, sample or
demonstration model shown to the consumer
 Cannot exclude right to damages: consumers may also sue for any
reasonably foreseeable loss or damage suffered because of the failure
to comply with the guarantee
15

‘Misleading consumers’
 Suppliers who make a statement inconsistent with consumers’ rights
under the guarantees may contravene the ACL and be exposed to
penalties
 Making ‘a false or misleading representation concerning the
existence, exclusion or effect of any condition, warranty, guarantee,
right or remedy’
 Misrepresentations may happen anywhere: on website, in terms and
conditions, and in communicating directly with customers (eg help
desk)
 In particular: statements that ‘no refunds’ will be given should be
expressly and clearly qualified, at least to indicate that this may not
apply in certain jurisdictions due to local laws
16

ACCC actions – Valve and EA
 Australian Competition and Consumer Commission
 Government agency – administers and enforces the ACL
 Deliberately seeks to prosecute and win cases against high profile
corporations to set precedents and discourage misconduct
 ACCC succeeded in case against Valve for ‘no refund’
representations – AU$3M (€2M) penalty, orders to implement ACL
compliance program
 ACCC ‘raised concerns’ with EA concerning Origin – EA chose to
cooperate and gave legally enforceable undertakings not to make
misrepresentations, and to implement ACL compliance program
17

Warranty schemes
 Vendors may offer warranties, but must be in addition to consumer
guarantees
 Consumer guarantees still apply – must include statement:
‘Our goods come with guarantees that cannot be excluded under the Australian Consumer Law.
You are entitled to a replacement or refund for a major failure and compensation for any other
reasonably foreseeable loss or damage. You are also entitled to have the goods repaired or
replaced if the goods fail to be of acceptable quality and the failure does not amount to a major
failure.’
 Eg EA’s Great Game Guarantee:
– within 24 hours after first launch of the game; or
– within seven days from purchase, if not launched
18

Unfair contract terms
 Introduced 2016
 Contract terms that are ‘unfair’ are void
 A term is unfair if it:
– Would cause a significant imbalance; and
– Is not reasonably necessary to protect legitimate interests; and
– Would cause detriment to a party if applied or relied on
 ACL includes examples – clauses that permit one party to:
– Avoid/limit performance
– Terminate contract
– Vary contract terms or characteristics of product/service
– Interpret contract or determine when it is breached
19

Unfair contract terms
 Common terms at risk include rights of supplier to:
– Terminate user accounts for misconduct
– Unilaterally change contract terms
– Modify operation of game or items in game
– Withdraw services
 Law recognises that there may be a need for one-sided clauses, where
necessary to protect party’s legitimate interests – which may include
protecting revenue
 But necessary to ensure clauses don’t go too far in providing
discretions – ie should not permit supplier to act unfairly
 Limit to reasonable circumstances – or place overarching limit that such
rights and discretions can only be exercised to the extent necessary to
protect the legitimate interests of the supplier
20

Unfair contract terms – risks
 Term may be void and unenforceable – resulting in eg:
– Inability to enforce banning rule against an individual player
– Exposure to breach of contract claims from players previously banned
 ACCC may take action for declarations that terms are unfair
 Possible exposure to false and misleading representation claim if
supplier misrepresents enforceability of unfair contract terms
 From 2016, also applies to standard-form contracts with small
businesses (less than 20 employees) where upfront price is no more
than $300 000 or $1 million if the contract is for more than 12
months.
21

ACL jurisdiction issues
 ACL purports to apply to all corporations ‘carrying on business’ in
Australia
 Valve case:
– Held Valve was carrying on business in Australia – had 2.2M Australian
customers, plus local servers
– Software was being supplied in Australia – downloaded there
 Consumer guarantee legislation explicitly states that a term
purporting to substitute law of another country will not work
 Unfair contract terms law is less clear. May apply because supply is
in Australia – or even because terms applying law of another
jurisdiction is ‘unfair’
22

ACL penalties
 Currently AU$1.1 million (€660K)
 Increasing to greater of:
– AU$10 million (€6 million); or
– three times the value of benefit from misconduct; or
– if the court cannot determine the value of that benefit — 10% of the annual
turnover of the body corporate
 ACCC chairman, 2018:
‘We really need much larger penalties for big companies when they mislead
consumers as this can cause a lot of consumer harm and it has to be stopped
… For larger companies, we really need penalties of well above $100 million
(€60 million) for those companies to get the message that this is behaviour that
they should not be engaged in’
23

Loot boxes and gambling
 Gambling/gaming is regulated at state/territory level, as well as federal
 Different laws in different jurisdictions
 No cases
 Most commentary in the past suggests game items do not involve gambling – no
‘value’
 Star Wars: Battlefront 2 loot box controversy attracted attention
 Unofficial comments from a ‘strategic analyst’ – Victorian regulator:
– ‘We are currently engaging with interstate and international counter parts to progress
wider policy changes and to modernise and inform both Federal and State based
legislation’
– ‘… it is perhaps unfortunate for these companies that gamers have infiltrated most
areas of government; be assured that knowledgeable and interested parties are
undertaking a large body of work in relation to issues you noted. And if an avenue of
investigation or enforcement is found; then we will most definitely pursue it.’ (emphasis
added)
24

Privacy
 Privacy Act 1988 (Cth) – Federal legislation – comprehensive
requirements for protecting personal information, providing notices,
obtaining consents, maintaining privacy policies and compliance
programs etc
 Binds all private sector and not-for-profit organisations with an annual
turnover of more than AU$3 million (€2 million)
 Significant amendments in 2014, including increased extraterritorial
effect
 May bind foreign companies in relation to any activities they conduct in
Australia and dealing with personal information collected in or obtained
from Australia – even if they have no physical presence in Australia
25

Privacy: Data breaches
 Compulsory notification of data breaches – from February 2018
 Notification required when entity is aware that there are reasonable
grounds to believe that there has been a data breach likely to cause
serious harm to individuals
 Must promptly notify affected individuals and the Commissioner
 Notification must include a description of the data breach, the kind of
information involved, and how customers should respond
 Penalties for failure to comply: up to AU$1.8 million (€1.2 million)
26

Privacy: Disclosure overseas
 Australian Privacy Principle (APP) 8.1: entity disclosing PI overseas
must take reasonable steps to ensure that the overseas recipient does
not breach the APPs.
 However:
An APP entity may disclose personal information to an overseas recipient
without complying with APP 8.1 where the entity reasonably believes that:
– the overseas recipient is subject to a law, or binding scheme, that has the
effect of protecting the information in a way that, overall, is at least
substantially similar to the way the APPs protect the information; and
– mechanisms can be accessed by the individual to enforce that protection of
the law or binding scheme
 GDPR is most likely ‘substantially similar’
27

Taxation
 From 1 July 2017, Goods and Services Tax (10%) applies to digital
products such as streaming or downloading of movies, music, apps,
games, e-books, and services
28

Classification/censorship
 Australian Classification Board – Federal Government agency
 Classification (Publications, Films and Computer Games) Act 1995
(Cth)
 Games are submitted and the Board issues a classification (5 –
20 business days)
 Games may be edited and re-submitted
 Self-assessment possible using an authorised industry assessor –
streamlines process, but final decision remains with the Board
29

32 https://en.wikipedia.org/w/index.php?title=List_of_banned_video_games_in_Australia&oldid=781324380

Television broadcasting
 Content is self-classified by broadcasters in accordance with industry codes of
practice
 Free-to-air: Commercial Television Industry Code of Practice
 Pay TV: Australian Subscription Television and Radio Station (ASTRA) Code of
Practice
 Monitored by the Australian Communications and Media Authority
 Relevant to eSports broadcasting – time slots, advertising, profanity delays
 Codes updated in 2018 to restrict gambling promotions during live sports
broadcasts
 [Update in response to query: Content regulation of online streaming of eSports
is limited, but a consultation process is underway concerning regulation of
gambling advertising in online live sport coverage – see
http://hwlebsworth.com.au/consultation-on-draft-rules-for-gambling-ads-in-
online-live-sport/]
33

Encryption
 Australia is proposing to ‘introduce legislation to ensure companies
providing communications services and devices in Australia have an
obligation to assist agencies with decryption’
 Cooperating with US, Canada, UK, and New Zealand
 No details of timing, content of legislation or how technical obstacles
will be overcome
34

Contact
Michael Boughey
Special Counsel
P +617 3169 4741
E mboughey@hwle.com.au

Australian Regional Update - Games Industry Law Summit 2018

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