I bet a lot of lawyers are scratching their heads over the court's decision in Harris v. Blockbuster, which declared Blockbuster's online terms of use to be an "illusory contract" and hence unenforceable.
Blockbuster asserted the arbitration clause in its terms of use -- terms that were assented to via a mouse-click -- against plaintiffs who claim that Blockbuster violated the Video Privacy Protection Act by transmitting information about their movie rental choices to third parties through Facebook's "Beacon" marketing program.
The problem identified by the court was that Blockbuster's clickwrap deal was unilaterally modifiable by Blockbuster. This aspect of the contract made it illusory, the court said, according to the reasoning in Morrison v. Amway Corp., 517 F.3d 248 (2008), a Fifth Circuit decision holding that Amway's contract with its distributors was illusory because Amway reserved to itself the right to unilaterally modify all aspects of its deal with the distributors by publishing notice of the changes.
The Harris court wrote:
The Court concludes that the Blockbuster arbitration provision is illusory for the same reasons as that in Morrison. Here, as in Morrison, there is nothing in the Terms and conditions that prevents Blockbuster from unilaterally changing any part of the contract other than providing that such changes will not take effect until posted on the website. The Court concludes that the Blockbuster arbitration provision is illusory for the same reasons as that in Morrison. Here, as in Morrison, there is nothing in the Terms and Conditions that prevents Blockbuster from unilaterally changing any part of the contract other than providing that such changes will not take effect until posted on the website.
The Harris court is really swimming against the tide here. I am not aware of any court that has found an online contract to be illusory because it is subject to unilateral modification by the Web site operator. (In fact, the doctrine of illusory contract is a rare bird, seen almost always in the area of employer-employee disputes). In online contracts, courts have mostly upheld click contracts. Those that have invalidated them did so for (1) unconscionable terms, (2) lack of notice of terms, particularly notice of changed terms, and (3) lack of indicia of assent to contract terms.
Until I read the Harris decision, I would have guessed that Blockbuster had done all that is required by prior e-contracting decisions: it told users that the contract terms could be modified, it told them where the proposed changes would be posted, and it told users that continued use of the Blockbuster Web site would be treated as indicating assent to the modified contract terms. In theory, a Web site like Blockbuster, which requires a sign-in prior to use, ought to have an easy time making a valid contract or contract modification.
A careful lawyer might have tightened the deal up a bit, by
giving users the URL for proposed contract modifications,
sending an e-mail to registered users notifying them of proposed modifications,
periodically reminding users of the contract's terms via e-mail and at sign-in,
providing that material contract modifications were prospective-only,
clearly spelling out to users that they had the right to cancel their contract with Blockbuster if they did not agree to the contract terms and/or modifications, and
toning down the harshness of the contract language a bit (C'mon, Blockbuster, have mercy on the attorney who has to go to court and defend this unnecessarily overbearing thing.).
But none of this would have helped here, would it? That is, assuming that the court meant what it said: that the mere fact that Blockbuster inserted contract language giving it the right to unilaterally change its deal with users made the contract illusory. No amount of online notice and hand-holding could have saved this contract, given the court's take on illusory contracts. I am having trouble understanding how, given this view of the law, an online business could ever modify its terms of use. Give the user a similar right to modify the contract? That way leads to chaos. Blockbuster gave the plaintiff the only choice courts have ever said was necessary: Take it or leave it.
There is another discussion of this case at Venkat's Spam Notes blog, where I first read about it. I agree with Venkat that there are a lot of contracts out there on the Web that resemble the ill-fated Blockbuster deal. The Fifth Circuit is going to have to sort this one out. Plaintiffs will have a tough time getting this ruling affirmed.
The case is Harris v. Blockbuster Inc., No. 09-cv-217 (N.D. Tex. April 15, 2009.
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