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Website terms were unenforceable because a provision on the right to change them in future was unqualified, a US court has ruled. Existing terms were 'illusory' because of the threat that future changes could apply retroactively, the court found.

A woman is suing video rental firm Blockbuster but the company said that its online terms and conditions require all disputes to be settled by arbitration. The woman, Cathryn Harris, went to court and won a ruling which said that the terms and conditions could not apply.

Harris is a customer of Blockbuster’s online rental service who uses social networking site Facebook. Facebook's ill-fated advertising system Beacon broadcast Harris's video rental activity to her Facebook friends. Harris objected and sued Blockbuster for passing on the details, but Blockbuster said that the suit breached the terms and conditions to which she agreed when she joined Blockbuster Online.

Its terms of use say that customers cannot sue it in court but must go to arbitration, and that they cannot take class action suits against it.

The US District Court for the Northern District of Texas has said, though, that Blockbuster cannot rely on any of its terms and conditions because a clause allowing it to alter them creates too much uncertainty for customers.

The terms said that Blockbuster could vary them at any time without giving notice, and that modifications would be effective upon being posted. They added: “You agree to review these Terms and Conditions of Use periodically and your continued use of this Site following such modifications will indicate your acceptance of these modified Terms and Conditions of Use. If you do not agree to any modification of these Terms and Conditions of Use, you must immediately stop using this Site.

The Court looked at a previous case in which Halliburton was allowed to keep its arbitration clauses because they specifically said that terms and conditions amendments could not apply retrospectively to pre-existing disputes.

"The Court concludes that the Blockbuster arbitration provision is illusory," said the judge, Barbara Lynn. "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."

"There are likewise no 'Halliburton type savings clauses', as there is 'nothing to suggest that once published the amendment would be inapplicable to disputes arising, or arising out of events occurring, before such publication'."

"The Blockbuster contract only states that modifications 'will be effective immediately upon posting,' and the natural reading of that clause does not limit application of the modifications to earlier disputes," she wrote.

"The Court concludes that the arbitration provision of the Blockbuster contract is illusory and unenforceable," ruled the Court.

A US court had previously ruled against a company that had changed its contracts online without telling customers. Talk America was told that it could not change the terms and conditions of its phone service's use without expressly notifying customers.

"Even if [the customer] had visited the website, he would have had no reason to look at the contract posted there," said the judgment, from Judges Kozinski, Gould and Callahan. "Parties to a contract have no obligation to check the terms on a periodic basis to learn whether they have been changed by the other side. Indeed, a party can’t unilaterally change the terms of a contract; it must obtain the other party’s consent before doing so."

"This is because a revised contract is merely an offer and does not bind the parties until it is accepted," said the ruling.

See: The ruling (6-page pdf)

Copyright © 2009, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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