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Court Strikes Down Online Terms Of Use As "Illusory"

May 4, 2009

Does your organization rely on online "click - through" agreements to set legal terms with customers or suppliers?  Have you reserved  the right to unilaterally modify those terms?  If so, a recent federal court decision could impact the enforceability of your agreement and each of its terms.

Cathryn Harris filed a lawsuit in the U.S. District Court for the Northern District of Texas against Blockbuster Inc. over Blockbuster's online movie rental service.  Blockbuster filed a motion to compel arbitration based on a clause contained in its online "Terms and Conditions of Use" that all registered Blockbuster Online users have to click through and agree upon in order to use the service.  Harris argued that the arbitration clause was illusory and unconscionable.

Like many online agreements, Blockbuster's Terms and Conditions of Use stated that Blockbuster "may at any time, and at its sole discretion, modify these Terms and Conditions of Use . . . with or without notice" and that a user's "continued use of this Site following such modifications will indicate your acceptance of these modified Terms and Conditions of Use."  The court concluded that this language allowed Blockbuster to unilaterally change any part of the contract at any time, therefore rendering the terms, including the arbitration clause, illusory and therefore unenforceable.

In light of this decision, organizations would be well served to examine the terms of their click - through agreements and revise any modifications clause that allows unilateral changes.  Acceptable alternatives may be to provide that any changes will take effect after a specified period of time during which the user has the right to object to the modified terms or to remove the clause entirely and require users to click through and accept the updated agreement.  To access the court's opinion, go here.