• Privacy Class Action against Blockbuster Advances
  • June 19, 2009
  • Law Firm: Manatt, Phelps & Phillips, LLP - Los Angeles Office
  • A court has denied a motion by Blockbuster to dismiss a possible class action lawsuit over its participation in Facebook's Beacon ad program, which alerted members to their Facebook friends' online retail activity.

    The federal district court in Dallas ruled that the lawsuit against the movie rental chain could go forward, rejecting a claim by Blockbuster that its user contract required disputes to be arbitrated, and waived users’ rights to file a class action lawsuit. The court found the agreement was "illusory" because it authorized Blockbuster to change the terms and conditions at any time.

    The decision paves the way for the plaintiffs’ attorneys to argue that the case should proceed as a class action including all consumers affected by Blockbuster's participation in Beacon. It also has potentially broader repercussions for any company that reserves the right to unilaterally make changes to its terms of service in its agreement with consumers.

    The complaint against Blockbuster alleges that the company violated the federal Videotape Privacy Protection Act by providing Facebook with information about users’ film rentals and purchases without first obtaining written consent. It demands at least $2,500 for each violation of the law, which Congress passed in 1988 after a newspaper obtained the video rental records of U.S. Supreme Court nominee Robert Bork.

    When Facebook launched Beacon in November 2007, the program operated automatically, meaning that Facebook collected and stored user data from Blockbuster and its other partners, then shared it with friends of users. A month later Facebook changed the program to allow members to opt out, so that Facebook would not store or share their information even if it was sent to Facebook by its partners.

    Why it Matters: This decision will likely be tested on appeal, but it speaks to the broader debate over the enforceability of online agreements that purport to bind users who cannot negotiate terms and may be unaware of the existence of a contract. Many judges are plainly uncomfortable strictly enforcing user agreements where there is a lack of bargaining power or insufficient notice. Businesses should consider carefully how they draft user agreements and communicate terms to their users, and whether they need to take additional steps to ensure the agreement constitutes a binding, enforceable contract.