Harris v. Blockbuster

Concerning the Substitution of Privacy Rights by Arbitration

Background

In November 2007, social networking site Facebook launched its Beacon advertising program, which broadcasts a user’s interaction with an advertiser to the feeds of that user’s friends. Beacon broadcasts information from third party websites such as Overstock.com, Ebay, or Blockbuster. Facebook promises advertisers that all they need to do is “[a]dd 3 lines of code and reach millions of users.” The advertisers determine which user actions on their website — such as adding a movie to queue, or purchasing an item, or signing up for the site — will generate feed messages.

In 2008, Cathryn Elaine Harris, a Facebook user, filed a class action complaint in the District Court for the Eastern District of Texas, against Blockbuster for violations of the Video Privacy Protection Act. The Video Privacy Protection Act bans the disclosure of personally identifiable rental information unless the consumer consents specifically in writing. Harris claimed that Blockbuster violated this provision by reporting the rental activity of users to Facebook, without their permission, and even when the users were not logged into the social networking site.

Blockbuster sought to keep the case out of court by invoking an arbitration clause in its “Terms and Conditions,” which stated that “[a]ll claims, disputes, or controversies . . . will be referred to and determined by binding arbitration.” The Terms and Conditions further prohibited the commencement of class actions, and stated that it “may at any time, and at its sole discretion, modify these Terms and Conditions of Use, including without limitation the Privacy Policy, with or without notice.” Before joining Blockbuster Online, customers were required to click a button to confirm that they read and agreed to the Terms and Conditions, including the arbitration clause. Plaintiffs argued, however, that Blockbuster Online’s Terms and Conditions were unenforceable, because they were illusory and unconscionable.

On April 15, 2009, the District Court for the Northern District of Texas ruled that Blockbuster Online’s Terms and Conditions were unenforceable because they gave Blockbuster too much discretion in modifying the terms of the agreement. Following the reasoning in a Fifth Circuit case, Morrison v. Amway Corp., the court found that Blockbuster’s arbitration provision was illusory, because there was nothing in the Terms and Conditions that would prevent Blockbuster from “unilaterally changing any part of the contract.” As a result of the decision, the class action would remain in the court system.

Blockbuster filed an interlocutory appeal in the Fifth Circuit. In its appeal, Blockbuster raised three issues: (1) “whether the district court erred in considering Plaintiff’s claim that the change-in-terms provision rendered [Blockbuster’s Terms and Conditions] illusory, because challenges to the contract as a whole, such as this one, must be heard in the first instance by an arbitrator; (2) whether the change-in-terms provision does in fact render Blockbuster’s Terms and Conditions illusory; and (3) “whether Plaintiffs’ other attacks on the Arbitration Clause, which the district court did not address, lack merit.” Blockbuster ultimately withdrew its interlocutory appeal in February 2010 following a settlement with Appellees.

In a similar case brought against Facebook as a class-action lawsuit, Facebook entered into an agreement to end Facebook Beacon. Under the settlement terms, Facebook terminated Beacon and contributed $9.5 million towards the creation of a foundation dedicated to protecting online privacy. Despite objections, the 9th Circuit upheld the settlement and the Supreme Court declined to hear the case.

EPIC’s Interest

EPIC has a strong interest in protecting consumers and consumer privacy. Mandatory arbitration clauses, like Blockbuster’s, are becoming increasingly prevalent in consumer contracts. Such clauses can be found in the Terms and Conditions of your cell phone or credit card agreements. Mandatory arbitration clauses prevent consumers from bringing a claim against a company in court. If the company sues the consumer, the consumer is bound to arbitration board rulings and in many cases must waive his right to an appeal.

Mandatory arbitration clauses implicate privacy interests, as they prevent consumers from availing themselves of strong statutory protections already in place. In Blockbuster, Harris sued under the Video Privacy Protection Act, which provides for civil penalties of at least $2,500 per violation. However, Blockbuster’s arbitration clause would have prevented users from litigating claims in court, and as a result, benefiting from the Act’s privacy protections. Consumers simply do not have the same privacy rights in arbitration proceedings than in court proceedings, where they are protected by state and federal statutes.

The enforcement of mandatory arbitration clauses has been a topic of discussion in Congress lately. On July 22, 2009, the House Oversight and Government Reform’s Domestic Policy Subcommittee held a hearing to discuss the fairness of mandatory arbitration clauses in consumer contracts. The House Subcommittee on Commercial and Administrative Law held another hearing on September 15, 2009 to discuss the same issue.

There is also legislation aimed at prohibiting mandatory arbitration clauses in consumer contracts. The Arbitration Fairness Act, introduced by Rep. Johnson (D-Ga.), is currently in the House. The act, if passed, would end the imposition of mandatory arbitration clauses on consumers, but would allow for voluntary arbitration if both parties consent.

Legal Documents

Fifth Circuit Court of Appeals

• EPIC’s amicus curiae brief
• Plaintiffs-Appellees’ Brief
• Defendant-Appellant Blockbuster’s Brief
• Defendant-Appellant Blockbuster’s Notice of Supplemental Authority

District Court

• Plaintiff Harris’ Complaint
• Harris v. Blockbuster, No. 3:09-CV-217-M (N.D. Tex. Apr. 15, 2009) (Memorandum Denying Motion to Compel Arbitration)
• Plaintiffs’ Motion to Lift Stay
• Order Denying Plaintiffs’ Motion to Lift Stay

Articles

• Facebook to End Beacon Tracking Tool in Settlement,USA Today (September 21, 2009)
• Future of Mandatory Arbitration of Consumer Disputes in Doubt,ABA Litigation News (August 19, 2009)
• Consumer Alert: Beware of Mandatory Arbitration,ABC News (July 27, 2009)
• Blockbuster sued over Facebook ad Feature,USA Today (April 17, 2008)
• Blockbuster Sued for Participating in Facebook’s Beacon Program,MediaPost (April 17, 2008)

Related Resources

• EPIC’s Page on Facebook
• National Arbitration Forum Website
• American Arbitration Association
• Testimony of Lori Swanson Addressing Mandatory Arbitration Before the Domestic Policy Subcommittee
• National Association of Consumer Advocates Mandatory Arbitration Page
• Public Citizen Report: How Credit Card Companies Ensnare Consumers
• Mandatory Binding Arbitration Agreements: Are They Fair for Consumers?