Now you see it, now you don't: district court finds that reserving the right to change terms can make a contract illusory

In an important decision, a district court has ruled that a mandatory arbitration requirement in Blockbuster Inc's online contract was illusory and unenforceable against customers because Blockbuster maintained the right to modify the terms of the contract at any time. In its opinion in Harris v. Blockbuster, Inc., the US District Court for the Northern District of Texas refused to enforce the arbitration provision in Blockbuster's terms and conditions online user agreement because the agreement also included a provision that permitted Blockbuster to modify the terms of the agreement at any time and that the modifications would become effective immediately upon posting. In reaching its decision, the court relied on the fact that the Blockbuster agreement did not expressly state that modifications would apply only prospectively. A company that decides to keep a unilateral modification right in its online contracts pending future case law development should, at a minimum, take the following steps: limit the scope of the right and include a severability provision.