A court has handed Blockbuster a preliminary defeat in a potential class-action lawsuit filed as a result of its participation in Facebook's ill-fated Beacon ad program, which notified members about their friends' e-commerce activity.

U.S. District Court Judge Barbara Lynn in Dallas ruled that the case could proceed in court even though Blockbuster's contract with users calls for any disputes to be heard by an arbitrator rather than in court, and also says that users waive their right to file a class action lawsuit.

Lynn determined that Blockbuster's contract with users was "illusory" because the agreement said that movie rental store could change the terms and conditions at any time.

A Blockbuster spokesperson declined to comment on the case or state whether the company will appeal.

The decision is a blow to Blockbuster because individual consumers would have had a difficult time bringing cases one-by-one against the company. But the decision paves the way for attorneys to argue that all consumers affected by Blockbuster's participation in Beacon should be able to proceed as a class.

Internet law expert Venkat Balasubramani said Lynn's decision invalidating Blockbuster's user agreement was potentially far-reaching because many Web companies reserve the right to make changes to their terms of service. "It seems broad and could have impact on the terms of service used by a lot of different companies," he said.

In the year-old lawsuit, Dallas County resident Cathryn Elaine Harris alleged that Blockbuster violated the federal Videotape Privacy Protection Act by sharing information about her movie rentals and sales with Facebook without first obtaining her written consent.

Harris is asking for at least $2,500 for each violation of the statute, a law 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 of 2007, the program operated by default. Unless members opted out, information about which Blockbuster movies they rented was sent to other Facebook users.

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