ADR picking up in internet and e-commerce law

ADR is particularly desirable in the context of e-commerce, because a lot of internet transactions involve relatively small amounts of money — even when they’re business-to-business transactions — which means litigation is not very useful. In theory, ADR solves geographical issues, reduces cost, and enables a speedier resolution.

For businesses, confidentiality is an important plus, as it keeps problems with their site, security system, etc. out of the media.

It also reduces a lot of the uncertainty inherent in going to court.
“The courts sometimes have not displayed a good understanding of e-commerce from a consumer perspective,” says Philippa Lawson, director of the Canadian Internet Policy and Public Interest Clinic.

“Because it often involves people in multiple jurisdictions, litigation [in internet disputes] is often very difficult. Where do you sue people? So alternative dispute resolution is useful,” says Erdle.
Of particular use are online dispute resolution programs, or ODR, says Erdle, which are a relatively new phenomenon in internet commerce.

For example, in 1999, eBay Inc., the operators of an online auction and shopping web site, introduced an online mediation program provided by SquareTrade, which attempted to resolve disputes between buyers and sellers. The idea was that the complaining party filled out a form identifying the other party to the transaction, what the problem was, and what they would like to happen.

Then SquareTrade contacted the second party through an automatically generated e-mail, and created a “case page” to which it and both parties had access. Then the buyer and seller contacted each other directly through the case page and negotiated online.

If they failed to reach an agreement, SquareTrade would select a mediator from its roster, who would look at the materials on the case page and attempt to facilitate a resolution. Users had nothing to lose by filing a complaint, as the process was free if they settled without the services of a mediator.

“I think online businesses in particular will learn that there is an advantage in having systems in place that create or improve trust in their system,” says Erdle.

“I just think that they will benefit in the marketplace. I think eBay already has benefited from its efforts to try to prevent ripoffs and to police its own system and to resolve disputes.

“As they learn how to do that more effectively, that will improve and that it will spread further. So I think there will be more.”

As another example, Cybersettle Inc. is an American ODR company operating in the field of insurance. It has used a blind bidding system, where the parties agree ahead of time if the offers fall within a certain range the dispute will end by splitting the difference. When the offers are far apart, the machine can keep the offers secret and negotiations can continue.

The dispute resolution mechanism for the domain-name resolution system, the uniform domain-name dispute resolution policy, offers another well-known and effective example, this time of an arbitration-based ADR system for settling online disputes.

“The reason the domain name system works is that everybody who registers a domain name has to agree to this process up front,” says Erdle. “Otherwise . . . you’d never get people to voluntarily do it if there was a dispute.”

A business-to-business online marketplace could adopt that model and, as part of its terms and conditions, impose a mandatory mediation/arbitration system that would be fairly effective, says Erdle, as could online networking sites such as Second Life or Facebook.

“They have different systems in place now, but they could certainly establish, if they wanted, a mandatory arbitration system, and it would be entirely internal to that world, but it would prevent what happens now if somebody has a dispute on Second Life with another participant.”

Online dispute resolution systems continue to change rapidly as the price of the software drops, he says, and to incorporate newer technologies, such as video conferencing.

“The systems that are in place now are showing people what works well, what doesn’t work so well. Those systems I think will be refined over time to make them more effective.