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The Ambivalence of Self-Regulation in ODR

by Hotur Krishna Bharadawj
May 2017

The emergence of the Internet and the World Wide Web in the nineteen eighties has radically altered the way we communicate. The transformation is often referred to as disruptive and has changed the way we communicate and transact. The Internet has played a big role in globalization and brought the world closer. The development of electronic commerce (e-commerce) has transformed the retail ecosystem, especially in the business to consumer arena.

We can now shop from any place, at any time of our choice, and across geographies. While the convenience is widely acknowledged, online transactions can give rise to disputes much the same way that off-line transactions can lead to problems and disputes. The world of e-commerce is built on trust and to ensure that all parties concerned are adequately protected from uncertainty, it is imperative that there is a legal framework that assures certainty, fairness and the ability for disputes to be resolved. The problems become even more complex when a dispute is cross-border. As cross-border e-commerce transactions increase, the potential for cross-border e-disputes increase proportionately.

Online dispute resolution (ODR) was conceived as a means to achieve some of the broader objectives of providing a fair and accessible dispute resolution mechanism. The term is often used to refer to different forms of online Alternate Dispute Resolution (ADR) mechanisms. ODR is thought to supplement existing ADR methods to address disputes quickly and adequately using technology and the Internet.

ODR brings considerable advantages over traditional litigation. It empowers consenting parties to create their own agreements and provides a greater degree of control over the dispute resolution process and the decision. In addition, it allows transacting parties to select neutral third parties to arbitrate, particularly professionals who are experts in the subject matter of the dispute. Compared to the constraints of procedures and precedents that judges are compelled to follow, ODR methods offer flexibility of methods and also the freedom to not be represented by a legal practitioner.
ODR has given new hope but it still is a long way to go. Issues of jurisdiction, of expertise, of frameworks exist. However, there is a perceptible shift in judicial thinking.

While some developing nations, especially China have adopted ODR extensively, the results have been mixed. However, the enthusiasm is palpable. Still in its infancy in India, ODR is being used by the National Internet Exchange of India (NIXI), which follows the World Intellectual Property Organization (WIPO) Domain name dispute settlement mechanism. The establishment of e-courts on an experimental basis also points to an interest in exploring the use of digitization and the Internet as dispute settlement mechanisms. The recognition that judicial processes are slow, expensive, and complicated, especially in cross-border disputes, is encouraging the use of ADR.

At the peak of the Internet boom of the late 1990s, it appeared that ODR was developing at a satisfactory pace without the involvement of government. The easy availability of high-tech venture capital allowed ODR enterprises to appear and grow quite rapidly. Both governments and business stakeholders were anxious to foster marketplace competition. Many ODR providers called for a hands-off approach from government and argued that ODR services would “take root on their own.” Regulations were kept to a minimum in order to encourage new entrants and greater consumer choice. Self-regulation initiatives, such as codes of conduct or trust marks, were growing “slowly but steadily.” E-commerce industry was encouraged to build ODR into business practices but not required, or overseen, to do so. As reported by the UNCTAD Report, when the US government convened its first conference on ODR in June 2000 at the Federal Trade Commission, it was clear that “it was leaning toward industry self-regulation.” “In the freewheeling spirit of the Internet revolution, self-regulation seemed the logical course.”

Somewhat surprisingly, even when the Internet bubble burst, the regulatory approach to the ODR did not change. In 2002, it was – as noted by Colin Rule – “very hands-off”, and government agencies both in Europe and America “seemed to be content with self-regulation.” It is needless to say that the self-regulation approach has been always preferred by business wishing to avoid additional regulation whenever possible. Thus, while businesses have often supported the application of ODR, especially to B2C disputes, at the same time they have wanted “government to avoid getting involved.” As discussed by Rule, “businesses mostly want to implement ODR programs to shield them from liability and court proceedings”, for example, “many businesses are interested in binding arbitration with their consumers and business partners for exactly this reason. The fear of financial exposure in court is a formidable one. The fear of class action lawsuits is also formidable.”

The first doubts regarding the self-regulation approach were raised by consumer groups having a long history of disagreement with business interests. These doubts arose when some e-companies suggested that ODR be integrated into their e-commerce systems as a mandatory step: that is, disputants would have to engage in ODR before being permitted to go to court. Because most consumer groups were “steadfast in their demand that consumers must retain access to court”, they expressed their strong objections to such suggestions. As a result, consumer advocacy groups became willing to entertain the possibility of government intervention in setting and enforcing new standards for ODR. Then, not only consumer organizations, but also other not-for-profit entities, governments and international bodies raised concerns regarding the performance of ODR providers, particularly in the B2C context. The shortcomings had to do with the lack of transparency in the conduct of ODR providers, the lack of standards for ensuring the neutrality of providers and neutrals employed by them, the lack of appropriate complaint mechanisms, and the failure to accommodate cultural and linguistic differences (these deficiencies are explained in more detail in the next section of this paper).

Even when facing these clear deficiencies, ODR stakeholders and policy-makers did not decide to (or were not able to) take any decisive steps to correct the regulatory framework. By and large, their actions were limited to the sphere of norms. Diverse non-binding and unenforceable standards for ODR service provision have been issued. Among the organizations that have compiled these standards were the OECD, the G-8, the European Union, governmental agencies in Canada, Australia, Japan, New Zealand and the United States, the International Chamber of Commerce, the Better Business Bureau, the Global Business Dialogue, and the Trans-Atlantic Consumer Dialogue. On the one hand, it proves that the problem has really existed and attracted a lot of public attention. On the other hand, however, as noted by Rule, “it is easy to get lost in all of these different standards documents.” Their regulatory influence upon ODR practice appears debatable.

There are several reasons for governments to open the door to more aggressive regulatory involvement. The hands-off approach, in which the driving force is the power of the marketplace, has been unsuccessful in regulating online dispute resolution. The power and dynamics of the ODR market forces are currently weak. The hands-off approach could be potentially effective if the market had just emerged and many new players were appearing. This would be also an effective approach for a developed market where clients do derive benefits from real competition between businesses. Neither of these is however the ODR market of today. This is a market of insufficient information and limited client choice. ODR providers experience difficulties getting new cases. E-companies do not seek to attract more clients by offering them more convenient modes of dispute resolution.
It is safe to say that self-regulation does work at a certain level but nonetheless a national policy towards ODR is required which enables the ODR centres to work on pre-defined principles and values.

ENDNOTES:

Bygrave, L. A. (n.d.). ONLINE DISPUTE RESOLUTION – WHAT IT MEANS FOR CONSUMERS. Retrieved November 16, 2016, from http://folk.uio.no/lee/oldpage/articles/Bygrave_ODR.pdf
Cortés, P. (2011). Online Dispute Resolution for Consumers in the European Union. Oxon: Routledge.
Cortés, P. (n.d.). Online Dispute Resolution for Consumers. Retrieved from http://www.mediate.com/pdf/cortes.pdf
Cortes, P. (n.d.). Online Dispute Resolution for Consumers in the European Union . Retrieved June 16, 2016, from www.oapen.org/download?type=document&docid=391038www.oapen.org/download?type=document&docid=391038
Definition Task Force on Electronic Commerce and Alternative Dispute Resolution Task Force Draft March, 2. e. (n.d.).
Feliksas Petrauskas, E. K. (n.d.). ONLINE DISPUTE RESOLUTION IN CONSUMER DISPUTES. Retrieved June 14, 2016, from https://www.mruni.eu/upload/iblock/f96/8_Petrauskas_Kybartienht-1.pdf
Hörnle, J. (n.d.). Encouraging Online Dispute Resolution in the EU and Beyond- Keeping Costs Low or. Retrieved from http://www.e-lawyerassistance.com/ArticlesPDF/EncouragingOnlineDisputeResolutionintheEUen.pdf
UNCITRAL. (n.d.). Draft on Online Dispute Resolution . Retrieved July 15, 2016, from http://www.uncitral.org/pdf/english/workinggroups/wg_3/crp3-e.pdf

Biography


Mr. Sree Krishna Bharadwaj H. is a Ph.D. researcher at Online Consumer Mediation Centre, National Law School of India University, Bengaluru, India. He is an accredited mediator empaneled at Online Consumer Mediation Centre and Indian Institute of Arbitration and Mediation, Kochi, India. His academic qualifications include masters in law and post graduate diploma in human resource management.  



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