Summary Of Public ADR Workshop

TABLE OF CONTENTS

INTRODUCTION

OVERVIEW

FINDING GLOBAL SOLUTIONS

Language and Cultural Barriers
Unfamiliarity
Government Approaches
Substantive Legal Rules

PURSUING TECHNOLOGICAL INNOVATION

New Options
Efficiency
Security
Challenges

PURSUING MULTIPLE TYPES OF ADR PROGRAMS

ENSURING FAIRNESS AND EFFECTIVENESS

Impartiality
Cost
Accessibility
Transparent Disclosures
Timeliness
Binding v. Non-Binding

CONSUMER AND BUSINESS EDUCATION

ACTION AGAINST FRAUDULENT OR DECEPTIVE PRACTICES

CONCLUSION

ENDNOTES

Introduction

The electronic marketplace, which has opened the door to international business-to-consumer transactions on an unprecedented scale, has created enormous benefits and efficiencies. For consumers, it offers 24-hour access to sellers around the globe; for businesses, it offers access to a worldwide market. This online marketplace also has created challenges; among them, how best to resolve disputes involving cross-border consumer transactions. Consumers must be confident that they will have access to redress for problems arising in the online marketplace. In many instances, consumers face unique difficulties in resolving problems arising from online transactions, such as language and cultural differences, inconvenience and expense that may result from the distance between the parties, and problems with litigation, including difficulties in establishing jurisdiction, determining the applicable law, and enforcing judgments. In addition to facing similar burdens, businesses must determine where they could be subject to jurisdiction and which laws might apply to them, which could significantly increase the cost of doing business online. Alternatives to litigation are needed if participants in this new marketplace are to have confidence that they will have access to redress when transactions go awry.

One way to address business and consumer concerns regarding dispute resolution for online transactions is to develop effective programs for alternative dispute resolution ("ADR"). ADR refers to out-of-court methods for resolving disputes, including negotiation, mediation and arbitration.⁽¹⁾ To explore ADR for online consumer transactions, the Federal Trade Commission ("FTC") and Department of Commerce ("DOC") hosted a public workshop on June 6-7, 2000. Over 120 representatives from academia, consumer groups, industry, and government filed 47 comments⁽²⁾ and attended the workshop. Participants⁽³⁾ examined existing and developing ADR programs, incentives and disincentives to use ADR, how to make ADR fair and effective, and the roles of stakeholders, including consumers, businesses and governments, in developing and implementing ADR programs.

This report summarizes the issues identified at the workshop and the common themes that emerged. It also highlights areas where there appears to be general agreement, as well as the areas that need further consideration.

Overview

In general, there was broad support among workshop participants for the development of ADR programs to resolve online global disputes in consumer transactions.⁽⁴⁾ Participants recognized ADR's many benefits. For example, while courts are inherently rooted in a particular location and based on notions of territorial jurisdiction,⁽⁵⁾ ADR programs can facilitate resolution of disputes for parties who do not live in the same jurisdiction and do not live close to the same courthouse.⁽⁶⁾ An online ADR program could resolve disputes between a Kansas consumer and a Korean business, just as it can resolve disputes between parties located next door to each other. ADR programs also can be simpler, quicker and less expensive than courts.⁽⁷⁾

Specifically, workshop participants agreed that continued cooperation among stakeholders, including businesses, consumer representatives and governments, is essential.⁽⁸⁾ Participants recommended stakeholder cooperation in each of the following areas:

• Finding global solutions to address global transactions: This process is already underway. Several companies are pursuing multilingual ADR mechanisms and international partnerships for conducting ADR.⁽⁹⁾ Some businesses, consumer groups, and governments already have begun cooperative activities in the ADR field.⁽¹⁰⁾
• Pursuing technological innovation: The workshop showcased the dozens of emerging ADR providers, which have taken advantage of various technologies to provide new options to consumers. Participants agreed that industry should continue to develop new ADR programs in consultation with consumer groups and to report to governments on their development.⁽¹¹⁾
• Pursuing multiple ADR programs: The workshop demonstrated that "one-size does not fit all" and that participants should work together to create different types of ADR programs suitable for different types of disputes.⁽¹²⁾ Already a variety of programs are developing, including blind bidding systems, online mediation and online arbitration.⁽¹³⁾
• Ensuring fairness and effectiveness of ADR programs: Participants agreed that stakeholders should work together to ensure that ADR programs are fair and effective.⁽¹⁴⁾ In ensuring fairness and effectiveness, stakeholders should make sure that ADR programs are impartial, free or low cost, accessible, transparent and quick.⁽¹⁵⁾ Participants disagreed on some specifics of these elements and how they operate in practice, as noted below. Workshop discussions also suggested that there should be a balance between fairness and effectiveness. For example, if too many procedural rules were added to a program in an attempt to make it fair, the program could be too expensive to be effective.⁽¹⁶⁾ Several groups such as the American Arbitration Association, the European Commission and the Better Business Bureau are working to promote fairness and effectiveness by developing codes of conduct for online ADR.⁽¹⁷⁾
• Consumer and business education: Participants agreed that all stakeholders should work together to promote consumer and business education about seal programs, codes of conduct and ADR.⁽¹⁸⁾ Forums such as the DOC/FTC ADR workshop can go a long way toward understanding the emerging ADR systems, exploring the many difficult issues in this area, and publicizing the availability of ADR for businesses and consumers.⁽¹⁹⁾
• Action against fraudulent and deceptive practices related to ADR: Companies have indicated support for working with law enforcement to combat fraudulent and deceptive ADR practices. Discussions are underway for ADR providers to refer complaints to law enforcement agencies.⁽²⁰⁾

Participants were not of one mind on four primary issues: (1) what rules of decision should apply to ADR programs (page 4); (2) the appropriate roles of governments and other stakeholders in ensuring the fairness and effectiveness of ADR programs (page 7); (3) whether ADR results should be public (page 10); and (4) whether ADR programs should be binding, mandatory or voluntary (page 10-11).

Finding Global Solutions to Address Global Transactions

Even though ADR can transcend geographical barriers, there are other potential barriers to successful dispute resolution. For example, language and cultural barriers could exist.⁽²¹⁾ Consumers could lack confidence in unfamiliar ADR programs located in a foreign country.⁽²²⁾ Moreover, if countries have substantially different regulatory frameworks for ADR, businesses and ADR providers could choose to avoid learning a patchwork of regulatory schemes and restrict their programs to domestic consumers.⁽²³⁾ Finally, in cross-border disputes, it is unclear what substantive legal rules should govern ADR programs.⁽²⁴⁾ Workshop participants described activities underway to meet these challenges.

Language and Cultural Barriers

Several existing ADR providers are exploring options to overcome the language barrier.⁽²⁵⁾ eResolution offers services in both English and French.⁽²⁶⁾ SquareTrade has conducted a mediation in German and is conducting another mediation involving a Spanish-English translation.⁽²⁷⁾ Both SquareTrade and CyberSettle found it easy to locate skilled mediators around the world to conduct mediations in different languages.⁽²⁸⁾ iCourthouse plans to offer translation modules at their site.⁽²⁹⁾ Mediation and Arbitration Referral Service ("MARS") advocates the use of third-party interpreter services when disputes cross national borders.⁽³⁰⁾

Unfamiliarity

Another challenge to global ADR is that ADR providers located abroad could be unfamiliar to consumers.⁽³¹⁾ The Council of Better Business Bureaus ("BBB") suggested one solution: capitalizing on local name recognition and developing international partnerships among well-known ADR providers in different locations. To this end, BBB is exploring partnerships with other international groups.⁽³²⁾ In fact, BBB has entered into an agreement with a major privacy trustmark program in Japan, under which BBB and the Japanese program plan to roll out a new seal that could be placed on Web sites that meet certain standards.⁽³³⁾

Government Approaches

Yet another challenge to global ADR involves differences in government approaches for ADR.⁽³⁴⁾ Government participants at the workshop expressed their commitment to share information and participate in dialogues toward internationally compatible approaches.⁽³⁵⁾ European Commission representatives expressed their commitment to work closely with the U.S. government on ADR.⁽³⁶⁾

Substantive Legal Rules

A final challenge to global ADR is differences in legal rules governing consumer contracts: In cross-border cases, what laws should ADR providers apply to a given dispute?⁽³⁷⁾ Some participants focused on whether ADR providers should apply the law of the consumer or the law of the merchant to a particular dispute.⁽³⁸⁾ Other participants made creative suggestions for avoiding this question. For example, some suggested that mediation was more appropriate for cross-border disputes than arbitration because mediators do not decide cases based on a particular law; rather, parties themselves create a resolution.⁽³⁹⁾ Another participant suggested that mediators should explore the parties' respective interests and goals, rather than what rights they had under law.⁽⁴⁰⁾ Yet another participant said that ADR programs could have their own rules of decision, not necessarily based on a particular country's law.⁽⁴¹⁾ Finally, one participant suggested that an international common law of consumer protection could develop. He stated that in the domain name dispute resolution context, online ADR providers have decided over 400 cases, and new cases are relying on this body of precedent; the same could happen in the consumer protection context.⁽⁴²⁾

Pursuing Technological Innovation

Workshop participants recognized that technological innovation can enhance the benefits of ADR, especially for long-distance disputes, by providing new options, increased efficiency and enhanced security. Technology also poses new challenges.

New Options

Technology provides new ADR options for consumers.⁽⁴³⁾ Innovative online ADR providers demonstrated some of these options. For example, CyberSettle uses technology that can "split the difference" between blind offers and demands submitted through the Internet, generate state-specific settlement documents, and send money to a claimant within "a nanosecond" through smart card technology.⁽⁴⁴⁾ iCourthouse can perform a "mock trial" entirely online.⁽⁴⁵⁾ Online Disputes.org uses a fully automated system that allows member businesses to specify automatic dispute handling rules, so that the consumer can get an immediate response from the business tailored to the specific complaint.⁽⁴⁶⁾

Efficiency

Technology also can promote efficiency in ADR programs. For example, the BBB Autoline system saves time and money by receiving a growing number of complaints online and increasingly responding to consumers via e-mail.⁽⁴⁷⁾ Technological innovation can also assist in case management, by providing organized case pages, so that mediators and arbitrators can handle disputes in a cost-effective manner.⁽⁴⁸⁾ Finally, technology also can allow providers to build scalable solutions to accommodate different marketplaces and variable numbers of mediators.⁽⁴⁹⁾

Security

Technological innovation has resulted in an increased ability to keep information confidential.⁽⁵⁰⁾ Moreover, it can reassure consumers that companies are who they say they are. For example, by controlling its seal from servers located in a secure facility, SquareTrade ensures that people cannot simply copy the seal and post it on their Web site.⁽⁵¹⁾ Finally, technology also can provide consumers with greater access to information about ADR providers generally.⁽⁵²⁾

Challenges

Technology also poses challenges. For example, technology has eliminated the need for a face-to-face meeting. Some participants, however, suggested that offline mediation works well because of the personal interaction involved.⁽⁵³⁾ Accordingly, one participant suggested that it could be necessary to supplement online procedures with face-to-face meetings.⁽⁵⁴⁾ Other participants pointed out that technology itself can provide a solution: videoconferencing and webcasting could provide some face-to-face interaction.⁽⁵⁵⁾ Other participants disputed the necessity of face-to-face interaction, noting that technology could have a beneficial effect on ADR by "erecting a safety wall" and making the consumer less intimidated than he or she would be with a face-to-face interaction.⁽⁵⁶⁾ Moreover, the ability to conduct online mediation could lower the tension level between the parties.⁽⁵⁷⁾

Pursuing Multiple Types of ADR Programs

Workshop participants noted that different types of transactions will benefit from different types of ADR programs.⁽⁵⁸⁾ The workshop highlighted the emergence of many different ADR models suited for the online environment. Companies like Online Mediators, eResolution, and SquareTrade feature online complaint forms and third-party mediators who employ e-mail and organized case-development processes to mediate disputes between the parties.⁽⁵⁹⁾ Companies like CyberSettle, ClicknSettle, CyberSolve and Settlement Now have developed an entirely automated system for disputes involving cash settlements.⁽⁶⁰⁾ OnLine Disputes.org resolves disputes according to automated rules.⁽⁶¹⁾ And iCourthouse, an online jury trial system, allows parties to select a jury to decide their case in an entirely virtual courtroom.⁽⁶²⁾

Participants suggested that the costs and cost allocation of ADR programs should vary, depending on the transaction involved.⁽⁶³⁾ Several participants suggested that ADR programs addressing business-to-consumer disputes should be cheaper than ADR programs addressing business-to-business disputes.⁽⁶⁴⁾ Recognizing this difference, Online Mediators has two internal pricing models. For business-to-business transactions, dispute resolution costs are split between the parties. For business-to-consumer disputes, businesses pay an annual fee and refer all disputes to Online Mediators, with no charge for the consumer.⁽⁶⁵⁾

Similarly, several participants suggested that procedural rules should vary depending on the size and nature of the dispute. For small value disputes, fewer procedural rules would be appropriate and less costly.⁽⁶⁶⁾ One participant stated that procedural rules for ADR should depend on the parties involved. He suggested that there is a spectrum of disputes -- (1) disputes involving parties in positions of equal bargaining power; (2) business-to-consumer disputes; and (3) formal adjudications and arbitrations -- and that at the lower end of the spectrum, the fewer rules, the better.⁽⁶⁷⁾

Another participant stated that the amount of information provided to consumers could differ, depending on the type of ADR process involved. For example, a mandatory dispute resolution process requires more detailed disclosures than a purely voluntary process.⁽⁶⁸⁾

Yet another participant pointed out that entirely different forms of dispute resolution might be appropriate for different types of disputes: arbitration has worked in the domain name context, an automated negotiation process has worked for insurance disputes, and in the online auction context, mediation could be preferable.⁽⁶⁹⁾ This theme was echoed by MARS, an ADR provider that offers three different types of ADR services -- a traditional ADR program, a blind bidding settlement program, and a fast track online ADR program.⁽⁷⁰⁾

Finally, participants noted that internal mechanisms also exist to settle disputes. America Online's ("AOL") Certified Merchant Program is a self-described "dispute avoidance" program by which AOL guarantees to make the consumer whole if a dispute arises with any AOL- certified merchant.⁽⁷¹⁾ In another example, the online merchant eMusic stated that it settles consumer disputes simply by refunding the customer's money or replacing the products free of charge.⁽⁷²⁾ Participants suggested that these internal mechanisms could co-exist with third-party dispute resolution services.⁽⁷³⁾

Ensuring Fairness and Effectiveness

Participants agreed that, to build consumer confidence in ADR, ADR programs should be fair and effective.⁽⁷⁴⁾ This is especially important for online dispute resolution, where parties cannot personally evaluate the mediator, arbitrator or the other party.⁽⁷⁵⁾ Discussions at the workshop also suggested that there should be a balance between fairness and effectiveness. For example, if too many procedural rules were added to a program in an attempt to make it fair, the program could be too expensive or burdensome to be effective.⁽⁷⁶⁾

Although participants agreed that stakeholders should work together to ensure fair and effective ADR programs,⁽⁷⁷⁾ they disagreed on the appropriate roles for stakeholders in this area. Some participants expressed the view that governments should take the lead in developing a baseline set of principles to ensure that all ADR mechanisms have at least certain basic qualities in common.⁽⁷⁸⁾ These participants stated that allowing governments to set a "floor" for ADR guidelines would guarantee fairness and effectiveness in all ADR programs, even if many different ADR models emerge.⁽⁷⁹⁾ One such model in the United States is the Magnuson-Moss Warranty Act, which statutorily sets minimum requirements for dispute resolution programs addressing warranty disputes.⁽⁸⁰⁾

Other participants, however, cautioned against government involvement in establishing guidelines for ADR, stating that premature regulation by some governments⁽⁸¹⁾ and government-set guidelines could inhibit the development of innovative programs.⁽⁸²⁾ These participants asserted that private sector-led development of codes of conduct would be the best approach.⁽⁸³⁾

Some suggested government certification of ADR programs that met government-set accreditation criteria so that consumers easily could recognize which ADR programs were fair and effective.⁽⁸⁴⁾ Under this proposal, a government seal could be displayed on Web sites so that consumers would know which Web sites met the government accreditation criteria. Others were opposed to the idea of government certification on the basis that certification could hinder the development of innovative programs.⁽⁸⁵⁾

Participants generally agreed that ensuring fairness and effectiveness of ADR programs meant ensuring impartiality of the program, no or low cost to the consumer, accessibility, transparency and timeliness. They disagreed on definitions of some of these elements and how they operate in practice, as noted below. They also disagreed on whether binding or mandatory ADR programs could be fair and effective for consumers, as explained below.

Impartiality

Several participants stated that an essential element of fairness is impartiality.⁽⁸⁶⁾ Some participants stressed that ADR programs should not only be impartial in practice, but also in perception; consumers will lose confidence in an ADR mechanism perceived as biased toward business, whether that perception is accurate or not.⁽⁸⁷⁾ For example, ADR providers involved in a pilot project for eBay noted that many consumers equated the ADR providers with eBay, even though the Web site clearly stated that the providers were from the University of Massachusetts.⁽⁸⁸⁾ Conversely, the perception that courts are unbiased could be one reason the public has confidence in them.⁽⁸⁹⁾

One related issue discussed at the workshop was whether ADR providers should be "independent." Some suggested that impartiality could be achieved only where ADR systems are separate and independent from the business, operate in consultation with consumer organizations, and involve ADR personnel that have no direct interest in the disputes or parties involved.⁽⁹⁰⁾ Others suggested that the focus be more on impartiality than independence.⁽⁹¹⁾ For example, several participants noted that companies often provide internal customer service programs, and consumers know that it is the company that is providing the dispute resolution.⁽⁹²⁾ These participants stated that, even though such internal programs are not "independent," they still can provide fair and effective dispute resolution.⁽⁹³⁾

Although participants agreed on the importance of impartiality, they disagreed on how to ensure it. One participant stated that mediators and arbitrators should be accredited and trained to maintain their neutrality.⁽⁹⁴⁾ Others argued that neutrals should adhere to a set of minimum standards.⁽⁹⁵⁾ Another participant stated that neither standards nor accreditation was necessary; the market would gravitate away from biased ADR programs that did not enjoy consumer confidence.⁽⁹⁶⁾

Cost

Generally, participants agreed that ADR mechanisms should be available at low cost to consumers.⁽⁹⁷⁾ ADR will be ineffective if it costs more than the value of the dispute.⁽⁹⁸⁾ One key benefit of ADR, after all, is that it can be less expensive than the court system.⁽⁹⁹⁾ Consumers and businesses looking to ADR often are trying to avoid the prohibitive costs of the traditional court system.⁽¹⁰⁰⁾

Some participants sugge

Comments

The views expressed by authors are their own and do not necessarily reflect the views of Resourceful Internet Solutions, Inc., Mediate.com or of reviewing editors.