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Introduction to Online Dispute Resolution for Business

by Colin Rule
June 2002

Order at Amazon.com

Book Cover
“Computers were first born as arithmetic engines, but my own view, and the view of some other people as well, is that they’re much more interesting and powerful as communication devices because they mediate human-to-human communication.”

- Bob Taylor, creator of ARPAnet, the precursor to the Internet

Introduction

Disputes are a fact of life in business. Whether between buyers and sellers, manufacturers and suppliers, supervisors and employees, or business and government, conflict is inevitable when the interests of different parties collide.

There’s no way to prevent conflict from arising. In fact, businesspeople often benefit from conflict, as it can result in energy, motivation, productivity, and creativity. The challenge lies in managing conflict so that it doesn’t impede progress, or worse, destroy your capacity to achieve your business goals.

This book is for managers, employees, union representatives, and others who are looking for a better way to handle conflict in their businesses and organizations. If you’re in human resources, customer service, information technology, or the legal department, dealing with conflict is a big part of your job. Whether the conflict is inside a company (a workplace dispute, or a conflict between business divisions) or outside (a dispute with a supplier, or with a regulatory agency) businesspeople need to proactively engage disputes before they escalate if an organization is to stay on track and deliver its plan.

Organizations have traditionally dealt with disputes in a variety of ways, usually with little strategy or coordination. For workplace disputes, the matter is usually passed to the Human Resources department, if it’s dealt with at all. For buyer/seller disputes problems are often ignored until they get more severe, and then relationships are ended or lost to competitors. Insurance cases are put into a complex claims process where overburdened claims representatives attempt to resolve them. If any problem escalates beyond the point where it can be ignored, a lawsuit is often initiated. Once the decision is made to go to court, however, costs and tempers can easily spin out of control.

In the United States, courts are swamped with filings, cases routinely experience multi-year delays, and judges are overburdened. The systemic problems in the courts show few signs of improvement, as tens of millions of new cases are filed each year, driving the total yearly cost of litigation in the US to more than $200 billion. In many other parts of the world the problem is much worse, with longer delays, confusing legal requirements, and rampant judicial corruption.

The Growth of Alternative Dispute Resolution

More and more executives, managers, and general counsels are coming to recognize the inefficiencies inherent in resolving disputes through the courts. In response, a new field has grown rapidly over the last few decades: alternative dispute resolution. Fueled by research in effective negotiation and a desire to create a more efficient way to work out differences, a growing pool of professional dispute resolvers has created an alternative to the court system that enables disputing parties to resolve their disagreements much more rapidly and effectively.

Using mechanisms like mediation, arbitration, and expert evaluation, parties can resolve their disagreements in weeks instead of years. Discussions are confidential, parties can decide how much control over the process they want to retain, and participants are usually much more satisfied with the outcome than they would have been had they decided to go to court. The parties can select the person they want to serve as their neutral facilitator, usually choosing someone knowledgeable about the subject matter of the dispute, saving the parties endless hours of educating a judge. In complex, transboundary matters, dispute resolution allows the parties to resolve their matter without having to pay for endless legal analysis about which country’s law applies to each component of the dispute.

The Growth of Information Technology

At the same time that alternative dispute resolution is growing, businesses worldwide are rapidly integrating information technology into the ways they do business. The computer revolution that has taken place over the last twenty years, along with the emergence of the Internet as an always-on global marketplace, has transformed the face of business. Now project teams work over the Internet on round-the-clock cycles, and projects are outsourced to business units around the world without a second thought. Deals can be consummated with partners sight-unseen, with online marketplaces acting as the connectors between buyers and sellers. Companies that could only support a regional presence in the past are now confronted with the possibility of doing business all over the world. Whereas before the whole company could probably meet in a conference room to discuss open issues, now companies can almost never convene their whole office in a single room.

These two factors, dispute resolution and information technology, have combined into an important new tool, a new system, a new way of doing business which is more efficient, more cost effective, and much more flexible than traditional approaches. The tool is called Online Dispute Resolution (ODR), and it combines the efficiency of alternative dispute resolution with the power of the Internet to save businesses money, time, and frustration.

Online Dispute Resolution Meets the Needs of Modern Business

Online dispute resolution is not tied to geography, so disputants can reach resolution even if they are located on different continents. ODR can move to resolve matters before they escalate so that disputants can quickly resolve the matter and get back to business. ODR is not tied to particular bodies of law, so there is no need for each side to retain expensive legal counsel to learn the legal structure of the other side’s country. ODR can be priced much more reasonably than legal options, and even less than the cost of a single plane ticket. ODR can also leverage expertise from skilled neutrals around the world, ensuring that the participants will get a fair hearing from someone who has knowledge and experience in the matter at hand. ODR enables businesses, governments, and consumers to achieve the best resolution possible in the shortest amount of time.

These advantages apply to all kinds of disputes. Intellectual property disputes, insurance claims, and B2B and B2C e-commerce matters are all good fits with the power of ODR. Some disputes are over more abstract issues unrelated to money, like privacy or workplace conflict. For example, the Internet Corporation for Assigned Names and Numbers (ICANN) faced monumental problems when it decided to build a global process to handle domain name disputes. What courts should govern the matter? What laws should apply? No one country has the jurisdiction over domain names; it is a truly international system. ICANN solved the problem by creating a global domain name dispute resolution process, the UDRP, administered by a variety of ODR providers. Over the past three years this process has resolved thousands of disputes all over the world, none of which has ever been appealed in a courtroom. Similar ODR systems will soon be created for a wide variety of areas, such as insurance, commerce, privacy, government, workplace, and finance.

The New Challenge: Online Only Disputes

Many businesses are facing types of disputes they’ve never had to deal with before:

  • Transactions take place all over the world, sometimes between buyers and sellers that have never met face-to-face. Inevitably, one to three percent of these transactions will go awry. When you’re in the same town you can drive over and work the dispute out with the other side, or maybe take the matter to court if it gets complicated. How do you resolve a dispute with someone tens of thousands of miles away, who may not even speak the same language?
  • Internal work teams these days frequently interact entirely online, perhaps involving telecommuters or overseas partners. Projects are passed around the globe on 24-hour work cycles. Just like in the real world, workplace disputes can arise between the members of the group. But where is the workplace? How can those disputes get resolved before they escalate?
  • Companies put up a website and it can instantly be accessed all around the world. The website may gather information from users in dozens of countries, all of which have different laws regarding confidentiality and privacy. How can a company meet its obligations to respond effectively to user complaints when its users are on five continents?
In all these circumstances the monetary value under dispute may be less than the cost of convening the disputants in the same room, maybe less than the cost of a teleconference. It may even be that the value of the dispute is impossible to determine.

The online-only dispute is a new type of dispute. It can develop between businesses and customers, suppliers, regulators, and insurers. It can emerge between strangers or between partners. Almost any business that does business online will increasingly become entangled in these kinds of disputes. How should your business respond?

Courts do not work for online disputes

The court system may have its shortcomings, as pointed out before, but the rapid growth in online-only disputes has cast these shortcomings in even starker relief. Legal systems are tied to geography almost by definition. In the US, lawyers are only admitted to the bar on a state-by-state basis, facing penalties if they even offer legal advice to clients in other states. Enforcement of court decisions involves jails and police officers whose jurisdiction is similarly restricted to a limited geographical area.

It is obvious that transaction partners who meet on the web can take little comfort from the redress options provided in the face-to-face world. You can’t merely recreate offline judicial mechanisms online and expect them to work, with e-judges making e-rulings enforced by e-police running e-jails. The model doesn’t work, on a fundamental level, when participants in the system can change their identity as easily as they change their email address. It might work to hunt down the odd international criminal who shuts down the stock exchange with a virus, but there’s no way law enforcement is going to be able to get every fraudulent seller on eBay, especially when they may be on the other side of the planet.

The delays of face-to-face processes also hamper their applicability to online transactions. Over the web, consumers and businesses expect that any service they need should be available online, 24 hours a day. Courts, in contrast, have long been designed to involve delays, ornate filing requirements, and strict procedural rules, to deter potential users from being cavalier in their decision to file new cases. If two businesses engage in a transboundary transaction that goes awry they have no interest in waiting months for an offline dispute resolution body to initiate a process to resolve the dispute. They want to get the matter resolved as quickly as possible so that they can get back to business.

Simply put, offline courts do not work for online disputes. Courts can operate as an effective safety net for those cases that involve criminal wrongdoing, or where the parties are unwilling to use a non-public forum, or when they put the highest priority on due process and precedent. But for a huge number of cases that crop up online, where the value under dispute is less than likely legal bills, or where both parties truly participated in the transaction in good faith, online dispute resolution is the best solution.

The Growing Consensus Behind ODR

In response to these conclusions, the consensus behind online dispute resolution is growing rapidly. International organizations (The OECD, The Hague Conference on Private International Law, the United Nations), consumer groups (The Trans-Atlantic Consumer Dialogue, The Better Business Bureau), governmental bodies (The US Federal Trade Commission and Department of Commerce, the European Union), professional associations (The Association for Conflict Resolution, The American Bar Association, and the American Arbitration Association) and business organizations (the Global Business Dialogue on E-Commerce, the International Chamber of Commerce) have all issued recommendations calling for high quality online dispute resolution. While there is some debate about how to ensure that online dispute resolution services are fair to consumers, or how best to oversee online dispute resolution service providers, there is no debate over whether or not online dispute resolution is the best option for providing redress on the Internet.

Online dispute resolution is the future. Businesses that integrate it into the way they do business will reap rewards in the form of greater efficiency, cost savings, more satisfied employees, protection from liability, and more loyal customers. Those businesses that ignore it will continue to be drawn into expensive and inefficient legal proceedings that breed ill will and sap competitive strength.

The Goal of this Book

ODR for Business is designed to inform the senior management, general counsels, and risk managers of large companies and start-ups alike about the benefits of using Internet-based dispute resolution to resolve disputes before they escalate. It is intended to provide businesspeople with the information necessary to begin integrating ODR into the way their organization operates.

There is no way that a single volume could contain all the lessons organizations will learn in the process of implementing an effective ODR system. The goal of this book is to provide enough information to get businesspeople thinking about how ODR could benefit their organization, to give a snapshot of the current global environment for ODR, and to provide some pointers and suggestions to help get the process started.

Plan of the Book

This book explains what ODR is, shows its application in some major industries, and describes how to build effective ODR services into the way your business does business.

This book’s organization separates out background information on ODR from details of its application in a variety of industries. Every reader should read Section 1 to get information about what ODR is and what advantages it offers. Then readers can pick and choose in Section 2 which industry areas they are interested in. Section 3 presents information useful to businesspeople building their own ODR systems, or even evaluating third party ODR providers. It details the technology underlying ODR systems and offers specific implementation suggestions.

Section 1 presents the background information newcomers to ODR need in order to understand what it is and how it works. Chapter 1 begins with the development of ADR and its successful application in business. It also describes the development of ODR and the current landscape for ODR. Chapter 2 then explains how ODR works, examining the different techniques for resolving disputes. Chapter then 3 lays out ODR’s advantages for parties, neutrals, and corporations, and answers frequently asked questions.

Section 2 analyzes the application of ODR in a variety of business contexts. Each chapter (4 through 12) explores a particular application area for ODR: B2C and B2B e-commerce, insurance, workplace, government, privacy, workplace, and transboundary disputes, as well as others. Readers can refer to the section that most interests them and feel free to skip sections that may not be applicable to their situation. Each chapter is intended to be free-standing, so none of the information in any one particular chapter is required to understand the other chapters in section 2.

Section 3 explores how ODR is actually done. This is the section of most importance to those looking to build an ODR platform from the ground up. Chapter 13 presents the key points to be examined in any ODR implementation, with issues to look out for and core design considerations. Chapter 14 explores the details of one particular ODR platform, Resolution Room, with a non-technical discussion of the technology and screen shots illustrating how each principle can be implemented. Chapter 15 gives a description of the different standards for ODR practice that have come out of organizations, task forces, and conferences over the last year, as any ODR platform designer should be cognizant of the standards that might govern their system in the future. Chapter 16 offers best practices distilled from Online Resolution’s experience, as well as the experience of some other ODR providers.

Biography


Colin Rule has worked at the intersection of technology and conflict resolution for the last two decades. He is CEO of Modria.com, an online dispute resolution service provider in Silicon Valley, and a non-resident Fellow at the Center for Internet and Society at Stanford Law School. From 2003 to 2011, he served as eBay and PayPal's first director of Online Dispute Resolution, designing and implementing systems that now resolve more than 60 million disputes each year. Mr. Rule is the author of Online Dispute Resolution for Business, published by Jossey-Bass in September 2002. He has presented and trained around the world for organizations including the U.S. Department of State, UNCITRAL, the International Chamber of Commerce, and the CPR Institute for Dispute Resolution, as well as teaching at UMass-Amherst, Stanford, Southern Methodist University, and Hastings College of the Law. He has written and been interviewed extensively about the Internet since 1999, with columns and articles appearing in ACResolution, Consensus, Dispute Resolution Magazine, and Peace Review. He holds a master's degree from Harvard University's Kennedy School of Government in conflict resolution and technology, a B.A. in peace studies from Haverford College, and he served as a Peace Corps volunteer in Eritrea from 1995-1997.



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Website: www.modria.com

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