Regulations and Standards for Online Dispute Resolution: A Primer for Policymakers and Stakeholders (Part 2)

Part 1
Part 3
End Notes

INDUSTRY INITIATIVES

Numerous industry consortia have recently promulgated policy statements and
self-regulatory guidelines for business-to-consumer e-commerce. A principle goal of
these initiatives is avert or minimize governmental regulation. Another frequently
expressed purpose is to foster the consumer confidence necessary to realize the full
potential of electronic commerce. Most of these initiatives are limited to business-to-consumer e-commerce, however business-to-business initiatives have also recently
been announced. These self-regulatory guidelines primarily address marketing and
transactional issues such as truthful advertising, disclosure of terms, privacy, security
and protection of children. Many of these initiatives also include dispute resolution
provisions, which are a focus of this discussion.

International Chamber of Commerce (ICC),

Business and Industry Advisory Committee to the OECD (BIAC)

and Alliance for Global Business (AGB)

The International Chamber of Commerce (ICC) is a world business organization,
founded in 1919, with member companies in more than 130 countries. ICC promulgates
voluntary rules governing international business transactions that are observed in
thousands of transactions daily. An overview of a policy ICC is formulating on business-to-consumer alternative dispute resolution for e-commerce was presented at the
December 2000 Hague conference (Building Trust in the Online Environment: Business
to Consumer Dispute Resolution
, which ICC co-sponsored).(28) ICC is also represented
on the European Commission e-Confidence Core Group that is drafting guidelines for
accrediting codes of conduct and trust mark schemes.

The Business and Industry Advisory Committee to the OECD (BIAC) was formed
in 1962 and is officially recognized by the OECD as being representative of business
and industry. BIAC’s role is to provide the OECD and its Member Governments with
constructive comments based on the practical experience of the business community.(29)
The BIAC has issued many statements and reports on policy issues related to e-commerce, and represents the private sector in the OECD deliberations on these
issues.(30)

The Alliance for Global Business (AGB) is a coordinating mechanism of leading
international trade associations that represent the bulk of electronic commerce in over
140 countries. It represents a diverse cross section of industry, with a focus on high
tech manufacturers, service providers and information technology users. AGB was
formed to promote a unified, global industry voice to international organizations and
governments around the world. Its founding members include ICC and BAIC.(31)

ICC, BIAC, AGB and other industry organizations have published A Global Action
Plan for Electronic Commerce
, which is supported by many other national and
international industry associations. Fundamental Principles in the Action Plan call for
minimal government regulation and emphasize business self-regulation as the most
effective way of building confidence. The Action Plan advocates that development of
electronic commerce should be led primarily by the private sector, and that government
intervention should be no more than is essential. It also asserts that a high level of trust
should be promoted by adopting adequate dispute resolution procedures and by private
sector self-regulation.(32)

The Global Action Plan provides that the use of out-of-court settlement
procedures for consumers should be encouraged by government, while maintaining
court recourse as the ultimate solution.(33) Governments are also urged to encourage the
use of “self-regulatory dispute settlement mechanisms” while ADR providers implement
and test tailor-made voluntary systems appropriate for settlement of online disputes.(34)
Alternative dispute resolution and third-party schemes for compliance with self-regulation are advanced as possible solutions to problems with determining jurisdiction
and applicable law in cyberspace.(35)

Global Business Dialogue on Electronic Commerce (GBDe)

The Global Business Dialogue on Electronic Commerce (GBDe) is a CEO- and
Board Member-led initiative of more than 72 companies from diverse countries,
conceived in 1998. It’s mission is to work in cooperation with businesses, governments,
non-governmental organizations, private foundations, consumer organizations and
multilateral institutions to broaden the involvement of key stakeholders in creating an
environment to ensure that e-commerce can reach its full economic and social
potential.(36) GBDe members ABN-AMRO, America Online, Bertelsmann, Hewlett
Packard and Vivendi are all represented on the European Commission e-Confidence
Core Group. Other renown GBDe members include DaimlerChrysler, Deutsche Bank,
Eastman Kodak, Disney, Fujitsu, Hitachi, IBM, MCI Worldcom, Sharp, Time-Warner and
Toshiba.

The recent GBDe paper Alternative Dispute Resolution makes separate
recommendations to Internet merchants, ADR providers and governments concerning
ADR systems and government policy actions with respect to business-to-consumer e-commerce. The paper is reportedly based on practical experiences of many companies
and business associations, including private sector organizations offering online ADR
systems, and on contributions from government and consumer organizations.(37)

The GBDe recommendations to ADR Service Providers are most comprehensive,
and address impartiality, qualification of ADR officers, accessibility and convenience,
speed, cost for the consumer, transparency, adversarial procedure, rules of decision
and consumer awareness. Governments are encouraged to refrain from imposing
national or regional accreditation systems or criteria for self-regulation, which assertedly
distort competition between national and international ADR systems. Instead,
governments are encouraged to promote international self-regulatory principles and
rules that could be the basis for merchants’ and ADR providers’ declarations of
compliance. Other policy recommendations include promoting development of ADR
systems by the private sector and permitting consumers to voluntarily subscribe to
binding arbitration that excludes recourse to courts.(38)

GBDe signed cooperative agreements with the International Chamber of
Commerce (ICC) and the Business and Industry Advisory Committee to the Organization
for Economic Cooperation and Development (“BIAC”) in December 2000. ICC and BIAC
working parties will reportedly co-operate with GBDe working groups to share expertise
on all e-commerce issues, specifically including alternative dispute resolution.(39)

Electronic Commerce and Consumer Protection Group (“E-Commerce Group”)

America Online, AT&T, Dell, IBM, Microsoft, Network Solutions, Time Warner
and Visa U.S.A. have formed a coalition called the Electronic Commerce and Consumer
Protection Group (“E-Commerce Group”). The group seeks to promote consumer
protection by creating industry best practices and a predictable dispute resolution
framework.

The E-Commerce Group introduced Guidelines for Merchant-to-Consumer
Transactions
at the June 2000 FTC/Department of Commerce workshop.(40) The dispute
resolution guidelines state, in part: “Merchants should provide Consumers with fair,
timely, and affordable means to settle disputes and obtain redress.” Merchants are
encouraged to establish internal mechanisms to address consumer complaints, and may
contractually require consumer participation if notice is given at the time of the
transaction. Merchants are also encouraged to participate in reputable, independent
third-party dispute resolution programs, including online dispute resolution processes.
However, “third-party dispute resolution programs should encourage Consumers to seek
redress through a Merchant’s internal complaint mechanism prior to being granted
access to third-party dispute resolution programs.”(41)

Better Business Bureau and BBBOnline

The Better Business Bureau developed the Code of Online Business Practices
through an inclusive process that solicited comments through e-mail and at regional
meetings. The BBB Code is a self-regulation tool designed to foster consumer trust and
confidence and to guide online businesses in addressing important consumer protection
issues raised by e-commerce.(42) The Code enunciates five fundamental principles,
entitled Truthful and Accurate Communications, Disclosure, Information Practices and
Security, Customer Satisfaction and Protecting Children. Each principle is followed by
supporting details.(43)

The BBB Customer Satisfaction principle provides that online merchants should
seek to resolve customer complaints and disputes in a fair, timely, and effective manner,
and shall have an effective and easy to use internal mechanism for doing so. If a
complaint cannot be resolved, online merchants shall offer either an unconditional
money-back guarantee or third-party dispute resolution. Merchants that offer third-party
dispute resolution should use a trusted third party that offers impartial, accessible, and
timely arbitration which is free to consumers or at a charge to consumers that is not
disproportionate to the value of goods or services in dispute. Merchants should provide
customers with easy-to-find and understandable contact information for such third
parties, including a link (or similar technology) to the third party site.(44)

EuroCommerce

EuroCommerce identifies itself as the retail, wholesale and international trade
representation to the European Union. It’s policy priorities include encouraging “the
sound and fair development of electronic commerce in Europe and world-wide.”(45)
EuroCommerce has promulgated the European Code of Conduct for On-Line
Commercial Relations
, which addresses a broad spectrum of issues arising from online
commerce.

The European Code provides that in the case of a complaint, the customer must
first apply to the customer service made available by the company, which shall handle
the complaint within 15 days, unless extended by the company for up to 30 additional
days. If not satisfied with the reply, the customer is free to bring the complaint before
the body that the company indicates is in charge of settling litigation out of court.(46)

Federation of European Direct Marketing (FEDMA)

The Federation of European Direct Marketing (FEDMA) represents the direct
marketing sector at the European level. Its members include 12 national Direct
Marketing Associations in the European Union and those of Switzerland, Hungary,
Poland and the Czech and Slovak Republics, and approximately 400 direct company
members. FEDMA is dedicated to building the business of cross-border direct
marketing, and encourages European institutions to ensure a healthy commercial and
legislative environment within which the industry can operate and develop profitably.(47)

FEDMA has adopted the Ring of Confidence initiative to establish a
comprehensive self-regulatory system for electronic commerce. Self-regulation is
promoted as a means to minimize the need for excessive legal restrictions and as an
effective and dynamic alternative to detailed and static legislation. The Ring of
Confidence
includes a code of conduct, a consumer complaint resolution mechanism
and a guarantee seal, or trustmark.(48) (For discussion of the FEDMA trustmark, see
infra, page 18.)

The FEDMA Code on E-Commerce & Interactive Marketing, adopted September
5, 2000, addresses a breadth of transactional issues, including commercial offers,
contractual information, financial security, data protection, the protection of children,
monitoring and enforcement. Consumer Redress provisions state that marketers should
operate effective in-house complaint procedures, which should be confidential, free to
use and easy to access and operate. Every effort should be made to satisfactorily
resolve complaints within a specified time period, not to exceed 30 days. If a complaint
can not be satisfactorily resolved directly, the consumer should have redress to the
national Direct Marketing Association (DMA) or the equivalent body. If the marketer
adheres to a national e-commerce code of practice, it should inform the consumer of,
and abide by, the complaints redress procedure in that code. The marketer should also
inform the consumer of any alternative dispute resolution systems to which the
consumer can refer a complaint, without prejudice to the right to seek redress through
litigation.(49)

Electronic Commerce Promotion Council of Japan (ECOM)

The Electronic Commerce Promotion Council of Japan (ECOM) is an industry
association formed (in part) to make recommendations to the government and to
establish, maintain and manage international standards based on user needs. ECOM
recognizes “a growing trend among the global industrial community to meet to draw up
unified policy frameworks which transcend individual interests on various [e-commerce]
issues, to take a global perspective in making and practicing its own rules, and to make
specific recommendations to their respective governments.” ECOM believes Japan
must take a more independent, active and strategic role alongside Europe and the US in
drawing up the international rules of the digital community.(50)

ECOM’s Settlement Issues Study Sub-Workgroup is examining settlement
processes to clarify the responsibilities and rights of participants from a neutral, fair
perspective. The Sub-Workgroup’s 2000 Activity Plan included identifying settlement
processes, studying applicable methods and formulating rules that clarify the
responsibilities of trading participants in these processes.(51)

CONSUMER INITIATIVES

European Consumers’ Organisation (BEUC)

The European Consumers’ Organisation, BEUC, is the Brussels based federation
of independent national consumer organizations from all the Member States of the EU
and other European countries. It’s mission is to influence the development of EU policy
and to promote and defend the interests of all European consumers.(52) BEUC has been
active in promoting the principle that European consumers should be able to rely on the
same rights on-line as off-line.(53) It is one of the organizations represented on the
European Commission e-Confidence Core Group.

Transatlantic Consumer Dialogue (TACD)

The Transatlantic Consumer Dialogue (TACD) is a forum of approximately 65
consumer organizations that develops and advocates consumer policy
recommendations to the US government and European Union.(54) These governments
agreed to formalize and effectuate consumers’ participation in policymaking. TACD was
formed in 1998 to represent consumer interests alongside business, labor and
environmental groups at the Transatlantic trade negotiating table.(55)

TACD adopted a resolution providing that the EU and US should support the
establishment of minimum standards in electronic commerce, including effective
complaint mechanisms “offering at least the same levels of protection that would be
afforded in the off-line world.”(56) The OECD Guidelines for Consumer Protection in
Electronic Commerce
(agreed to by the US, the EU and the other Member States)
addressed some TACD concerns, but are considered too weak on other issues.(57)

TACD has issued formal recommendations that specifically address dispute
resolution for consumer e-commerce. Core Consumer Protection Principles in
Electronic Commerce
provides: “Consumers must have methods of redress that are
practical, accessible, affordable, timely and enforceable no matter where businesses
against whom they have complaints are located.”(58) Alternative Dispute Resolution in the
Context of Electronic Commerce
recognizes that ADR systems can offer many benefits,
but stresses that consumers must retain the right to resort to their countries’ courts.
Governments are encouraged to consider legislation promoting ADR systems that meet
certain standards but do not preclude other avenues of recourse. This Resolution
presents twelve principles that ADR systems should be based upon, including
accessibility, transparency, voluntariness, low cost, independence, personnel
qualifications and reporting of cases to a publicly accessible central clearinghouse.(59)

Consumers International (CI)

Consumers International (CI) is a federation of 260 consumer organizations in
120 countries, founded in 1960. It strives to defend the rights of all consumers, in part
by campaigning at the international level for policies which respect consumer
concerns.(60) At the 1998 OECD Conference on Electronic Commerce in Ottawa, CI
asserted the need for “effective complaint and dispute resolution procedures for
consumers, both within organizations and outside them.” It also advocated that voluntary
codes have a place, and need to be backed up with effective government regulation and
control.(61)

CI conducted an international survey and analysis of dispute resolution services
available to online consumers in August 2000, to identify where problems lie for
consumers and how they could be addressed by policy makers and ADR providers.
Thirty-six online dispute resolution (ODR) services were individually assessed against a
list of 38 criteria based on recommendations published by the European Commission
and the Transatlantic Consumer Dialogue. The study found that none of the services
fully satisfy the criteria for effective business-to-consumer online dispute resolution.
Common shortcomings included linguistic limitations, costs to consumers that were
disproportionate to the transaction values, lack of transparency concerning provider
credentials and process results, and lack of adequate consumer representation on the
provider’s governing board. The report makes a number of recommendations, including
speedy development of international standards for business-to-consumer ODR, third
party accreditation, monitoring and compliance assessments of such services, neutral
oversight mechanisms and making the results of ODR public.(62)

THIRD PARTY TRUSTMARK PROGRAMS

Trustmarks and Seals of Approval

Seals of approval or “trustmarks” are currently one of the chief mechanisms of
promoting consumer confidence and self-regulation in electronic commerce. In general,
independent organizations (Code Owners) establish standards (Codes of Practice) for
conducting e-commerce and certify that particular online businesses (Code Subscribers)
have met those standards. The Code Subscriber is then permitted to display the Code
Owner’s seal or trustmark on their web site, which is expected to improve customer
confidence. The Good Housekeeping Seal of Approval (established in 1909) is a classic
offline trustmark for consumer products.(63)

The level of consumer protection that trustmarks provide varies considerably,
depending on terms of the underlying Code of Practice, the certification, enforcement
and redress procedures and the Code Owner’s diligence and integrity. Code
Subscribers’ success in establishing consumer confidence also varies with the
recognition and credibility of the trustmark.

Trustmark programs are proliferating on the Internet, and vary considerably in
their terms and operation.(64) Some certify only particular aspects of online business,
such as privacy, while others certify a broad range of issues including advertising,
disclosures, contract terms and performance, security and protection of children. Most
include provisions concerning internal and/or third-party dispute resolution, and some
Code Owners provide or monitor dispute resolution services involving their Subscribers.
Some programs certify only that the Subscribers have accurately disclosed their own
policies, while others certify that Subscribers follow the Code Owner’s standards. There
is also considerable variation in the certification, monitoring and enforcement procedures
and the fees charged to the Subscribers. Select provisions of a number of trustmark
programs are described below, to demonstrate the variety and parameters of these
schemes.

BBBOnline

BBBOnLine is a wholly owned subsidiary of the Council of Better Business
Bureaus, with the mission of promoting trust and confidence on the Internet. The
BBBOnLine Reliability Program is described as helping Internet users find reliable,
trustworthy businesses online, and helping reliable businesses identify themselves as
such, through voluntary self-regulation. It is also promoted as helping to avoid
government regulation of the Internet.(65)

To display the BBBOnLine Reliability seal on their web site, participants
(Subscribers) must be a member of the Better Business Bureau (BBB), provide the BBB
with information regarding company ownership, management and location (which may
be verified in a visit to the physical premises), have been in business at least one year,
have a satisfactory complaint handling record with the BBB, agree to participate in the
BBB’s advertising self-regulation program, respond promptly to all consumer complaints
and agree to dispute resolution, at the consumer’s request, for unresolved disputes
involving consumer products or services.(66) Reliability participants must also agree to
both the Better Business Bureau/BBBOnLine Code of Online Business Practices (see
supra, page 12) and the BBBOnline Reliability standards and pay a license fee based on
the size of the company.(67)

BBBOnLine Reliability participants must pledge to offer dispute resolution through
the BBB or another dispute resolution provider that meets BBB standards. They agree
to participate in binding arbitration under BBB Rules of Arbitration if the consumer also
agrees, or in non-binding informal dispute settlement (IDS) under the BBB Rules for IDS.
A participant may pre-commit dispute settlement process through another provider if the
BBB determines the process substantially complies with BBB consumer dispute
resolution criteria.(68)

BetterWeb Seal

PriceWaterhouseCoopers offers the BetterWeb Seal program to online
businesses and web sites operating in the United States and Canada. Businesses
complete an online application form (said to take five minutes) and are then contacted
by a Consultant who explains the program and sends them the Program Agreement to
review, sign and return.(69) The BetterWeb team compares the applicant’s disclosed
policies against the BetterWeb Standards, and a Consultant contacts the applicant to
discuss any recommended changes. The applicant has 60 days to revise its policy
disclosures to conform to the Standards. Upon conforming, the business is provided the
Seal to display on its site. Annual license fees are $15,000 for the first Web site and
$10,000 for each additional site that has the same policies and procedures.(70) As of
February 2001, over 100 businesses had applied for the BetterWeb Seal and 23 web
sites had been authorized to display the seal. (Other applications remained under
consideration.)(71)

Sites displaying the BetterWeb Seal agree to comply with both Global Principles
and Standards for the specific region or country where they operates. The Global
Principles and US Standards each require disclosure concerning the subscriber’s sales
terms, privacy, security and customer complaint policies, but generally do not appear to
require that any outside standards be followed. The Customer Complaints Principle and
Standard do require disclosure of how the customer can contact the web site with
comments, inquiries and complaints and how and when the customer will receive
confirmation of that communication, which must occur within two business days.(72)

Clicksure

Clicksure was founded in 1999, by individuals previously associated with the
world’s largest verification, testing and certification organization. Clicksure seeks to
promote confidence on the Internet through the Confidence Standard for Electronic
Business
and by providing independent assessment and certification to a level that
meets international codes and accepted best practice.(73) Its founders hope the
Confidence Standard will ultimately stand alone, and that Clicksure will be just one of the
certifying bodies.(74)

The Clicksure Confidence Standard comprises nine Principles which are general
statements of desirable qualities for Internet businesses and web sites. Each Principle
is qualified by Criteria that describe how compliance with the Principle can be
determined. The Principles address qualities including legal and financial standing, web
site information, privacy, confidentiality, information security, business conduct and
complaints.(75)

Clicksure’s Complaints, Monitoring, and Corrective Action Principle provides: “A
Certified Internet Businesses must at all times monitor its own performance with regard
to meeting customers’ expectations and take remedial action where necessary.” The
descriptive Criteria require internal procedures for receiving and promptly handling
complaints. If the internal procedures do not resolve a complaint, the business must
offer recourse to an independent alternative dispute resolution mechanism. The
business must agree to abide by the outcome, however the procedures must not
prejudice the consumer’s right to seek redress through the competent courts.(76)

Clicksure certification has been developed to comply with ISO/IEC Guide 62, the
requirements promulgated by the International Organization of Standardization and the
International Electrotechnical Commission for bodies operating assessment and
certification of Quality systems.(77) Certification is a four-step process beginning with the
submission of an application. Clicksure confirms the applicant’s business registration
details, evaluates visible aspects of its web site against the applicable elements of the
Confidence Standard, and sends the applicant preliminary findings and instructions to
submit additional information using special software. After receiving this information,
Clicksure assessors conduct a comprehensive Initial Assessment of the applicant’s web
site and related business practices.(78) An Initial Assessment Report is sent to the
applicant, identifying any respects in which their web site or business practices do not
comply with the Confidence Standard. After satisfactorily addressing all Corrective
Action Requests, the applicant is licensed to display the Clicksure Mark on its web site.
Clicksure conducts Ongoing Assessments of its licensees’ web sites and business
practices at least every six months. The staged application and initial license fee for two
years totals $8,000 (USD), after which the annual license fee is $4,000.(79)

Federation of European Direct Marketing (FEDMA)

The Federation of European Direct Marketing (FEDMA) Ring of Confidence
initiative includes a Code of Conduct, a Guarantee Seal and a consumer complaint
resolution mechanism. (See supra, page 13, concerning the Code.) Companies and
associations adhering to the Code of Conduct can display the FEDMA Guarantee Seal
on their web sites. Clicking on the Seal should provide immediate access to the
provisions of the Code of Conduct.(80)

The FEDMA Code provides that marketers should operate effective in-house
complaint procedures. If a complaint can not be satisfactorily resolved directly, the
consumer should have redress to the national Direct Marketing Association or
equivalent body. Where the marketer adheres to a national code of practice in e-commerce, the marketer should inform the consumer and abide by the complaints
redress procedure specified in that code. The Code does not detail the third party
dispute resolution procedures.(81)

Secure Assure

Secure Assure offers the Secure Assure Faith Entrusted (S.A.F.E.) seal program.
Members (Subscribers) agree to Secure Assure Principles that address security of
customer information, unsolicited promotional contact, disclosure of personally
identifiable information and conduct of a reputable and reliable business. Members also
agree to make it easy for customers to contact them, to respond in a timely manner, to
handle customer concerns quickly, accurately and fairly, and “to work with their
customers and Secure Assure to resolve disputes through an arbitration process
monitored by Secure Assure.”(82) The specific terms to which members agree are
outlined in the Member License Agreement, and are not apparent on the Secure Assure
web site. Member license fees are based on gross revenues and range from $199 to
$2330 annually.(83)

Square Trade

Square Trade is an online dispute resolution provider that also offers a trustmark
program. Sellers may earn membership in the Square Trade Seal Program after
completing an application and screening process and paying a membership fee.(84)
Buyers defrauded by a Seal Member (Subscriber) are protected for up to $250.00 by the
Square Trade Fraud Protection Guarantee.(85)

Square Trade Seal Members agree to SquareTrade Standards concerning
contact and product information, after-sales service and user protection. They must
respond to customer service inquiries and requests to participate in SquareTrade’s
Online Dispute Resolution Service within two business days, abide by agreements made
during dispute resolution and execute resolution in a timely manner.(86) The SquareTrade
Compliance Group performs periodic checks to ensure adherence to the SquareTrade
Standards.(87)

Square Trade’s Confidentiality Policy provides that, at the conclusion of the
dispute resolution process, Square Trade may record and publically disclose Resolution
Behavior Information
about the participants. Disclosures about an initiating party may
include whether they participated in the process to conclusion, were able to reach an
agreement with the other party and chose to accept a resolution recommended by the
Square Trade mediator. Disclosures about parties against whom a case is filed may
additionally include whether they submitted a response and whether they had multiple
cases of the same problem type.(88) Seal Members are also offered a Non-Paying Buyer
List
that identifies buyers who have not responded to SquareTrade “non-payment”
cases.(89)

                        author

Alan Wiener

Alan Wiener received his Juris Doctorate cum laude from the University of San Diego School of Law in 1979, and a Masters of Dispute Resolution from Pepperdine University School of Law in 2000. He conducted a general civil litigation and transaction practice in San Diego for approximately twenty years, and now… MORE >

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