Regulations and Standards for Online Dispute Resolution: A Primer for Policymakers and Stakeholders (Part 1)

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End Notes

February 15, 2001

TABLE OF CONTENTS

INTRODUCTION

OVERVIEW OF INITIATIVES

GOVERNMENT INITIATIVES

Multilateral Initiatives: OECD, EU-US Summits and G-8

European Union

United States

Canada

Australia and New Zealand

INDUSTRY INITIATIVES

International Chamber of Commerce

Business and Industry Advisory Committee to the OECD

and Alliance for Global Business

Global Business Dialogue on Electronic Commerce

Electronic Commerce and Consumer Protection Group

Better Business Bureau and BBBOnline

EuroCommerce

Federation of European Direct Marketing

Electronic Commerce Promotion Council of Japan

CONSUMER INITIATIVES

European Consumers’ Organisation

Transatlantic Consumer Dialogue

Consumers International

THIRD PARTY TRUSTMARK PROGRAMS

Trustmarks and Seals of Approval

BBBOnline

BetterWeb Seal

Clicksure

Federation of European Direct Marketing

Secure Assure

Square Trade

TRUSTe

Trusted Shops

WebTrust Seal

Which? Web Trader

Trustmark Standards and Certification

Electronic Commerce Platform Netherlands

TrustUK

European Commission e-Confidence Group

DISPUTE RESOLUTION PROVIDER INITIATIVES

American Arbitration Association

American Bar Association

Coalition of Internet Dispute Resolvers

Society of Professionals in Dispute Resolution

and Association for Conflict Resolution

Center for Public Resources Institute for Dispute Resolution

CONCLUSION

ABOUT THE AUTHOR

NOTES

INTRODUCTION

Electronic commerce is a principal catalyst of the 21^st Century global economy.
Virtually every large corporation and a great many small and medium sized enterprises
currently transact business over the Internet. Entrepreneurs without resources to open
even a small physical location can also now reach potential customers worldwide. As
importantly, businesses and consumers are empowered to shop globally for nearly any
product or service with the click of a mouse. The phenomenal growth rate of this new
marketplace will continue well into the new decade.

The characteristics of the Internet economy present substantial challenges, as well
as opportunities. Swindlers, purveyors of substandard products or services and honest
traders unable to perform their agreements can access the global market as easily as
legitimate and capable businesses. The impersonal nature of e-commerce makes it
more difficult for traders to discern a merchant or transaction that will not satisfy their
expectations. Geographic, linguistic and cultural barriers increase the likelihood of
misunderstandings and make them more difficult to resolve. The electronic medium
raises new issues concerning disclosures, privacy, security, contract formation and
enforceability. Cross-border transactions are additionally complicated by questions of
what law governs and where an enforcement action may be brought. The relatively
modest value (under $500) of the median e-commerce transaction presents added
challenges to efficacious dispute resolution.

Government, industry, consumer and dispute resolution organizations have been
actively attempting to promote the opportunities and address the challenges of e-commerce. Predictably, each of these stakeholder groups seek solutions that favorably
address their interests and concerns. Nevertheless, a broad and fundamental area of
agreement has been the potential of alternative dispute resolution, including online
dispute resolution processes, to address business-to-consumer disputes. A principal
area of disagreement is whether e-commerce transactions and online dispute resolution
should regulated by government or self-regulated by industry.

Two interlaced aspects of online dispute resolution regulations and standards are
examined in this paper. The first area involves customer service and dispute resolution
provisions contained in (or excluded from) the many sets of guidelines for merchants
conducting electronic commerce, which have been evolving for several years. The
second area concerns specific guidelines for online dispute resolution providers, which
became the subject of considerable attention less than a year ago, and are in seminal
stages. While each of these facets raise unique issues, their convergence indicates that
persons considering either area should be cognizant of concerns and developments in
the other.

This paper is intended as resource for those concerned with the development of
guidelines for online dispute resolution, and as a foundation for discussion rather than a
position paper. An effort has been made to objectively summarize principal initiatives in
the field, in the hope that this will promote constructive dialogue regarding both facets of
online dispute resolution guidelines. Although most of the public attention is focused on
business-to-consumer e-commerce, the pertinence of online dispute resolution and the
online standards dialogue to resolving business-to-business and offline disputes
transactions should not be overlooked.

The body of this paper begins with an overview of public and private online dispute
resolution initiatives. Government policy statements, forums and other initiatives are
then described. Industry policy statements, activities and self-regulatory initiatives are
presented next, followed by policy statements and activities of consumer organizations.
Third-party “trustmark” programs that accredit online businesses are then described,
before the final section discusses initiatives of dispute resolution provider organizations.

To borrow the technical nomenclature, this presentation is Version 1.01. Numerous
initiatives are in process and developments are occurring almost daily. Participants and
observers of the online dispute resolution initiatives are encouraged to submit any
additions, corrections or comments to the author. It is intended that this paper will be
periodically republished to report the evolution of the field.

OVERVIEW OF INITIATIVES

Multilateral and national government organizations have studied the policy and
practical aspects of electronic commerce extensively, and continue to do so. Policies
officially enunciated by the OECD, the European Union (EU), G-8 and the EU-US
Summit emphasize the importance of protecting consumer interests while promoting an
environment in which e-commerce can flourish. National initiatives by bodies
responsible for consumer protection have been undertaken in the United States,
Canada, the United Kingdom, Australia and New Zealand.

Governments have broadly supported the use of alternative dispute resolution, and
specifically online dispute resolution, as a primary means of addressing the challenges
of business-to-consumer e-commerce. Government policy statements also encourage
government, industry and consumer cooperation to develop fair and effective dispute
resolution processes. Additionally, industry has been encouraged to pursue self
regulatory initiatives such as codes of conduct, trustmarks and reliability programs.
Little specific government regulation of e-commerce has yet occurred, however intensive
work and some legislation in this area are progressing.

Industry has been quite proactive in its efforts to both minimize government
regulation of e-commerce and promote consumer confidence through self-regulation.
Several new organizations have been comprised of the world’s foremost technology and
information companies and other commercial stakeholders in the electronic marketplace.
These hi-tech consortia and more traditional trade associations have been developing
and promoting e-commerce policies, voluntary guidelines and codes of conduct,
independently and in collaboration government, academia and consumer organizations.

Industry initiatives generally support the use of alternative dispute resolution for
online business-to-consumer disputes. Major industry policy statements advocate that
government should encourage the use of industry-led alternative dispute resolution
systems. One industry paper urges government to refrain from imposing accreditation
standards or criteria for ADR providers, and makes specific recommendations to
providers concerning their services.

International associations of consumer organizations have also formed and mobilized
to advocate their constituents’ interests in e-commerce policy making. These
stakeholders’ fundamental premise is that consumers should have at least the same
level of protection online as off. While supporting voluntary codes of conduct, consumer
groups advocate that these must be backed by effective government regulation.

Consumer organizations also generally support alternative dispute resolution, with
the strong caveat that consumers must retain the right to redress in their countries’
courts. They have promulgated principles upon which dispute resolution systems should
be based, including independence, personnel qualifications and reporting of cases to a
publicly accessible clearinghouse. Consumer organizations have also called for national
and international standards for business-to-consumer online dispute resolution, third
party accreditation and government monitoring of providers.

Seals of approval or “trustmarks” are currently a chief mechanism of both promoting
self-regulation and consumer confidence in electronic commerce. Under these
arrangements, private organizations promulgate qualifications and e-commerce codes of
conduct, which often include dispute resolution provisions. Online businesses that meet
the qualifications and/or subscribe to the code are licensed to display the trustmark on
their web site. Considerable variation in trustmark schemes has resulted in initiatives to
accredit the trustmarks, to help assure that reliance upon them is not misplaced.

The dispute resolution provisions of both trustmark schemes and industry’s self-regulatory initiatives also vary considerably. Some only vaguely address internal dispute
resolution (customer service), while others include detailed requirements and
specifications for third-party alternative dispute resolution. Where external dispute
resolution is specified, there are significant differences in the type of process (i.e.
arbitration or mediation), whether the consumer is required to first utilize the internal
process, selection and impartiality of the third-party, whether the merchant is required to
accept a third-party determination and whether consumers must retain recourse to the
courts. Differences also exist in whether the alternative dispute resolution provider is
permitted or required to report or publicize results of the process.

There has been significant collaboration within and among the government, industry
and consumer stakeholder groups concerning the development of e-commerce
guidelines. Consonant with the borderless marketplace, many have been global or
regional in scope. Although many of these initiatives include dispute resolution
provisions, the dispute resolution profession has apparently not been very active in
developing these guidelines.

Dispute resolution professionals and other entrepreneurs have responded to the call
for online dispute resolution services. These providers are using a growing array of
techniques and technologies to resolve online and offline disputes over the Internet.
Traditional mediation and arbitration are being adapted to the online environment using
e-mail, online chat, electronic forums and other emerging technologies exclusively or in
conjunction with face-to-face sessions or teleconferencing. Online forums are also
being developed and utilized to promote agreements by the parties without a human
intermediary. Some of these structure direct written communication between the parties
to enhance their understanding and development of possible solutions. Others permit
only their submission of “blind” monetary offers and demands, which are compared by
computer and only disclosed to the other party if within a specified range.⁽¹⁾

The promulgation of standards and/or regulations for online dispute resolution
providers became a “hot topic” in June 2000, and has received increasing attention
since then. Participants at a US Federal Trade Commission and Department of
Commerce workshop disagreed on whether and how government should be involved in
ensuring that online dispute resolution programs for consumer e-commerce are fair and
effective. A Commerce Department representative indicated the federal government
would leave it to the private sector and stakeholders to draft and implement any code of
conduct and would only regulate if necessary.

The American Arbitration Association announced, at the June 2000 FTC workshop,
that it would convene a broad stakeholder group to develop due process protocols. One
week later, the American Bar Association Section of Dispute Resolution announced that
it was convening a broad based working group and an advisory committee to draft
standards for online dispute resolution. The formation of a new trade association,
Coalition of Internet Dispute Resolvers (CIDR), and its intent to draft standards were
announced in September 2000. The same month, the Society of Professionals in
Dispute Resolution (SPIDR) formed an Online Sector, also with plans to study online
dispute resolution standards. None of these organizations has yet promulgated
standards for online dispute resolution, however this work is progressing on several
fronts.

GOVERNMENT INITIATIVES

Multilateral Initiatives: OECD, EU-US Summits and G-8

The Organisation for Economic Co-operation and Development (OECD) has been an
early and consistent catalyst in the development of standards for electronic commerce.

In April 1997, this policy forum of 29 member countries announced the urgent necessity
for an internationally coordinated approach to issues arising from commercial
transactions on the Internet. The report also noted the importance of identifying those
issues which should be dealt with by industries, by industry self-regulation and by
government regulations.⁽²⁾

The Joint E.U. – U.S. Statement on Electronic Commerce of December 1997
recognized that global electronic commerce would be an important engine for growth in
the world economy in the 21^st Century. The statement encouraged an open and world-wide dialogue between governments and the private sector to construct a predictable
legal and commercial environment for the conduct of business on the Internet. The US
and the EU agreed to work together within multilateral institutions and other fora to
reach coherent and effective solutions, preferably at a global level. Guiding principles
that were enunciated included government’s roles of promoting an environment in which
electronic commerce can flourish and ensuring the protection of consumer and other
public interests. The Statement recognized that industry self-regulation is important and
that public interest objectives can be served by codes of conduct, model contracts and
guidelines agreed upon between industry and other private sector bodies.⁽³⁾

The OECD Committee on Consumer Policy began to develop e-commerce consumer
protection guidelines, in cooperation with businesses and consumer representatives, in
April 1998. The OECD Council officially promulgated and recommended that its
member countries implement Guidelines for Consumer Protection in the Context of
Electronic Commerce (OECD Guidelines) in December 1999. The Guidelines are a set
of principles to help governments, businesses, consumer groups and self-regulatory
bodies formulate and implement appropriate consumer policies and initiatives for
electronic commerce.⁽⁴⁾ They seek to assure that consumers are no less protected when
shopping online than they are when shopping from their local store or a catalogue.⁽⁵⁾

The OECD Guidelines encourage fair and efficient alternative dispute resolution, in
addition to addressing transactional concerns including fair business practices,
disclosure, payment and privacy. The Guidelines state:

“Consumers should be provided meaningful access to fair and timely alternative
dispute resolution and redress without undue cost or burden.”

The Guidelines encourage businesses, consumer representatives and governments to
cooperatively develop fair, effective and transparent policies and procedures, including
self-regulatory programs and internal dispute resolution mechanisms (which consumers
should be encouraged to use), as well as the option of effective alternative dispute
resolution.⁽⁶⁾

Leaders of the G-8 nations endorsed the OECD Guidelines, and specifically
alternative dispute resolution, in the Okinawa Charter on Global Information Society,
dated July 22, 2000. The leaders agreed upon key principles and approaches to
maximize social and economic benefits of the Information Society, including:

“Promote consumer trust in the electronic marketplace consistent with OECD
guidelines and provide equivalent consumer protection in the online world as in
the offline world, including through effective self-regulatory initiatives such as
online codes of conduct, trustmarks and other reliability programs, and explore
options to alleviate the difficulties faced by consumers in cross-border disputes,
including use of alternative dispute resolution mechanisms”⁽⁷⁾

The Charter also states that, although the private sector plays a leading role in the
development of information and communications networks, it is up to governments to
create a predictable, transparent and nondiscriminatory policy and regulatory
environment.

The OECD, the Hague Conference on Private International Law and the International
Chamber of Commerce jointly sponsored the conference Building Trust in the Online
Environment: Business to Consumer Dispute Resolution December 11-12, 2000. Topics
included the identity and roles of stakeholders and the need to find common ground
among them on essential elements of any fair and effective online ADR for business to
consumer disputes. Specific elements considered included transparency, accessibility,
cost to consumers, quick decisions, independence, neutrality, impartiality and
qualifications of ADR providers, voluntariness, representation and adversarialism.⁽⁸⁾

The United States and European Union reaffirmed their commitment to support the
development of self-regulatory codes of conduct, technologies to promote consumer
confidence and the OECD Guidelines at their biannual summit in December 2000. Their
joint statement specifically recognizes the benefits of fair and effective ADR, especially if
provided online, and the importance of promoting its development and implementation.
Participation of all interested stakeholders, including governments, consumer groups,
industry and academics, is again endorsed. Impartiality, accessibility, low or no cost to
consumer, transparency and timeliness of redress are identified as principles necessary
to achieve fair and effective ADR.⁽⁹⁾

European Union (EU)

The European Union (EU) has the mission of organizing relations between its 15
Member States and their peoples in a coherent manner and on the basis of solidarity.
The European Commission (EC) is the policy origination body for the EU, and has been
pro-active in the development of standards to prevent and resolve online and offline
consumer disputes.

The EC promulgated Recommendation on the Principles Applicable to the Bodies
Responsible for Out-of-court Settlement of Consumer Disputes in March 1998. Seven
principles that should be respected by all bodies responsible for out-of-court settlement
of consumer disputes are enunciated, including independence, transparency, procedural
efficacy, legality of decision, liberty and representation. The Recommendation is not
specifically directed to e-commerce transactions, and expressly excludes procedures
that only attempt to facilitate a solution by common consent.⁽¹⁰⁾ The Recommendation is
pertinent to online arbitration and EC staff are considering the need for mediation and
conciliation to be addressed.⁽¹¹⁾

The EC proposed a European Parliament and Council Directive concerning
certain legal aspects of electronic commerce in November 1998, which is currently in
advanced stages of enactment. Article 17(1) requires Member States to ensure that
their legislation allows the effective use of out-of-court schemes, including appropriate
electronic means, for the settlement of disputes arising from e-commerce. Member
States will also be required to ensure that bodies responsible for out-of-court dispute
settlement of consumer disputes apply the seven principles previously mentioned. The
proposed Directive also encourages out-of-court settlement bodies to inform the
Commission of the decisions they make.⁽¹²⁾

The EC convened the e-Confidence Group of Stakeholders to develop general
principles that could be used by accreditation bodies in the EU Member States to
approve codes of conduct and trust mark schemes covering online shopping.⁽¹³⁾ The e-Confidence Core Group, including representatives from AmericaOnline, BEUC, ECP.NL,
Hewlett Packard, International Chamber of Commerce, Proctor and Gamble, TrustUK
and Vivendi, released first drafts of three sets of principles for public discussion and
comment in November 2000.⁽¹⁴⁾ The European Union is also supporting several pilot
programs to evaluate the effectiveness of online dispute resolution.

United States (US)

President Clinton directed the Secretary of Commerce, in consultation with the
Federal Trade Commission (FTC) and other relevant agencies, to facilitate partnerships
between industry and consumer advocates to develop redress mechanisms for online
consumers in November 1998.⁽¹⁵⁾ The FTC convened a public workshop in June 1999, to
facilitate a dialogue on how governments, industry and consumers could work together
to encourage the development of a global marketplace that offered safety, transparency
and legal certainty for consumers. Participants agreed that one of the most effective
ways to ensure meaningful consumer redress is through innovative forms of alternative
dispute resolution, such as online dispute resolution.⁽¹⁶⁾

The FTC and the US Department of Commerce co-sponsored another public
workshop: Alternative Dispute Resolution For Consumer Transactions in the Borderless
Online Marketplace in June 2000. Over 120 representatives of academia, consumer
groups, industry, ADR providers and government examined existing and developing
ADR programs for resolving online disputes. Participants broadly supported the
development of ADR programs to resolve online consumer transactions, and
recommended continued cooperation among stakeholders in creating a range of ADR
programs suitable for different types of disputes, ensuring that ADR programs are fair
and efficient, and combating fraudulent and deceptive ADR practices.⁽¹⁷⁾

Participants at the June 2000 FTC/Commerce workshop were not of one mind
concerning the appropriate roles of governments and other stakeholders in ensuring the
fairness and effectiveness of ADR programs.”⁽¹⁸⁾ Some believed government should take
the lead in developing a baseline set of principles to ensure that all ADR mechanisms
have certain basic qualities in common. Others cautioned that government involvement
in establishing ADR guidelines and government-set guidelines could inhibit development
of innovative programs, and supported private-sector development of codes of conduct.
Yet others suggested government certification of ADR programs that meet government-set standards, and the use of a seal or trustmark to identify accredited sites.⁽¹⁹⁾

The FTC hosted another roundtable on alternative dispute resolution and e-commerce on February 6, 2001. The morning discussion focused on recommendations
concerning ADR for online consumer transactions proposed by the TransAtlantic
Consumer Dialogue (see infra, page 14) and Global Business Dialogue on Electronic
Commerce (see infra, page 10).⁽²⁰⁾ Issues on the agenda included minimum legal
standards for ADR, whether ADR mechanisms should be binding on consumers,
confidentiality of ADR processes and potential rules for ADR Processes.⁽²¹⁾

At the February 2001 roundtable, both business and consumer advocates
reportedly told the FTC there must be government oversight of alternative dispute
resolution programs for consumer e-commerce claims to assure that the systems are
fair and effective. Consumer representatives stressed that in addition to promulgating
guidelines and codes of conduct, government oversight is necessary to ensure ADR
providers’ compliance with them. Suggested oversight methods included the FTC suing
providers that don’t comply and a disclosure system involving regular provider reports
concerning the nature and outcome of the disputes they handled, with annual
independent audits.⁽²²⁾

No specific guidelines for either business-to-consumer e-commerce in general or
online dispute resolution have yet been proposed or promulgated by the FTC or
Department of Commerce.

Canada

The Office of Consumer Affairs of Industry Canada convened and coordinated
the Working Group on Electronic Commerce and Consumers, consisting of business,
consumer and government representatives, in August 1999. The working group drafted
and approved principles intended to guide businesses, consumers and governments
within Canada.⁽²³⁾ Consumer Protection for Electronic Commerce, A Canadian
Framework enunciates eight principles addressing disclosure, contract formation,
privacy, security, redress, liability, unsolicited e-mail and consumer awareness.

The Canadian “Redress” principle states: “Consumers should have access to fair,
timely, effective and affordable means for resolving problems with any transaction.” It
further provides that when internal mechanisms fail to resolve a dispute, vendors should
use accessible, available, affordable and impartial third-party processes for resolving
disputes with consumers. Government, businesses and consumer groups are
encouraged to work together to develop appropriate standards for dispute resolution
mechanisms.⁽²⁴⁾

Australia and New Zealand

The Commonwealth of Australia encourages self-regulation by businesses
engaged in electronic commerce with consumers. In May 2000, the Consumer Affairs
Division of the Department of the Treasury published a “best practice model” that
businesses and industry associations are encouraged to adopt. The model addresses a
breadth of transactional issues including fair business practices, advertising and
marketing, information, conclusion of the contract, privacy and payment.

The Australian model also includes Internal Complaint Handling and External
Dispute Resolution guidelines. The later state that businesses should provide
consumers with clear and easily accessible information on any independent customer
dispute resolution mechanisms to which the business subscribes, and that such
methods should be accessible, independent, fair, accountable, efficient, effective and
without prejudice to judicial redress.⁽²⁵⁾

The New Zealand Ministry of Consumer Affairs published the New Zealand Model
Code for Consumer Protection in Electronic Commerce in October 2000.⁽²⁶⁾ The New
Zealand model code is an adaptation of the Australian Best Practice Model, and is
substantively equivalent with respect to dispute resolution guidelines.⁽²⁷⁾