Summary Of Public ADR Workshop

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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

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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