TABLE OF CONTENTS
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
AGAINST FRAUDULENT OR DECEPTIVE PRACTICES
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.
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:
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)
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)
“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)
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)
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)
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).
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
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