Online Alternative Dispute Resolution: An Issues Primer

Anita Ramasastry
Professor and Associate Director
Center for Law, Commerce & Technology
University of Washington School of Law, USA

Summary by Devashish Bharuka
For full version of the article, click here

This report focuses on the possibility of using teh ADR as a means for dealing with consumer complaints and disptues connected to Internet transactions and the use of the Internet itself as a medium for such dispute resolution. Both Online ADR and exiting complaint resolution procedures must be considered together.

A threshhold question to dealt with is that who should provide Online ADR. Few possible actors include: (1) private for-profit companies, (2) industry trade associations, (3) existing arbitration or mediation service providers (who deal with disputes in the non-virtual world), (4) international organizations, or, (5) government agencies (state or federal).

The state attorneys general and corresponding state consumer protection bureaus are focal points where consumers currently direct complaints and queries with respect to Internet transactions. The Office can work for refering consumers to existing Online ADR providers, working with industry to propogate new models for consumer complaint resolution and work itself as an Online ADR provider.

In response to the correspondence by the Center for Law, Commerce and Technology regarding the treatment use approaches to online consumer complaints, various States in USA have showed positive signs. All the States are aware of the unique problems of Internet complaints. A few them, however, are not currently participating in any specific effort, few of them allow online file complaints and a few of them are proactive in sense of dedicated websites for Online ADR. Most active of them are the States of Washington (allows online dispute resolution) and New York (has an online mediation process).

Online ADR, like its parent traditional ADR, consists of a variety of methods such as arbitration, mediation, and mini-trials, that seek to resolve disputes by means other than litigation. Unlike traditional ADR, Online ADR utilizes the Internet as a means to more efficiently engage parties in non-litigious dispute resolution. It harnesses the computer-networking technology to bring parties together. The process begins with the claimant registering a complaint with the Online ADR Provider. The Provider informs defendant and if he agrees, both parties are brought together. The Provider either give free-hand to parties to resolve dispute or provides for more traditional mediation services across email and interactive web sites. The decision reached, though not binding, is generally encouraged by the Provider to be transformed into a binding settlement contract.

Online ADR can play an important rols in bridging the gap between the Internet and our existing laws. Following reasons have been enumerated:
1) It minimizes the jurisdictional problems inherent in Internet transactions.
2) It is relatively low cost system and hence, can be a forum for claims for low monetary value. Most disputes are related to items of relatively little monetary value. Some Online ADR providers do not even charge for their services.
3) Consumer fraud at intermediary sites, such as auction sites, is one of the areas prone to a greater number of disputes and consumer fraud. With their low costs, simple processes and human interaction even when hundreds of miles apart, Online ADR providers present a possible alternative to the court system which would generally be inaccessible for this type of dispute.
4) Lack of clear contract and consumer protection rules over the Internet is another reason for shifting to Online ADR.

Among alternatives to Online ADR, following are the relevant ones:
1) Credit card charge back mechanims,
2) Complaint resolution mechanisms established by merchants,
3) Consumer complaints to state attorney general offices,
4) Consumer protection agencies,
5) Small claims court,
6) Litigation.

However, most of them either take long period of time or the required co-operation is not existing or is a high costs dispute resolution mechanism or a combination of these factors. Even if traditional mechanisms continue to provide an avenue for some consumer complaints, the main issue is whether online ADR can provide a needed supplement to the existing menu of options.

Survey of Online Alternative Dispute Resolution Providers

A Survey of Online ADR Providers has been proided. It is a representative sample of the various ADR Providers of Online ADR. The sample is meant to present the range of services and methods utilized by Online ADR providers. While some ADR Providers have developed well thought out and organized Online ADR processes, others have only rather loosely organized processes that are still in the development stages.

The various ADR Providers have different origins, which may affect their methods of dispute resolution. For instance, those initiatives from the public sector, and academia tend to lack proprietary technology that contributes to the dispute resolution process. On the other hand, privately funded initiatives have taken to utilizing and developing technology that contributes to the process. Furthermore, some ADR Providers are focussed on one or two specific types of transactions, whereas others tend to address a broader range of disputes. Some ADR Providers have developed processes that are geared especially toward one type of claim, for instance insurance, or domain name dispute resolution. Others have less focussed approaches that address a variety of disputes.

Generally, all Online ADR providers fall into one of four categories or a combination thereof. The categories are Arbitration, Mediation, Negotiation, and so-called "Peer Pressure" services. (see Data Chart 1) Arbitration services actually decide cases brought before them. Generally, the parties have agreed by contract to be bound by the decision. Mediation services are generally designed to facilitate communication and cooperation between parties. The services utilize email or some other form of proprietary communication software to allow communication between the parties and the mediator. Online Negotiation services are currently the most automated Online ADR services and are most often applied in the insurance claims settlement arena. These services rely on proprietary software that accepts offers and demands; once the parties offer and demand are within a certain range the case settles. Parties to a negotiation have generally agreed to be bound by the negotiated sum and thus are generally precluded from seeking relief in the courts.

Peer Pressure services are a child of the Internet. Traditionally when individuals have been upset with the quality of product or services, they have turned to mass media to tell their story and create negative press about a particular company. The Internet is the ultimate way for private individuals to make their complaints public thus encouraging companies to reach a resolution with them before such a disclosure. Companies using this approach generally use it as an incentive in conjunction with an online mediation service.

Currently Online ADR providers use a wide range of fee structures. There is no one dominant fee structure though companies do employ generally a filing fee, a service fee, as well as a settlement fee. Some have developed scaled fees that are dependent on the amount in controversy. Many Online ADR providers are able to settle disputes within a matter of days. Certainly, Online ADR is heavily dependent upon the response time of the parties involved, and thus the time required to resolve a dispute is often more dependent on the parties' response times than a back log of the system. The credentials of arbitrators and mediators are essential to establishing a trustworthy online arbitration or mediation service. No industry standard for online mediators is currently being used.  Presently arbitrator and mediator standards are established the individual ADR Providers. However, without the adoption of a uniform set of standards for online mediators or arbitrators, Online ADR is less likely to become a legitimate alternative to the courts. As the ADR Providers become more established, this will certainly become an issue they will all have to address.