Alternative Dispute Resolution for E-Commerce

The Rise of E-Commerce Dispute Resolution

First comes a major technological advancement. Next comes business and transactions stemming from the advancement. What's next? Inevitably, disputes arise from the increased business interactions involving the new technology.

Business-to-business electronic commerce is just beginning to take off. About $1.2 trillion was spent on business-to-business electronic commerce in 2000. Analysts project a market of up to $7.3 trillion by 2004.

Logically, with an increase in the number of transactions, there will be more disputes or problems that need to be addressed by the interested parties. In response to the actual and anticipated increase in online disputes in this rapidly developing market, the American Arbitration Association ("AAA") announced in January 2001 the development of new "e-commerce protocols" to help manage these disputes.

The AAA is the nation's largest dispute resolution provider. The leader in conflict management since 1926, AAA is a not-for-profit, public service organization dedicated to the resolution of disputes through arbitration, mediation, conciliation, negotiation, democratic elections and other voluntary procedures.

Alternative dispute resolution ("ADR") refers to out-of-court methods for resolving disputes, including negotiation, mediation and arbitration. In the last several decades, it has become increasingly recognized that means for settling disputes other than litigation may be advantageous in many cases. Oftentimes, the high costs and delays found in litigation can be avoided by using ADR. ADR also helps to preserve important long-term business relationships by leaving all parties more satisfied with the outcome by avoiding the winner-take-all aspect of litigation.

Two of the most common types of ADR are mediation and arbitration. Parties may agree in advance to ADR by putting a clause providing for it in their contract in case of later disputes, or they may agree to it later once the dispute has arisen. Courts recognize the value of ADR and frequently require parties to engage in some form of ADR prior to trial.

The AAA developed the e-commerce protocols in conjunction with key industry leaders and law firms. Initial signatories to the protocol include AT&T; BellSouth; Clifford Chance LLP; Daimler Chrysler AG; Debevoise & Plimpton; FedEx Corporation, Freshfields Bruckhaus Deringer LLP; Honeywell; Hughes Hubbard & Reed LLP; Microsoft Corporation; PepsiCo, Inc.; Phillips Semiconductors, Inc; Pitney Bowes, Inc; Skadden, Arps, Slate, Meagher & Flom LLP; Sullivan & Cromwell; Unisys Corporation; Wells Fargo & Company; and Wilson, Sonsini, Goodrich & Rosati. The involvement of these important players in e-commerce lends significant credibility to the AAA's efforts.

The AAA's e-commerce protocol, which has five main principles, is fairly basic and broad. They are:

  • Fairness
  • An emphasis on continuity of business by isolating disputes and resolving them with minimal disruption of other transactions
  • Clear dispute-management policies
  • A range of options and cost-effective methods to resolve disputes at the earliest possible stage
  • A commitment to use technology to aid dispute resolution

The AAA will be rolling out systems and services to support the protocol. It is hoping to help the industry create tools to allow community members to resolve their disputes in a fair and economic way.

Reaction to E-Commerce Dispute Resolution

According to William K. Slate II, president and CEO of the AAA, companies looking to profit from the growth in e-commerce need to learn to avoid the pitfalls of protracted court battles that can last years and cost billions. "The protocol is an educational wake-up call," Slate said. "Setting a global standard will give practitioners the necessary confidence and trust in online transactions to be successful in B2B e-commerce."

To make seamless e-commerce dispute management a reality, the AAA is creating a new technology-focused service. The AAA is also developing an alliance program with businesses and B2B providers to provide the benefits of e-commerce dispute management to their customers.

Jon Gibs, analyst at research firm Jupiter Media Metrix, pointed out that the "protocols are exceptionally general," but "if the actual solution is robust, it'll be a big win for B2B e-commerce." Gibs believes that the AAA's efforts may lead to greater adoption of e-markets, which has been plagued recently by concerns over the neutrality of these solution providers. He believes that because the AAA has earned the confidence in the community, and if it works with members of the community to provide a neutral, trustworthy way of handling online disputes, it will help the market with recent concerns of neutrality, legitimacy and credibility.

Anita Ramasastry of the University of Washington's Center for Law, Commerce and Technology, who was recently appointed to the American Bar Association's task force on e-commerce and alternative dispute resolution says "everyone's getting into this.... Industries and groups like the AAA are proliferating guidelines. The prevailing model is an open question, but people clearly want an end-run around the trial courts."

The American Bar Association also is working on guidelines for e-commerce dispute resolution after developing a task force in November 2000.

To explore ADR for online consumer transactions, the Federal Trade Commission ("FTC") and the U.S. Department of Commerce hosted a public workshop in June 2000. The summary of the public workshop provides an excellent analysis of the many legal, business, and equity issues that are involved dispute resolution in the new economy.

Some of the issues addressed in the report are:

  • Finding global solutions
  • Pursuing technological innovation
  • Pursuing multiple types of ADR programs
  • Ensuring fairness and effectiveness
  • Consumer and business education
  • Action against fraudulent or deceptive practices

Existing Online Dispute Resolution Systems and the Future

The AAA's plans for online conflict resolution is similar to the efforts of companies such as SquareTrade which offers ways for customers on eBay, Onvia and other companies to work through problems by using proprietary software that allows parties to log on to a neutral Web site and iron out their differences. SquareTrade's direct negotiation service, without a middleman, is free to eBay users. If an arbitrator gets involved, the complaining party pays $15. From about a one-year period since, SquareTrade claims an 85 percent success rate in settling more than 35,000 disputes. Clearly, there is a demand for these services.

Everyone who has looked at the issue of e-commerce dispute resolution recognizes that we are still in unchartered waters. When dealing with e-commerce solutions providers, you should ask them what they think about dispute resolution, and how it integrates with their services. You should approach your current partners about how you can better resolve online disputes in a cost-effective, equitable manner.

Many of the interested parties and leaders in the industry recognize the need for ways to manage and resolve the numerous disputes that already are taking place in this new e-commerce environment. They know that disputes are only going to get more complicated and more frequent. Fortunately, community members with extensive knowledge and resources in this are working to develop cost-effective solutions.


  • This article was originally published on GigaLaw.com in March 2001