REGULATION OF ONLINE DISPUTE RESOLUTION:
BETWEEN LAW AND TECHNOLOGY
RAFAL MOREK
(rafalmorek@uw.edu.pl)
AUGUST 2005
I. Introduction 3
II. The Theory and Practice of Dispute Resolution in the Digital Age 5
What is ODR? 5
A brief history of ODR 9
The theoretical framework 12
ODR in the context of other dispute resolution mechanisms 14
Disadvantages and Advantages of ODR 17
Building Future Dispute Resolution Systems Online 25
III. The Four Modalities of Regulation 29
Law 29
Norms 34
Market 39
Technology 49
IV. Implications: Present Realities, Pressing Problems and Future Prospects 59
The current state of the regulatory framework for online dispute resolution 59
Major deficiencies of the current ODR regulatory framework 62
Policy Options 69
V. Conclusion 75
Bibliography 76
I. Introduction
With the rapid development of the Internet and electronic commerce, dispute resolution mechanisms are needed to help resolve disputes between parties located anywhere in the world in a manner that is fair, expeditious and cost effective. Online dispute resolution (ODR) has been labelled “a logical and natural step” for the resolution of disputes that arise on the Internet.
This paper presents the ODR phenomenon with a specific focus on policy-making and regulatory problems. It argues that the current regulatory framework for online dispute resolution is, to a large extent, defective. Existing deficiencies result not only from a lack of comprehensive ODR law, but also from the weaknesses of the other modalities of regulation: market, norms and technology. Arguably, the current “hands-off” approach to regulating ODR has been unsuccessful, and it is time to re-examine that position.
Part II of the paper presents online dispute resolution in a broad context including its history, theoretical framework, and advantages and disadvantages. Part III examines four modalities of regulation: law, norms, market and technology (architecture).1 While the regulatory framework for resolving disputes on the Internet is partly provided by both national laws and international agreements, a significant role might be played by other agents: norms such as standards, guidelines, or codes of conduct; market forces related to a global market for ODR services and electronic commerce, and technology which is sometimes called the “fourth party in dispute resolution.”2 The paper continues with Part IV, which analyzes the current state of the regulatory framework for online dispute resolution in more detail. Although it shows major deficiencies of current regulation and proposes some policy solutions, offering a detailed optimal regulatory model for ODR is beyond the scope and ambition of this paper. Its goal is rather to present changing dynamics and complexity of the ODR phenomenon that must be taken into account when drafting any regulatory scheme.
The question of whether or not ODR can be effectively developed in the current regulatory framework, and which changes are needed, remains open to debate. Albeit in a small way, I hope this paper will enrich this debate.
II. The Theory and Practice of Dispute Resolution
in the Digital Age What is ODR?
The phenomenon known as online dispute resolution relates, to put it simply, to resolving disputes on the Internet. It is happening in many forms and forums across Canada, the United States, Europe and other countries. Today’s ODR mechanisms are said to be early harbingers of the future global dispute resolution landscape in the Digital Age.3
The term ODR refers to an array of dispute resolution procedures. Some are fully automated, others, although they take place exclusively online, involve a human neutral. A large group of processes that are included in ODR use digital technologies to lesser degrees. Thus, online dispute resolution is not a monolithic concept – for this reason, some authors argue that it is more accurate not to speak of ODR, but rather of ODR techniques4, or even of “a plethora of online dispute resolution services”5 devoted to the expeditious and speedy resolution of disputes. The term ODR is used for mechanisms as different as dispute prevention (education, outreach, rating and feedback programs), ombudsman programs, blind bidding, automated negotiation, early neutral evaluation and assessment, mediation/conciliation, mediation-arbitration (binding and/or non-binding), arbitration, expert determination, “executive tribunals” or “virtual juries”. Based largely on traditional (offline) alternative dispute resolution6 procedures, such as mediation or arbitration, and various hybrids thereof, ODR is sometimes equivalently labelled as e-ADR.7 The synergy of alternative dispute resolution and information and communication technology via the Internet is considered a dominant feature of ODR as canvassed in legal literature.
The field of out-of-court dispute resolution has grown and flourished alongside the rapid advance of technology for almost thirty years. Yet, a successful relationship between ADR and technology could not have happened without the appearance of the commercial Internet and World Wide Web a decade ago. Since then, one of the main challenges facing the global network is how to resolve a growing number of cross-border disputes in the electronic environment. Diverse legal and non-legal obstacles such as physical, linguistic and cultural distances between parties, juridical difficulties concerning the applicable law, competent jurisdiction and enforcement of judgments make traditional methods of dispute resolution ineffective in the online environment. It has been argued that these deficiencies may significantly hamper further development of the Internet and electronic commerce. Although not free from similar and other concerns, ODR is being depicted as the potentially optimal method to resolve disputes arising on the Internet.
At the commonsense level, as several authors argue, if the Internet gives rise to some disputes, it seems appropriate to employ the same medium to deal with them.8 Given that parties physically located far from each other can easily “meet” and communicate in cyberspace, they can both cause and resolve a dispute in cyberspace. In addition, ODR can be more effective than traditional methods in terms of time, convenience and financial resources involved in dispute resolution procedure.9 Thus, in Katsh and Rifkin’s view, online dispute resolution is “a response” to the dispute and other activities that are appearing online, and also “a user” of resources becoming available in cyberspace. Its nature, therefore, reflects various qualities and features of the online environment10.
ODR has qualities acquired from the online environment, but it also has traits acquired from ADR. ODR has the same potential advantages over litigation of greater efficiency, greater party control and lower costs.11 It is fair to say that ODR grows directly out of the history of offline ADR – as observed by Rule – “in its earliest incarnations” online dispute resolution procedures were unchanged ADR procedures conducted online.12 The first three pilot projects launched to develop workable dispute resolution techniques online (the Virtual Magistrate, the Online Ombuds Office and the Maryland Mediation Project) were based on arbitration, mediation and complaint assistance techniques.13 For that reason, in the opinion of some authors, the ODR phenomenon relates simply to using the Internet to provide ADR, whether as an adjunct to face-to-face services or in substitution of them.14 Consequently, they define ODR as “ADR that takes place using computer-mediated communications in the online environment”.15 They also indicate that most laws and principles that apply to ADR in the brick-and-mortar regime will also apply to e-commerce and other Internet disputes. Yet, although ODR is an “offspring of ADR”16, it must be pointed out that with the development of online technology “a new dimension has been added to the dispute resolution industry.”17 Some ODR procedures, like automated negotiation18 or facilitated negotiation19, do not have exact offline equivalents. At this point, the conclusion reached by Hörnle seems accurate: “In one sense, ODR is simply about the use of new tools – information management tools and communication tools – for dispute resolution. But it is equally true that these tools change the methods by which disputes are being solved. ODR introduces a new paradigm of dispute resolution.”20
The growing consensus believes that online dispute resolution can be useful for two types of disputes: those that arise from online interactions and those that arise offline.21 Initially, the focus of ODR stakeholders was largely on consumer disputes resulting from e-commerce transactions. This continues to be an important area for ODR, but it has been joined by a growing number of disputing contexts. The chart below illustrates the wide range of fields in which different services have been offered by ODR providers.
Types of services offered by ODR providers22
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