|April 18, 2000
Donald S. Clark, Secretary
Re: Public Comments by the National Arbitration Forum Alternative Dispute Resolution for Consumer Transactions in the Borderless Online Marketplace
Dear Mr. Clark:
The National Arbitration Forum ("The Forum") is a nationwide and worldwide network of retired judges, senior attorneys, and law professors. These independent professionals share The Forum principle that disputes should be decided according to established legal principles. Forum arbitrators act under a uniform Code of Procedure which, among other things, requires that awards conform to the law. Awards are made according to strict time lines by professional decision-makers, following the law, using the same rules and procedures for every case, wherever the dispute or claim arises.
On behalf of these professionals, The Forum submits these comments in response to the initial Notice issued by the International Trade Administration, Department of Commerce, and Federal Trade Commission ("Agencies") requesting comments on "Alternative Dispute Resolution for Consumer Transactions in the Borderless Online Marketplace." The Forum applauds the Agencies effort to address this timely issue. Consumers use of e-commerce will certainly grow dramatically over the next few years provided consumers have trust in the electronic marketplace, i.e., that there is a viable means to address a potential dispute.
The Forum has substantial experience in Internet-related arbitration. The Forum has been chosen by the Internet Corporation for Assigned Names and Numbers ("ICANN") to be one of three arbitration providers worldwide to provide domain name dispute resolution. The Forum has also been selected by the American Institute of Certified Public Accountants ("AICPA"), the Canadian Institute of Certified Public Accountants ("CICPA"), and the Institute of Chartered Accountants in England and Wales ("ICAEW") to provide Internet consumer arbitration under their "WebTrust" programs. As President and CEO of AICPA, Barry Melancon, said,
As a practicing litigator, I have gained significant experience with all types of dispute resolution. As Adjunct Professor of Alternative Dispute Resolution ("ADR") at the University of Minnesota Law School, I am familiar with the entire panoply of ADR tools. As Managing Director of The Forum, working with hundreds of former judges throughout the world, I have gained further insight into the emergence of ADR for Internet issues. I respectfully request the opportunity to participate in the workshop to be held on June 6 and 7, 2000.
Before addressing the specific topics listed in the Notice, it may be helpful to offer a comment on the difference between online dispute resolution ("ODR") and ADR for online consumer transactions. ODR is often confused with ADR for online consumer transactions.
ODR is an emerging industry that encompasses a broad range of dispute resolution services. ODR includes mediation, arbitration and other neutral services wholly or partly provided through the Internet, for consumer and non-consumer parties, and involving a wide range of claims. ODR includes online ADR for consumer and other transactions, whether transactions occur online or in the "old" economy. ADR for online consumer transactions may be by ODR or could use more traditional tools.
The standard model of a consumer transaction is the sale of a product or service by a business to a consumer, and the business is typically viewed as the more knowledgeable party with greater resources. To date, it appears that online consumer transactions are broader in scope. A large percentage of current online consumer transactions are consumer to consumer. In a consumer to consumer transaction, the parties may be equal in product knowledge, market sophistication, and resources. Therefore, the standard assumptions about the bargaining position of the parties may have to be adjusted. This distinction, as well as the fact that for most consumer transactions the dollar value of the transaction is likely to be small, should be considered as the Agencies review dispute resolution mechanisms for online consumer transactions. As explained further in this letter, ODR alternatives, built in to the initial transaction, may be the only viable dispute resolution mechanism available for online consumer transactions. Hence, the distinction between ODR and ADR for online consumer transactions will be important.
Existing ADR Programs
Existing ADR programs range from volunteer dispute resolution programs for consumers to professional providers (individuals and organizations) of numerous types of dispute resolution services for consumers and businesses. While Forum arbitrators are legal professionals, providing legal decisions, there are a wide range of services available in the marketplace. These answer divergent dispute resolution needs. ADR has been a growth industry as more businesses and consumers seek to address disputes outside of our lawsuit system.
Chief Justice Warren Burger observed, "Our litigation system is too costly, too painful, too destructive, too inefficient for a truly civilized people." This is certainly an accurate assessment for consumers. Many Americans are denied access to justice because of the high costs of litigation. The American Bar Association calculates that 100 million Americans are locked out of court by high legal costs. Objective surveys suggest that almost twice that number of Americans believe they cannot afford the cost of justice. The ABA Journal reports that most lawyers will not begin a lawsuit worth less than $20,000. Most consumer transactions are so small that a lawsuit is not an option. Arbitration and other dispute resolution mechanisms can be conducted in less time and a more convenient format and at less cost. As the U.S. Supreme Court has said, the use of arbitration to resolve claims is the preferred method of claim resolution.
There is currently much misinformation about ADR, including contractual arbitration. Arbitration is a long-established practice. Congress created the Federal Arbitration Act in 1925 and thereby mandated a federal policy favoring arbitration. The Supreme Court has endorsed the legislative mandate to encourage arbitration, noting in 1983, in Southland Corp. v. Keating, "Congress passed the FAA [Federal Arbitration Act] which mandated the enforcement of arbitration provisions and declared a strong national policy in favor of arbitration. From this strong policy flows a broad principle of enforceability of arbitration provisions. " More recently, the Supreme Court noted,
We agree that Congress, when enacting this law, had the needs of consumers, as well as others, in mind. [Citation omitted] (the Act, by avoiding "the delay and expense of litigation," will appeal "to big business and little business alike corporate interests [and] individuals"). Indeed, arbitrations advantages often would seem helpful to individuals, say, complaining about a product, who need a less expensive alternative to litigation.
The use of arbitration supports our traditional legal system. Through the use of the arbitration process, claims are resolved in an effective and efficient manner and then are reviewed by a court. An arbitrators award is never enforceable unless it is confirmed by a court of law. In essence, arbitrators act as magistrates ruling on issues that are then submitted to the court. If the arbitrator is required to base the arbitration award upon the law as Forum neutrals are required to do the decision is reviewable by a court for errors of law. The parties have the full protection of the legal system, but a faster and more cost-effective forum.
The use of arbitration in the consumer area has grown because it affords consumers access to justice that is otherwise unavailable. A recent Roper Starch survey found that fifty-nine percent of Americans would choose arbitration over a lawsuit to resolve a claim for money. Ninety-two percent of participants in securities arbitration responded favorably to the experience. Efficient and effective resolution of claims at a low cost is good for consumers and businesses. However, public education is badly needed. While the courts, Congress, and consumers experienced with arbitration recognize the benefits of arbitration, there is much misinformation circulated. Many consumers do not understand how arbitration works and how to take advantage of it.
Contractual arbitration affords both parties the advantage of knowing, before they transact business, that they will have access to an efficient and affordable forum to resolve a dispute expeditiously. Both parties have the incentive to adopt a contractual arbitration clause before they transact business because the dispute has not yet arisen (the parties have not assumed opposing positions) and the parties are interested in doing business with one another. Each party commits to arbitration in return for the other partys commitment. Why is that advantageous to a consumer? Because, once the dispute has arisen, a consumer may not be able to get a business to agree to arbitrate. At that point, a business may find it advantageous to drag the matter into court where the cost of litigation squelches almost all consumer claims. This analysis is borne out by the work of the Dunlop Commission on employment arbitration.
The advantage of contractual arbitration for consumers is recognized by leading consumer authorities. The Consumer Reports Law Book: Your Guide to Resolving Everyday Legal Problems states:
"If [the vendors] contract does not include one, you should insist on inserting a future-dispute arbitration clause, including language such as: Any dispute between the parties to this agreement shall be submitted to arbitration and the findings of the Arbitrator shall be binding on the parties.
Forum procedures provide consumers with a fair and effective arbitration process and an independent professional to resolve their claims. The Code of Procedure requires these professional decision-makers to follow the law. Arbitration and other forms of ADR provide consumers an opportunity to address legitimate claims that would otherwise go unaddressed.
Development of ADR for Online Consumer Transactions
Online commerce is in the infant stage. Key to its growth, however, is participants confidence that they can obtain recourse should a dispute arise. Since the Internet is a worldwide marketplace, crossing multiple jurisdictions, languages, and cultures, it is clear that a universal process is needed to address consumer transactions. A consumer in the United States cannot afford to pursue a claim against, for example, a seller in Europe or Asia. If consumers are effectively locked out of the lawsuit system in the United States because of the high cost, then certainly it is even more true in international transactions. Moreover, even if a consumer received a court judgment against a foreign business, enforcement is difficult, if not impossible. No country in the world is required to give comity to U.S. judgments (and vice versa). On the other hand, over 100 countries enforce arbitration awards under the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The nature of Internet transactions requires a process that crosses borders and boundaries. ADR is the answer. ODR may be an even better answer. Only if they commit to such systems can parties resolve their dispute effectively, efficiently and at a low cost.
Elements of a Fair and Effective System
The U.S. Supreme Court, in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 111 S.Ct. 1947 (1991) set out the requirements for such a fair and effective system:
Competent, conscientious and impartial arbitrators, and Procedures that allow the parties a fair opportunity to be heard.
The Forum has strived to create such a process fair, efficient and cost-effective. A copy of The Forums Code of Procedure and Arbitration Bill of Rights are attached and it is also available on our web site: www.arbitration-forum.com.
Role of Governments
American statutory law and court decisions facilitate the use of ADR for online consumer transactions and in particular, ODR. The presence of ODR is critical to the growth of Internet consumer business. The Agencies need to encourage the use of ADR and ODR for Internet businesses and to work to educate consumers.
The primary focus of the workshop should be defining the ADR needs of online consumers and how to encourage the use of ADR and ODR mechanisms.
The workshop should also serve as an opportunity to gather accurate and current data on the state of the ADR industry.