Center for Information Technology and Dispute Resolution
University of Massachusetts

From: Ethan Katsh, Director
To: Federal Trade Commission and the United States Department of Commerce
Re: Online ADR in online consumer disputes
Date: April 12, 2000

            I am the Director of the Center of Information Technology and Dispute Resolution at the University of Massachusetts and a Professor of Legal Studies. I have been interested in and involved in efforts to employ alternative dispute resolution strategies on the Net since 1996. These include the following: 

• Establishment of the Online Ombuds Office in 1996 with a grant from the National Center for Automated Information Research. 

• Assisted in the design of the Virtual Magistrate project and served on the panel of magistrates.

• In 1997, received a grant from the Hewlett Foundation to establish the Center for Information Technology and Dispute Resolution at the University of Massachusetts. Since then, we have mediated disputes involving domain names, intellectual property, and disputes between Web site competitors. 

• During the spring of 1999, conducted a pilot project with eBay in which almost one hundred and fifty disputes that arose out of online auction transactions.were mediated over a two-week period.

• Served as only United States member of the ICANN Independent Review Advisory Committee

• In September, 1999, served as rapporteur for online ADR at meeting of the Hague Conference on Private International Law

• During the Fall of 1999, co-founded Disputes.org, one of three currently accredited providers for domain name disputes under the ICANN uniform dispute resolution policy.

• Consultant to SquareTrade, an online dispute resolution start-up.

I am also the author of several articles on online ADR (http://www.umass.edu/dispute/articles.html), all of which are accessible online.

           These experiences have persuaded me that online ADR is a workable and needed process. It is, however, not a single process and it is not a simple task to bring it to marketplaces so that consumers have a useful, useable, and accessible resource. Whether online or offline, it is not ADR that is instituted but mediation, arbitration, or some hybrid process. We need to design and implement systems for consumers but we also need to design and implement appropriate systems, and what is appropriate may vary from marketplace to marketplace. In the existing and currently functioning arena of domain names, arbitration has been workable, in insurance claims disputes a totally automated negotiation process has been growing in use, and in the online auction context, mediation may be preferred. In our eBay pilot project, we employed email and were fairly successful. SquareTrade is currently using a Web-based system for eBay disputes, which I suspect will be even more successful.

            As these systems are made available, we can also expect different technological approaches to be employed. Online mediation should not be considered to be simply the exchange of emails managed by a mediator. Email will have it place but email alone might be considered to be version 1 of mediation software.  As with every other software application, demand for the product will bring about new versions with greater functionality and useability. We are fortunate to have a widely used and available application like email, but we should understand that if success is achieved using an email-focused system, even greater success is likely with Web-based models that have some built-in intelligence and that improve as experience with online dispute resolution grows.

            The demand for online ADR can only grow as electronic commerce grows. The more online transactions that take place, the greater the number of disputes that will occur. I do not suggest that a high percentage of online transactions will necessarily lead to disputes, only that the number of transactions will be so great that the number of disputes will also be considerable. ADR is the only set of processes that can bring quick and efficient satisfaction to consumers and not be impeded by jurisdictional concerns.

             Jurisdictional challenges are just one of many challenges cyberspace poses to governments. The authority of government, which has traditionally been evident in a powerful and state-subsidized court and regulatory process, is less obvious online. Government has a role to play but it is not necessarily the same role government plays in offline consumer disputes. National authorities cannot claim sovereign regulatory authority over parts of cyberspace in the same way that they exercise authority over territories. Yet, national governments will remain relevant and important players in what will eventually emerge in cyberspace, since governments can influence marketplace decisions as to whether or not to institute a dispute resolution process, and can promote and suggest guidelines or best practices. The June workshop has already been very beneficial by focusing considerable attention on the need for online ADR in consumer transactions, and more activity can be expected to occur after the workshop takes place.

            The online consumer experience may, at times,  be a business to consumer transaction that is comparable to an offline purchase. It may also be a consumer to consumer transaction, a transaction in which prices are not fixed but are set by bidders and market forces. It may involve barter where there may be no clear monetary amount. Cyberspace is encouraging new patterns of commerce and the emergence of marketplaces, like auctions, which existed in the past but not at the scale in which they are operating online. 

            When transactions take place within an auction or barter marketplace, new challenges may surface but new solutions may as well. Again, in our eBay pilot, we found that there were disputes and a clear demand for our service. We also found that what is often the key challenge in voluntary ADR, getting the other party to the table, was not as much of a problem in the eBay context as it has been in the offline context. Some marketplace forces, such as the desire to continue to do business in the marketplace and maintain a positive reputation, may be stronger in some online contexts and once parties come to the table, an important first step to resolution has been taken.

              The Center of Information Technology and Dispute Resolution maintains an up-to-date list of online ADR providers on its Web site (http://www.umass.edy/cyber/onlineadr.htm). The majority of them are less than a year old and, unlike most of the older ventures that were affiliated with universities, are for-profit enterprises.  These for-profit endeavors are looking for solutions in the intelligent capabilities that can be built into software, and in the fact that expertise can be delivered over a distance. Cyberspace may be the problem but it may also be the solution. We can expect more for-profit ventures to emerge and they will bring resources, skill, and creativity to the marketplace of disputes. These for-profit ventures could bring other problems, even additional consumer problems. This would be ironic and most unfortunate but again, public attention and creative use of the network can be a force to encourage quality.

                A year ago, at the June, 1999 workshop U.S. Perspectives on Consumer Protection in the Global Electronic Marketplace, I may have been the only person to speak of the promise of online ADR. A lot has changed in a year and the opportunities presented to us by the use of online ADR are becoming widely recognized. In another year, we should take stock again, and assess whether we have made the kind of progress that I believe we are capable of making in assisting the ever growing numbers of online consumers.