November 16, 2012
Where there's commerce, there's conflict. While the court system has long served to help settle differences, the operating system may represent the future of dispute resolution.
E-commerce generates far more complaints than current court systems can handle. Together, eBay and PayPal transactions lead to over 60 million disputes annually. That's four to five times the number of cases handled by the U.S. court system, according to Colin Rule, who served as director of online dispute resolution for eBay and PayPal. Rule is now the co-founder and CEO of Modria, a startup that on Monday plans to launch an online dispute resolution platform for organizations and individuals called the Fairness Engine. "We want to build the justice system for the Internet," said Rule in a phone interview, noting that many online companies, such as AirBnB, Amazon, TripAdvisor, and Yelp have to deal with dispute resolution. [ For an example of where a conflict resolution platform could help, see United Flights Delayed By Computer Problems. ] Modria's Fairness Engine aims to provide companies and customers with a framework for resolving conflicts online. It includes a diagnosis module that gathers relevant documentation about an issue and suggests potential solutions, a negotiations module that summarizes areas of disagreement and facilitates direct on-the-record discussions, and a mediation module that involves a neutral third-party who can encourage a mediated solution. The technology is licensed from eBay and PayPal, where the software won an internal corporate innovation award called Labs Rats two years in a row. "It can work for pretty much any kind of dispute, from a low-dollar value case all the way up to a multi-million-dollar commercial case," Rule said, observing that the trans-jurisdictional nature of the Internet means that traditional judicial remedies aren't very helpful. Rule says that since the Supreme Court ruling in AT&T Mobility v. Concepcion, which accepted the use of pre-dispute binding arbitration clauses in consumer contracts, U.S. companies that didn't already have such clauses have been rushing to add arbitration agreements that stipulate a private dispute resolution process as an alternative to the costly court system. What Modria aspires to offer is a fair process, with enforcement of any decision left up to the entity using Modria's technology. Rule says there are some ways that Modria can help with the enforcement process. For example, he says, if a consumer files a complaint and the merchant does not respond, Modria may not have authority over that merchant to assess a fine, but it can report that merchant to the Better Business Bureau, the Federal Trade Commission, or some other online reputation system. Rule compares Modria to the dispute resolution service providers that hear domain name complaints under ICANN's rules. The way ICANN has resolved domain name disputes, however, has not been without criticism. ICANN's process allows complainants to choose the organization that mediates the dispute. And because many of the complainants are corporate copyright holders, they tend to choose the World Intellectual Property Organization, which has tended to rule in favor of corporate copyright claims. Rule says such concerns are legitimate. "As these private redress mechanisms proliferate, there's a danger you're going to have these kangaroo courts, where they're biased in favor of one party or the other," he said. "We designed our system to be free of that kind of bias, so the complainant doesn't get to pick the venue. ...For us it's all about fairness and transparency and impartiality." Modria is also beginning to handle dispute resolution outside of the ecommerce space. Rule says the company is working with Tyler Technologies to provide a way to resolve property tax assessment appeals online. Assuming this trend continues, the small claims justice system could become mostly privatized. "In California, they're gutting the court system," said Rule. "They're cutting staff. And the courts have to work the criminal cases. So what that means is there are huge delays in the civil cases. In San Francisco, for example, it's now five years from filing a case to actually getting in front of a judge. And elsewhere it's even worse: In Italy it's seven years and in India it's ten. The court system is not built to handle cross-border disputes over 50 or 100 bucks." Eric Goldman, professor of law at Santa Clara University School of Law and a member of Modria's advisory board, said in an email, "I'm so excited about Modria because it can offer a cost-effective adjudication option -- cheaper than judicial processes and cheaper than many other private adjudications, but it can offer a lot of due process -- more than we might expect from other private adjudications. The result is that we get better results for disputes that are either being handled poorly (like through corporate adjudication) or were simply not being adjudicated at all." Yet as binding arbitration becomes the norm for low-value disputes, what consumers stand to gain in terms of expediency and convenience may be balanced by what's lost: the constitutionally guaranteed right to a jury trial, a public written record of the case, class action opportunities, and the court appeals process. In addition, the court system is believed by many to be favorable to consumer plaintiffs, assuming they have the financial wherewithal to get there in the first place. One paper on the subject, "The Use of Pre-Dispute Arbitration Agreements By Consumer Financial Services Providers" (2009) asserts that banks and financial companies want binding arbitration clauses because they feel the court system favors consumers. "The court system (particularly, the state court system) is clearly skewed in favor of consumers and plaintiffs' attorneys and allows them free reign to take advantage of banks," the paper states. While justice delayed may be justice denied, it remains to be seen whether justice hastened is just as just.
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