With every click on a "pay now" icon comes the prospect of disappointment: An Internet purchase may arrive late or damaged (or not at all), or it may not measure up to its online description. An estimated 60 million disputes erupt each year over eBay and PayPal transactions alone - more than small claims courts could ever handle.
Increasingly, these conflicts are hashed out in the venue where they arise - on the Web - through automated platforms that act as virtual conference rooms. In online dispute resolution (ODR), the parties file pleadings with supporting documents, and their dispute is negotiated with the help of software. If that doesn't work out, though, a human mediator is called in, so ODR doesn't replace lawyers. (Scroll to the end for more on how ODR works.)
Cybersettlement, already seen as a fast and cost-effective means of resolving low-dollar commercial squabbles, is now being used for property tax appeals, divorce mediation, and other cases. As Roger Fisher and William Ury wrote in Getting to Yes: Negotiating Agreement Without Giving In
, "Conflict is a growth industry." Given the volume of commercial and personal interactions taking place online, the rise of ODR isn't surprising, says Ethan Katsh, an architect of the concept and director of the National Center for Technology and Dispute Resolution in Massachusetts. "When you interact with people in a complicated way at a distance, [disputes] should be expected," he says.
ODR isn't regulated, and there is little reliable data on it. But its potential market is huge. U.S. Department of Commerce figures show 5.2 percent of all purchases are being made online. Colin Rule - who created dispute resolution software for eBay and PayPal and then launched a spin-off ODR company called Modria - estimates that Americans generate roughly 140 million commercial disputes each year.
San Jose-based Modria is a leader in this emerging market, benefiting from a steady stream of disputes from its two e-commerce giant parents. Now it's branching into disputes over real estate assessments (a county typically pays $3,000 a month to resolve its valuation cases) and into divorce mediation. Many California counties already ask couples to start with mediation, and it's required by state law in disputes over child custody or visitation - though courts don't charge for it the way commercial providers do. Loic Coutelier, Modria's director of arbitration, hopes that by 2015 ODR platforms will handle 10 percent of mediations arising from the estimated 1.5 million divorce cases nationwide.
"I believe that ODR is the next big frontier and will grow rapidly in the next decade," says Richard S. Granat, CEO and founder of DirectLaw, which bills itself as "Virtual Lawyering Made Simple." Other online platforms include iCourthouse, PeopleClaim, Cybersettle, and Justice Box.
Yet ODR is not without its critics, who warn that automated settlements come at the expense of human interaction, nuance, and discretion. The approach may work for settling small-scale commercial disagreements, says Llewellyn Gibbons, an associate law professor at the University of Toledo in Ohio, but Web platforms can't detect emotional or linguistic cues, or body language. Gibbons also warns that ODR entails no traditional fact-finding or interrogatories to determine bad faith, and that resolutions often depend "solely on submission of documents." Equally concerning, he adds: "We assume everyone is comfortable with the technology we use, but ... there are generational issues, economic issues."
Tracy C. Lemmon, an employment attorney and mediator in San Francisco, says consumers often remain uninformed about their rights: A "seasoned seller is still likely to overpower a buyer."
Still, Modria's Coutelier insists, "The process is the same, mediation is mediation. We are just cutting down on time and costs."
ODR in Brief
Online dispute resolution (ODR) is essentially ADR on the Internet. These platforms are mainly used to resolve cases that normally go to small claims court, but they're emerging as a solution for more complex cases. ODR systems use algorithms and, sometimes, human mediators. Some include tools to estimate how much a claim is worth or what a lawyer might charge to handle it.
How it Works
Users input information about their claims, including documents, statements of what they feel they're owed or how much they've paid, and other evidence. Then, in the case of a simple transaction such as a purchase, ODR software applies an algorithm and suggests a resolution. If the suggestion isn't mutually agreeable, the case may be run through different software that mimics the give and take of negotiation. From there, a case can move to traditional human mediation. If that's also unsuccessful and the parties have agreed ahead of time, the case can go to an arbitrator, who examines the facts and chooses a resolution.
Why it Matters
ODR may someday become mandatory for consumer claims, especially as funding dwindles and online transactions increase. British Columbia just launched a pilot program for businesses and consumers to resolve disputes online, part of the Canadian province's effort to simplify less serious civil complaints and make justice more affordable and accessible. Anyone who takes part agrees to accept the results - and be responsible for enforcement. The European Union is moving all disputes over transactions to the Web. And the UN is drafting rules for resolving consumer-scale trade disputes online.