Settling It On the Web
New technology, lower costs enable growth of online dispute resolution
Posted Oct 1, 2007 1:12 PM CDT
By Jason Krause
Online dispute resolution was supposed to take over the legal profession. With the rise of the Internet, artificial intelligence and other clever bits of technology, lawyers would be able to solve legal disputes with computers, not courtrooms and judges.
“Around 1999 or 2000 we thought this would be huge; every court would have a kiosk out front for ODR,” says Colin Rule, ODR director for eBay and PayPal.
But a funny thing happened after the dot-com bust. ODR seemed to fail. And now, instead of being imposed on the legal profession from the outside, it is bubbling up from within the trade.
Rule says ODR is integrated into a lot of business models and has become so integral that many people might not even know it’s there. “Look at me: When we started, I worked at a tiny, independent ODR company,” he says. “Now I’m part of this big company that handles millions of disputes online, and nobody thinks twice about it.”
Web technology is now slowly making inroads into dispute resolution that had been handled offline. Dan Rainey, director of the office of alternative dispute resolution services for the National Mediation Board, a federal agency, says he hopes to soon handle 10 percent of its arbitration cases online.
The American Arbitration Association says ODR is used in only a small percentage of all cases settled, but it has seen recent growth. In 2006, 3,000 of the 160,000 cases the AAA handled were done digitally. Separately, the group tried to handle online as many of its 15,000 Hurricane Katrina-related cases as possible. However, almost all those are hybrids of some sort, with people meeting face to face for some parts of the process and using the Web to communicate for other parts.
WHAT IS (AND ISN’T) ODR?
Online dispute resolution is a broad category: Any mediation, arbitration or dispute resolution that takes place outside of court and at least partially online qualifies. It differs from alternative dispute resolution, which refers to processes outside governmental jurisdiction. ODR can mean anything from e-mailing documents and evidence to using videoconferencing to bring the sides together. And it has been most effective in international or long-distance disputes involving technology issues.
ODR will always be most important for online businesses since it’s clear the Internet is not always a harmonious place, giving rise to many disputes. Often those disputes involve small dollar amounts, far-flung adversarial parties and seemingly petty issues. In the wildly popular online game Second Life, a dispute arose because one player put a nude image where another player would be forced to look at it. It’s the kind of thing that’s too small to litigate in the real world—but using Web mediation, it got resolved.
ODR makes most sense in cases in which attorneys’ fees would exceed what could be recouped. But many large organizations, particularly insurance companies and municipalities, are finding ODR saves them money even in big-money cases because a matter can be handled much faster.
ODR is faster because it is not dependent on getting on a mediator’s or judge’s calendar. Using e-mail, discussion groups and Web sites, agreements can be written, posted and responded to when convenient. And when something needs to get done fast, participants can log on to a chat or a secure online session and hash out a dispute no matter where in the world participants may be.
ODR has the added benefit of simplifying jurisdictional issues. Such matters can be resolved at the outset once all parties agree. And there is greater flexibility for the adversarial parties, with each dispute process tailored to each dispute’s needs. As long as someone can get online, he or she can participate in the process.
With the rise of Web 2.0 software—cheap or free software that gives users more control over content—mediators and arbitrators have several new tools at their disposal, such as “wikis.” Wikis are online whiteboards or spaces where users can go to review, edit and post comments on a project. Users can track changes made and receive e-mail alerts about changes. In fact, cheap or free alternatives are often better than full-service technology, Rainey says. “If you’re dealing with proprietary information, you will want to pay for security, but otherwise we’ve found cheap or free stuff you can buy off the shelf works best,” he says.
Teleconferencing is becoming increasingly cheap, even free. A service such as Skype or LiveOffice offers inexpensive calling with controls for multiple parties. Digital whiteboard technology lets users share even doodles and sketches over the Web so that they can diagram car crashes or compare figures. And free services like ScanR create PDFs out of photo images so users can share nondigital documents. And once an agreement is reached, parties can digitally sign documents with software such as Adobe Acrobat 8.
Many ODR proponents point to the prevalence of Web cameras as evidence that dispute resolution can not only be done over the Web, but also can involve some of the same human interaction as a face-to-face meeting.“We often talk about how once high-quality videoconferencing becomes widespread, you can’t hold ODR back,” says Rainey.
“Nobody would sit in the courthouse if they could leverage technology to settle from home.”
Prices for the necessary Web technology are also declining. Rainey says two years ago a 10-person unlimited license from WebEx cost between $15,000 and $25,000 per year for online conferences. Now, with increased competition and improved technology, the organization can get a similar license for less than $500, and the price continues to shrink.
In addition, online technology allows participants to access case information and track progress. However, since ODR has mainly been used in conjunction with traditional face-to-face meetings or for only part of a process, it doesn’t always lead to cost savings.
“I know people like to say it saves millions, but by the time you buy servers, security software and hire an IT staff, you’re spending more money and still have to do things the old-fashioned way,” says Rod Davis, the Better Business Bureau’s vice president of dispute resolution. “I think it makes things move more quickly, which is the real advantage.”
Some groups are trying to jump-start the switch to online by putting technology in the hands of mediators and letting them learn to use it. The AAA began a program in New York and New Jersey giving arbitrators videoconferencing equipment and tablet PCs for taking notes.
“People are sometimes put off by the idea that cases are put online without human intervention,” says Debi Miller-Moore, AAA national vice president of online services and claims programs. “But over time, more sophisticated tools become available and people are becoming more comfortable with technology.”
Some types of disputes and cases don’t work for ODR. For example, Rainey, whose National Mediation Board handles disputes in the air and rail sectors, says a large number of claims with one party can sometimes be settled better in person. “If you’ve got eight to 10 cases in a day with one union, a lot of business can be done around the water cooler,” he says.
And in some disputes, Rainey says, it is important to be able to see body language to know if people are defensive. In fact, some disputes are harmed by going online. If one party is more adept at using technology, or if it’s a personal dispute in which an apology is needed, resolution is harder to accomplish online. If not handled well, ODR can even alienate users.
“ODR is not a method for resolving disputes as much as it is a way to build trust,” says Ethan Katsh, director of the National Center for Technology and Dispute Resolution, an agency based at the University of Massachusetts Amherst that supports development of online conflict resolution methods. “If someone’s not satisfied that their problem is settled, they won’t be back to do business with you.”
EARLY DAYS AT EBAY
ODR has its beginnings near the end of the last century. In 1999, eBay began a pilot program with a few hundred cases; the company now handles millions of cases a year. Its partner in its current program is third-party resolution company SquareTrade, the most successful ODR business.
SquareTrade has provided dispute resolution for several online sellers, and with eBay it has proved the ODR concept works. But so far, the eBay example has not taken over the rest of the world—online or off.
Only a handful of the other early ODR companies survived the dot-bomb, most notably Cybersettle Inc., which is expanding its business out of its original insurance niche by signing contracts or working on pilot programs with municipalities and retailers.
Also, Cybersettle has recently successfully defended a patent on double-blind bidding. In cases where there is little factual debate and the main battle is over settlement terms, the parties or their ODR services pay Cybersettle a fee to allow multiple offers using its system over the Internet. The company recently signed a three-year contract with the city of New York to handle claims involving sidewalks, schools, city property, traffic, motor vehicles or personal injuries, as well as even more complicated matters like medical-malpractice claims.
The company has 140,000 lawyers in its database and says it has resolved insurance and other claims totaling more than $1 billion. Cybersettle says ODR is moving out of the insurance industry. In addition, the disputes involved are getting bigger: Insurance companies are now using it for million-dollar claims.
Bill Sayed, a solo personal injury lawyer in Tarzana, Calif., has been using Cybersettle for more than five years. He says he’d like to use it more often, but not all insurance companies use the technology.
“You save on all the calls, letters, missed calls, frustrations and delayed responses,” Sayed says. He also believes the process discourages parties from low-balling. “Both sides enter an offer, and if you’re not in the same ballpark by the third try, you know it’s time to pick up the phone and straighten it out,” he says. “The idea is to settle quickly so you don’t waste time with low-balling.”
Still, Sayed says, claims involving soft-tissue injuries or injuries with internal damage are better done on the phone so that he can make sure adjusters understand exactly what’s wrong.
And though Cybersettle is aggressively expanding its efforts, it says ODR is not taking over all dispute resolution mechanisms. “We’ve always said that we are not the answer to everything,” says Cybersettle CEO Charles Brofman. “Some companies that started in the late ’90s said they would be the solution for everything, and that’s just not the case.”
OTHER USES AT HOME AND ABROAD
ODR works for more than mediation and arbitration. The technology is being used to fix complaint systems and oversight systems, particularly in government. Walter Reed Army Medical Center in Washington, D.C., has responded in part to revelations of negligent care there by offering online complaint and dispute resolution.
“The Walter Reed ... scandal came to light because a patient or soldier contacted the Washington Post and told them what was going on,” says Katsh. “That’s not a very efficient system. Why not have ways for soldiers to anonymously air grievances right to the hospital?”
Rainey at the National Mediation Board approached Walter Reed to fix its problems with technology. “Imagine I’m a private whose legs have been blown off and I have to call your secretary to set up an appointment, get up here and then wait outside to see my commanding officer,” he says. “That’s a system just crying out for technology to get in the middle and make things happen.”
Rainey has been instrumental in getting a system running quickly, in part because there is an obvious and embarrassing need, but also because of reduced costs and nearly ubiquitous technology.
And though ODR is only a small part of the overall dispute resolution picture in the U.S., there is increasing acceptance from overseas, which may push American parties to embrace it faster. Kenya and Nigeria are using the Web to mediate microloan agreements. In Sri Lanka, factions in its sectarian violence have agreed to mediate their disputes only via the Web, since meeting in person is often too dangerous.
Also, the United Nations has sponsored a conference in Liverpool, England, with representatives from 29 countries there producing protocols for online communication in dispute resolution.
“ODR might not have taken over the world the first time around,” Katsh says, “but technology has gotten to the point where it just doesn’t make sense to not use the Web to handle more disputes.”
RESOLVING DISPUTES DIGITALLY
Online dispute resolution may not have taken over the process of solving conflict, but it has provided new, efficient and low-cost ways to reach the goal. The following are a few examples of ODR applications:
1. FILING A CLAIM ONLINE
SquareTrade uses a tool called Direct Negotiation, which handles all the communications through e-mail, including an online form to explain the complaint and possible resolutions, and contact with the defending party to see if it will counter. If Direct Negotiation doesn't bring a settlement, a mediator can join in.
2. TRADING SETTLEMENT OFFERS
In Cybersettle's system, a claims professional initiates the process with confidential offers. The opposition is notified by fax, e-mail or mail, and the respondent has three tries to settle the claim. If the complainant's offer is less than or equal to the opposition's, the claim settles.
3. DISCUSSING THE ISSUES
The E-Arbitration-T Open Source Groupware and Customer Relationship Management Suite allows parties to create an entire ODR system, handling online case document sharing between all parties and offering full security. Off-the-shelf solutions like wikis and whiteboards also allow parties to share information, discuss and collaborate on documents, and even reach agreements online.
4. SIGNING AN AGREEMENT
The federal E-Sign Act has validated the use of electronic documents and electronic signatures since 2000. Digital signatures can now be added to many commonly used documents, including those created with Adobe Acrobat 8.