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Disputes Regarding Electronic Commerce
Their Resolution Online and Otherwise

By Richard Hill
Hill &: Associates
Email: rhill@batnet.com
URL: http://www.batnet.com/oikoumene/tacr.html

Richard Hill is a partner of Hill & Associates, 6 ch. du Port-Noir, CH-1207 Geneva, Switzerland, FAX: +41 22 840 1025. He is the former Western European Rapporteur for UN/EDIFACT. This paper is based on material contributed by members of the Informal Working Group on Dispute Resolution in Telecommunications. Over 30 people have made some sort of contribution. The list of contributors is available from the author upon request.

I. The Background

Electronic Data Interchange (EDI) has traditionally been free of litigation and the types of acrimonious disputes which are found in various other sectors. The scarcity of disputes is due to the fact that most EDI takes place between long-term business partners, and because most of the uncertainties that could lead to disputes are covered in the so-called EDI trading agreements. Many model EDI Agreements (also known as Interchange Agreements and Trading Partner Agreements) exist. The oldest one is the ICC's (International Chamber of Commerce) Uniform Rules of Conduct for Interchange of Trade Data by Teletransmission (UNCID); ICC publication no. 452. For a more modern approach, see Appendices B and C of Benjamin Wright, The Law of Electronic Commerce: EDI, Fax, and E-Mail: Technology, Proof, and Liability (Little Brown, 1991 with yearly supplements); the European Commission Model EDI Agreement (October, 1994) and the UN/ECE WP.4 Model Interchange Agreement for International Commercial Use (March, 1995).

However, the potential for disputes in Electronic Commerce is likely to be much greater, because many transactions will take place between partners who do not have long-term relations, and it will not be practical to negotiate specific electronic trading agreements. A more complete discussion of the differences between EDI and electronic commerce can be found in Richard Hill, "Minitel: an Example of Electronic Commerce Compared to the World-Wide Web", EDI Forum (Vol. 9, No. 2); and The Information Society (Vol 13, No. 1, Jan-Mar 1997).

It clearly would be a loss for all concerned, including the public, if today's non-contentious way of doing business electronically were to evolve into the litigious patterns that characterize certain other sectors.

II. What Types of Disputes may Arise Regarding Electronic Commerce?

Potential disputes can be divided into two broad categories:

1) Those in which there may be a public interest involved.
For example, regulation of pornography and other controversial content; trademark law applied to domain names; regulation of advertising; and violations of unfair trading practices.

One well-known example of application of pornography laws resulted in a California couple being extradited to Tennessee, convicted, and jailed there, because their Internet service was considered illegal by Tennessee community standards, even though it was not illegal by California standards.

This example shows how there is no legal void with respect to electronic commerce, despite reports to the contrary in the popular press. All existing national laws apply to electronic commerce, although it is true that sometimes it is not clear how to interpret or apply those laws.

2) Those which are of a purely private nature.
For example, sales contracts and service contracts.

A sale made over the Internet would be subject to the law of the seller in most cases. However, if the buyer were a consumer, then in many countries the buyer could sue in his or her national court in case of dispute.

III. The Requirements for Dispute Resolution

Organizations active in electronic commerce have the following requirements for dispute resolution mechanisms, albeit to different degrees:

  1. Speed. A solution should be found in a very short time frame, sometimes in a few weeks. This rules out conventional court proceedings in most cases, and also strains international commercial arbitration as it is widely practiced within the well-known arbitration institutions.

  2. Effectiveness. Solutions must be practical for both parties and correspond to their commercial and regulatory constraints. Indeed, they must be fair and independent, where fairness is judged in accordance with the principles of equity common in electronic commerce.

  3. Expert knowledge. The problems posed by the operation of a telecommunications service or infrastructure are sufficiently specific to require deep knowledge of technical, economic, financial, regulatory, and legal issues on the part of dispute resolvers, particularly judges, arbitrators, and mediators. If nothing else, dispute resolvers should be familiar with the many terms of art used in electronic commerce.

  4. Cost. The cost of resolving a dispute must be well below the cost of not resolving it, or of conventional legal proceedings. The total cost must be considered: fees of parties' counsel, of dispute resolvers, and of dispute resolution institutions.

As noted in the 3 March, 1997 ICC Court of Arbitration Symposium of Arbitrators that addressed the issue of dispute resolution in electronic commerce, these criteria may sound simple, but it is not at all easy to achieve all of them all of the time. In fact, there is no single best method or panacea and dispute resolution procedures should be tailored to the nature of the dispute and the resulting requirements.

IV. Current Experiences and Trends

There have been, or are, several projects for resolving disputes online. A somewhat dated inventory of such projects can be found at http://www.batnet.com/oikoumene/tacr.html. The best-known recent projects are The Virtual Magistrate at http://vmag.law.vill.edu:8080/ and the Online Ombuds Office at http://www.ombuds.org/.

The Virtual Magistrate is essentially a fast arbitration scheme, restricted to a small range of disputes: I do not know whether or not it may be suitable as a system operator to delete or restrict access to content on the basis that it violates intellectual property (such as copyright, trademark, etc.), defamation, deceptive trade practices, or pornography laws or regulations. Experience to date has been very limited.

The Online Ombuds Office is an online mediation scheme which will handle any dispute arising from some online activity. The mediation is conducted by E-Mail and telephone. Again, experience to date has been very limited.

An extensive investigation conducted by the Informal Workshop for Dispute Resolution in Telecommunications indicates that existing dispute resolution institutions have limited experience with telecommunications disputes. Further, the investigation showed that - apart from the above - there are no specific rules for telecommunications disputes and that only the American Arbitration Association maintains a list of experts in the field of telecommunications.

In a small survey conducted by the Informal Workshop for Dispute Resolution in Telecommunications, 70% of the respondents reported being involved in national disputes during the past five years sometimes or frequently, while only 20% reported being involved in international disputes sometimes or frequently. To resolve disputes, 80% percent of the respondents reported using negotiation sometimes or frequently, and 60% reported using national courts sometimes or frequently. Other dispute resolution mechanisms were used much less frequently. Eighty percent of respondents specify national courts as the dispute resolution mechanism in their contracts, 40% specify ICC arbitration, and 35% specify the national regulator.

Turning to satisfaction with the processes used, over 75% of the respondents were satisfied with the speed, cost, and fairness of negotiations. Regarding disputes resolved by the regulator, 80% were satisfied with the cost, but 65% were not satisfied with the speed. Regarding disputes resolved by national courts, 85% were satisfied with the fairness, but 75% were not satisfied with the speed.

Turning to the future, 60% of respondents indicated that they would use arbitration with arbitrators having telecommunications expertise, if this option were available; 40% would use mediation with mediators having telecommunications expertise.

Disputes surrounding domain names that allegedly violate trademarks are becoming increasingly common and a special group (the International Ad-Hoc Group) has recently proposed that they should be resolved by arbitration by the World Intellectual Property Organization (WIPO). For more information on this proposal, see http://www.iahc.org or http://www.wipo.int.

The ICC Court of Arbitration is no doubt observing developments related to dispute resolution for electronic commerce and telecommunications and may well be considering how best to meet user requirements in this area.

V. Conclusion

Although the data collected from the survey mentioned above do not relate specifically to disputes regarding electronic commerce, it nevertheless appears reasonable to extrapolate them and to conclude that there is scope to establish electronic-commerce-specific dispute resolution mechanisms that are faster than currently available mechanisms. The options would probably include the following:

- Mediation, if necessary with a non-binding expert determination of the parties' rights by an individual other than the mediator (unless both parties specifically wish the mediator to give evaluations). Mediators would have expertise in electronic commerce. For a discussion of mediation, see Richard Hill, "Non-adversarial Mediation", The Dispute Resolution Journal (Vol. 50, No. 3, July-September 1995); and (expanded version) The Journal of International Arbitration (Vol. 12, No. 4, December 1995).

- Arbitration with procedures that have been determined in advance and are such as to reduce delays. At least one member of the arbitral tribunal would have expertise in electronic commerce, in order to avoid the delays and costs that inevitably arise when it is necessary to give introductory tutorials in technology to the arbitral panel.

There are two extreme scenarios for the development of the dispute resolution structure of electronic commerce develops. In one, the current patchwork of national laws and courts is used aggressively by some parties in order to harass other parties and to prevent the orderly development of business. In the other one, a law of Cyberspace, with a concomitant Cybertribunal, emerges to instill harmony and order.

Of course neither extreme scenario is very likely to come about. Although forecasts of the future are notoriously unreliable, I would expect that industry groups will slowly evolve recognized business practices for electronic commerce, that these practices will become widely adopted, leading to de-facto creation of what might be called lex mercatoria electronica. Such practices would probably include referring disputes to specialized bodies, well-equipped to resolve them quickly and fairly, as is the case for commodities trading today.

The main obstacle to the implementation of such an optimistic forecast is simply wide-spread ignorance. Many people today don't really understand what electronic commerce is all about, how it works, or how to fit it into current laws. As people become better informed, thanks to publications such as this one and seminars conducted by organizations such as the ICC and its Court of Arbitration, they will come to understand the issues, and they will adopt pragmatic solutions that will facilitate the orderly development of electronic commerce. Such was the case for EDI world-wide and Minitel in France, and there is little reason to doubt that such will be the case for electronic commerce world-wide.