Bearing the Costs of B2C Online Dispute Resolution

Back at the end of the last millennium, the Centre de recherché en droit public (CRDP), along with colleagues from the Centre de recherches informatique et droit (CRID) and the Centre national de la recherche scientifique (CNRS) obtained a research grant from the European Commission’s Directorate General for Health and Consumers to develop what would become the ECODIR (Electronic Consumer Dispute Resolution) ODR platform.

Launched in Brussels in October 2001, the ECODIR platform was well received by the various stakeholders: consumer associations, professional associations, industrial groups, the public sector, the European Commission, etc. The technical aspects of the application were praised, as was its user-friendliness and the ease with which the parties can negotiate directly with one another, without the intervention of a third party. Yet, despite these facts, the ECODIR Project has never really taken off. Hosted at the Faculty of Law of the University College of Dublin, Ireland, the ECODIR platform is still available on the Internet, but only handles a handful of cases annually.

Although the European Commission made what we believe were a series of mistakes in the early stages of implementing the platform – such as diverting funds towards third-party projects that never came to fruition or not following through with its original plans, which including labels and partnerships with major European commercial sites –, all of which have undeniably had a role to play in the lack of success of this enterprise, ECODIR mostly serves as a cautionary tale regarding the issue of funding online dispute resolution systems. In the early part of the first decade of the new millennium, many websites claiming to offer online dispute resolution services appeared. Yet, aside from SquareTrade, which was able to take advantage of a captive market in the form of the formidable armada of buyers and sellers on eBay, few of these services found the necessary financial backing to develop functional ODR platforms and to make their systems strive.

There are only two viable ways to address the ODR funding question. The first is to have the ODR provider be financed by a benefactor, whether public or private. Public models are popping up in certain areas of the world, the small claims experiment in British Columbia being one of the latest examples of this trend. But, since the Internet is transnational in nature, it remains difficult to see how a single state can offer this type of service to cross-border disputes, especially when neither litigant has any connecting factors (to use the terminology set forth by the Supreme Court to establish competence for online disputes) with said state. Furthermore, even if foreign litigants chose to use a platform offered by, for argument’s sake, the Canadian government, it would be difficult to justify such an expense to Canadian taxpayers, especially in these difficult economic times. The burden of funding ODR therefore rests on the private sector, which, as the last decade has shown, doesn’t seem keen on investing in the field. Other than eBay — whose system is incorporated into its auction service, and therefore reserved for its members — major Internet stakeholders have yet to agree to open their wallets to facilitate the establishment and operation of online dispute resolution systems.

Since ODR operators cannot count on public or private funding to cover their costs and generate a profit, the only remaining option seems to be to have participants pay user fees. This business model is currently being used by most “classic” ADR services, yet doesn’t seems to be well adapted to high volume, low value cases such as those put forth in online B2C cases. Why would consumers chose ADR when the value of the dispute is less than the cost of arbitration? Of course, this only applies for those few cases where parties cannot resolve their dispute themselves through the help of the platform and, therefore, would need to rely on the intervention of a third party to decide the outcome of said dispute (a scenario that is relatively uncommon if one relies on statistics regarding ODR). However, even if arbitrator salaries do not come into play, operating costs relating to hosting services, system administrators and general upkeep still need to be factored into the equation. Furthermore, since there is strong opposition from the international community to the idea of consumers having to pay even a nominal fee to have access to ODR services (this position seems to have been adopted by most delegations taking part in the UNCITRAL Working Group on Online Dispute Resolution for which the CRDP has observer status), there is only one option left, and that is to have the online business community bear the blunt of ODR costs.

As Michael Geist demonstrated back in 2001 in his “Fair.com” paper, this option, of course, raises serious questions regarding the neutrality of ODR providers and administrators. If one party pays all of the provider’s bills, there is a risk of partiality. This problem was more recently brought to light with the National Arbitration Forum scandal regarding credit card disputes where “Only 0.2% of consumers won their cases in California when NAF was involved”, a situation many commenters attributed to the fact that corporations with controlling interests in the NAF were also linked to a debt collection agency.

A similar argument could technically be made against what is often referred to as the most successful example of ODR, i.e. the eBay Resolution Center (the system which replaced SquareTrade in 2008). Since eBay funds its platform through monies received from its sellers, one could argue that the service could show a bias towards the later (although we know of no statistical evidence supporting this claim). However, we submit that such an argument remains farfetched since eBay members can both sell and buy, and therefore the line between merchants and consumers is not as well defined as it would be in classic ecommerce situations. Furthermore, as eBay has millions of members, it seems doubtful that even the biggest of PowerSellers could have that much influence on the website. Of course, since some Courts no longer view eBay as a neutral marketplace (in France for example), but rather as a partner to its sellers, there is a risk that, whether it is warranted or not, consumers start to feel that the deck is stacked against them…

In 2012, there are few that would still claim ODR is not a useful tool to solve online commercial disputes, especially with regards to high volume, low value disputes, such as those most commonly seen in B2C cases. Most courts recognize ODR settlements as binding, platforms such as SquareTrade and ECODIR have demonstrated that the technology can actually help reach a settlement more easily and at a much lower cost than classic ADR services ever could, and the steady climb in computer literacy and cross-border ecommerce suggests that more consumers should chose this means of settling disputes in the near future. All that remains for ODR to prosper is to settle the financial question.

More than a decade after funding the ECODIR project, the European Commission is getting back into promoting ODR with a Proposal for a regulation of the European Parliament and of the Council on online dispute resolution for consumer dispute. According to the Proposal, the Commission would develop and host “an interactive website offering to consumers and traders a single point of entry for the resolution of contractual disputes arising from cross-border e-commerce transactions“. The site would serve a hub where consumers and retailers could choose an ADR provider to settle its case. Although the platform itself should be funded by the European Commission, it remains to be seen how ADR providers who chose to take part in the endeavour will find a way to develop systems that can interact with the platform, offer competitive ODR services and make money considering the low values at stakes. Hopefully, unlike with the ECODIR project, the European Commission will find an economic model to ensure the overall system prospers. Otherwise, as the song goes, it’s all just a little bit of history repeating.