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Building a Practical Legal Framework for E-Commerce

Dispute Resolution

Mike Dennis, US Department of StateUNCITRAL ODR Meeting

Vienna, Austria

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B2B and B2C e-Commerce Expanding Rapidly

• e-Commerce has exploded over the last decade

• U.S. B2B e-commerce generated $3.1 trillion in sales revenue in 2008, accounting for 27% of B2B transactions

• U.S. B2C e-commerce generated $225.2 billion in sales in 2008, up 5% from 2007

• Consumers are becoming a major part of international commercial transactions for first time.

Available at http://www.oecd.org/dataoecd/44/13/44047583.pdf?bcsi_scan_DA3493EE5FC9D524=0&bcsi_scan_filename=44047583.pdf at para. 8, 10.

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The Challenge: eCommerce Justice

• Traditionally business and consumer issues have found redress in courts

• However, eCommerce issues are difficult for courts to handle because the issues often cross multiple jurisdictions

• Traditional judicial mechanisms also struggle with eCommerce cases because:– the transactions are low value– litigation is expensive– it is difficult to enforce foreign judgments

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The Solution: A Global ODR System• “A simple and affordable resolution process for inevitable

disputes is essential.” Jean Monty CEO, Bell Canada

• “A global alternative dispute resolution system is necessary to encourage cross border electronic commerce.”

Carly Fiorina, former CEO, Hewlett Packard

• “Probably the best way out of this dilemma and an important catalyst for consumer confidence in electronic commerce is that Internet merchants offer [ODR] as an alternative to the cumbersome and expensive resort to courts.”2003 Agreement between Consumers International and the Global Business Dialogue on Electronic Commerce

See C. Rule, Online Dispute Resolution for Business (2002) at 88, 121

A Decade of Progress/Refinement• 1999: OECD publishes “Guidelines for Consumer Protection in the Context

of Electronic Commerce”• 2000: US FTC and Department of Commerce host “Alternative Dispute

Resolution for Consumer Transactions in the Borderless Online Marketplace” conference

• 2002: The American Bar Association releases recommended standards for eCommerce Dispute Resolution

• 2003: GBDe / Consumers International agreement• 2004: Global Trustmark Alliance Organizing Committee launched at GBDe

Summit in Malaysia• 2007: OECD Recommendations call for states to establish mechanisms for

arbitration of consumer disputes• 2009: European Committee for Standardization releases recommended best

practices for ODR

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• Rome I Regulation – EU Parliament Recital on special conflict of law rule for consumer contracts calls for ODR

• European Parliament has cited the need to promote ADR in the field of electronic commerce

• Several nations (e.g. US, Mexico, Chile) have already launched and evolved alternate dispute resolution (ADR) mechanisms for business to consumer disputes

International Consensus

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• 2003 ADR Guidelines Agreement between Consumers International and the GBDe was a key breakthrough:

• “Electronic commerce, especially [cross-border] will grow unabatedly only if consumers feel confident that their interests are sufficiently protected in the case of disputes…”

• “[I]nternational court proceedings can be expensive, often exceeding the value of the goods or services in dispute.”

• “Moreover, for consumers this principle may only provide illusory protection, as in many cases the cost and complexity of crossborder enforcement stands in the way of effective redress.”

Consumer and Business Advocates Agree

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New Proposal: The OAS-ODR Initiative

• The ODR Initiative is intended to promote consumer confidence in e-Commerce by providing quick resolution and enforcement of disputes across borders, languages, and different legal jurisdictions.

• Model law/cooperative framework and rules govern OAS-ODR Initiative

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OAS-ODR Initiative: How It Works• Consumer initiates process on the Central Clearinghouse

website by completing Initiation Form• First phase: Parties given 20 days to negotiate settlement • Second phase: If no settlement, case may escalate to 3rd

party resolution• National Administrator selects ODR provider from list of

approved ODR providers • ODR provider achieves resolution

– via online facilitated settlement (mutual agreement) – via online arbitration (evaluation)

• Administrator or state designated authority or payment processors enforce outcome where Vendor located

OASCaseDB

Central Clearinghouse

NationalAdministrator

NationalAdministrator

ODRProviders

Key Components:A Central

Clearinghouse, who maintains the case database; National Administrators; and

ODR providers approved by the

National Administrators

Seller

Seller

Seller

OAS-ODR Overall System Design

Sellers each opt-in to

the system voluntarily

ODR providers apply and are approved

individually

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Jurisdiction & Enforcement

• Each National Administrator opted into the system selects an online ODR provider

• Buyers file with a local ODR provider in their home country

• The seat of arbitration for the process is the Vendor’s State

• The National Administrator in a vendor’s home country is responsible for pursuing Vendor’s compliance by – taking direct enforcement action,

– requesting assistance from payment networks, or

– referring cases to collection agencies

• This design avoids complex issues around forum selection

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Can OAS-ODR expand to UNCITRAL?• Perhaps UNCITRAL could establish similar model

rules for ODR utilizing fast-track procedures which comply with due process requirements

• A cross-border enforcement protocol like that outlined in the OAS-ODR Initiative might be drafted by UNCITRAL

• Perhaps these decisions could be enforceable under: – the Convention on the Recognition and Enforcement of Foreign

Arbitral Awards (New York, 1958); – the Inter-American Convention on International Commercial

Arbitration (Panama, 1975); and– the European Convention on International Commercial

Arbitration (Geneva, 1961).

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Conclusion

• E-commerce cross border disputes: – will form a significant proportion of complaints in

coming years; – require tailored mechanisms that do not impose

cost, delay and burdens that are disproportionate to the economic value at stake.

• The time is now to build a global ODR system to address these challenges, and extend justice to issues that are not served by existing systems

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Building a Practical Legal Framework for E-Commerce

Dispute Resolution

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Appendix

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Rome I Regulation – EU Parliament Recital on special conflict of law rule for consumer contracts

• “With reference to consumer contracts, recourse to the courts must be regarded as the last resort.”

• “Legal proceedings, especially where foreign law has to be applied, are expensive and slow. . . .”

• “The protection afforded to consumers by conflict-of-laws provisions is largely illusory in view of the small value of most consumer claims and the cost and time consumed by bringing court proceedings.”

• “As regards electronic commerce, the conflicts rule should be backed up by easier and more widespread availability of appropriate online alternative dispute resolution (ADR) systems. . . ”

• Available at http://www.europarl.europa.eu/meetdocs/2004_2009/documents/dv/juri_oj(2007)1119_romei_am_/juri_oj(2007)1119_romei_am_en.pdf

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Rome I Regulation -- Review Clause

• Article 27 of Rome I Regulations requires that by 2013 the EC provide special report to the European Parliament on application of the special Rome I rule for consumer contracts.

• European Parliament cites need to promote inter alia “ADR in the field of electronic commerce and . . . to review to what extent on-line ADR schemes might be used . . . to increase consumer confidence in electronic commerce and obviate the need for court proceedings”

• Special report may be accompanied by proposals to amend the special Rome I rule for consumer contracts.

– EU Parliament Final Compromise Amendment 104 Article 23(b) (new), available at http://www.europarl.europa.eu/meetdocs/2004_2009/documents/dv/juri_oj(2007)1119_romei_am_/juri_oj(2007)1119_romei_am_en.pdf

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State ODR Models

• In some OAS member states, state-run alternate dispute resolution (ADR) mechanisms for business to consumer disputes are very well developed, offering dispute resolution services for a wide range of consumer disputes.

• In Mexico, Concilianet, has been established to provide a government run online dispute resolution platform. The Federal Consumer Protection Law promotes and protects the rights of consumers without distinction based on nationality or other considerations.Available at: http://concilianet.profeco.gob.mx/concilianet/faces/inicio.jsp.

• In Chile, a similar online platform has been established. http://

www.sernac.cl/tramites/index.php • The US Federal Trade Commission launched

www.econsumer.gov to refer consumer cross-border cases to ODR providers

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CIDIP VII: Proposals• States considering 3 proposals on consumer

legal protection for CIDIP VII:

– Brazil: Convention on Jurisdiction and Applicable Law

– Canada: Model Law on Jurisdiction and Applicable Law

– United States: Legislative Guide and Model Laws on Dispute Resolution and Redress

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Building A Practical Framework for Consumer Protection

U.S. Proposal

1. ODR Initiative 2. ADR Through Payment Cards3. Small Claims Procedures4. Collective Complaints5. Government Obtained Redress for Deceptive

Practices.

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Building A Practical Framework

http://ec.europa.eu/consumers/redress_cons/docs/cons_redress_EU_qual_study_report_en.pdf

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Negotiation

Mediation

Arbitration

Enforcement

OAS-ODR Initiative Phases

DiagnosisODR

Provider/Arbitrator

Administrator (Consumer

Coordinating Agency)

Consumer/

Merchant

Facilitated Settlement

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Negotiation

Mediation

Arbitration

Enforcement

Each phase acts like filter resolving percentage of disputes

DiagnosisODR

Provider/Arbitrator

Administrator

(Consumer Coordinating

Agency)

Consumer/

Merchant

Facilitated Settlement

OAS-ODR Initiative -- Applicable Law• Draft ODR Initiative Rules provide “If a solution is not

found in the terms of the contract, the Arbitrator shall decide such claims and grant such relief on an equitable basis, based on an interpretation of these rules and without referencing or requiring proof of applicable law.”

• Consistent with – ICANN Rules for Uniform Domain Name Dispute

Resolution Policy– AAA-ICDR Online Protocol for Manufacturer/ Supplier

Disputes.

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List of ODR Providers • Secretariat might explore whether it would be possible or desirable to

maintain a single database of certified ODR providers, like that suggested in the OAS-ODR Initiative.

• The U.S. FTC and consumer protection agencies in other countries contribute to an International ADR directory containing contact information of dispute resolution service providers – Available at http://www.econsumer.gov/english/resolve/directory-of-

adrs.shtm.

• The EC maintains a central database of ADR bodies which are considered to be in conformity with the Commission's Recommendations on Dispute Resolution. – Available at

http://ec.europa.eu/consumers/redress_cons/adr_en.htm.

World RegionsPopulation( 2009 Est.)

Internet UsersDec. 31, 2000

Internet UsersLatest Data

Penetration(% Population)

Growth2000-2009

Users %of Table

Africa991,002,342 4,514,400 67,371,700 6.8 % 1,392.4 % 3.9 %

Asia3,808,070,503 114,304,000 738,257,230 19.4 % 545.9 % 42.6 %

Europe803,850,858 105,096,093 418,029,796 52.0 % 297.8 % 24.1 %

Middle East202,687,005 3,284,800 57,425,046 28.3 % 1,648.2 % 3.3 %

North America340,831,831 108,096,800 252,908,000 74.2 % 134.0 % 14.6 %

Latin America/Caribbean 586,662,468 18,068,919 179,031,479 30.5 % 890.8 % 10.3 %

Oceania / Australia 34,700,201 7,620,480 20,970,490 60.4 % 175.2 % 1.2 %

WORLD TOTAL 6,767,805,208 360,985,492 1,733,993,741 25.6 % 380.3 % 100.0 %

WORLD INTERNET USAGE

26Source:Internet World Stats www.internetworldstats.com

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Benefit From Cross-Border E-Commerce

• October 2009 European Commission conducted 11,000 cross border online searches for 100 popular products (e.g. CDs, computers, digital cameras, books, and clothes)

• Substantial Cost Savings - For over half of product searches, consumers found offer in another EU country at least 10% cheaper (delivery and other costs included).•available at http://ec.europa.eu/consumers/strategy/docs/EC_e-commerce_Final_Report_201009_en.pdf.

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Cross-Border Barriers • Yet, the study found that 61% of cross border online orders were refused

because traders refused to serve buyers located in another EU country.

• While 51% of the EU27 retailers sell via the internet, only 21% currently conduct cross-border transactions, down from 29% in 2006.

• The Commission reported that the main regulatory barrier to operating on a pan-EU basis was the application of fragmented national laws, including consumer protection laws, through the conflict of laws rules in the Rome I Regulations:

– “The effects of the fragmentation are felt by business because of the conflict-of law rules, and in particular the Rome I Regulation, which obliges traders not to go below the level of protection afforded to foreign consumers in consumer’s home country”.

http://ec.europa.eu/consumers/rights/docs/impact_assessment_report_en.pdf.