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Out-of-court dispute settlement

systems for e-commerce


Technological challenges digest

2000 EUR 19641 EN


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Title: Out-of-court dispute settlement systems for e-commerce.


Technological challenges digest.
Abstract: This report provides an elaboration of the technological
challenges related to the deployment of on-line out-of-court
dispute settlement systems in an e-commerce environment.
Emerging drivers that impact technology include issues of
nature of consumer disputes, business rationale, integration
in comprehensive confidence building measures and quality
guarantees. The technological challenges are classified
under business modelling, underpinning tools and provision
of large-scale online platforms.

Date: 27th June 2000

Authors: Marc Wilikens


Joint Research Centre
21020 Ispra (VA) – Italy

Distribution: Unlimited

The role of the Joint Research Centre of the EC is to provide scientific support to the
EU policy-making process by acting as a reference centre of science and technology
for the EU. This report has been prepared by the Joint Research Centre in the frame
of its institutional support programme to the EC DG Information Society. The opinions
and views expressed in this report do not represent the official opinions and policies
of the European Commission.

We invite readers of this report to send comments or suggestions to:

Marc Wilikens
Joint Research Centre
Marc.Wilikens@jrc.it
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1 Introduction
Efficient out-of-court dispute settlement mechanisms are crucial for building
consumer confidence in e-commerce, i.e. building e-confidence. Technology
plays an important role as facilitator in this process. The Internet will become
increasingly accessible to larger parts of the public. Moreover, the ubiquity of
open Web-centred technologies (browsers, downloadable code), facilitates
information access and Internet navigation from the desk top and mobile
terminals. These on-line developments provide unprecedented opportunities
that when properly harnessed could provide citizens and enterprises, in
particular SME’s with effective and easy access to redress mechanisms. There
are, however, technological challenges that need to be overcome if there is to
be a swift and successful deployment of on-line redress mechanisms,
particularly in a cross-border environment. On-line systems are still in their
infancy and new concepts need to be further developed and assessed against
commonly agreed quality criteria.
This report provides a digest of technological challenges related to the
deployment of on-line out-of-court dispute settlement systems in an e-
commerce environment. It is derived from the following information:
• The Joint Research Centre (JRC) study and related EC workshop held on
21st March, 2000 on “Out-of-court dispute settlement systems for e-
commerce”. The report describes the regulatory framework, provides a
survey of on-line initiatives and a description of emerging business models
for the deployment of out of court dispute settlement systems. The study
report also identifies an initial classification of technological criteria for
ensuring accessibility and trustworthiness in online dispute settlement
systems. A description of these technical criteria is contained in the annexe
of this document.
• Conference on the launch of EEJ-NET: towards a European Extra-Judicial
Network for resolving consumer disputes, Lisbon on 5-6 May, 2000. In
particular the workshop on communications issues focused on technology.
• International forum on Alternative Dispute Resolution of Commercial
disputes, Milan 1 June, 2000. The forum, organised by the Italian Institute
for foreign commerce and ADR Center, Rome, focused on mediation and
conciliation procedures for dispute management in International commerce.
• The US Department of Commerce/Federal Trade Commission Conference
on “Alternative dispute resolution for consumer transactions in the
borderless online marketplace”, held in Washington on June 6-7, 2000.
Chapter 2 describes the drivers that shape the context in which alternative
dispute settlement systems are being deployed and that impact the
technological challenges.
Chapter 3 outlines technological challenges that are grouped under three
categories: business modelling, tools for stakeholders, large-scale on-line
platforms.
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2 Emerging drivers impacting technology


2.1 Cross-border consumer disputes
The volume of cross-border consumer transactions is expected to rise further
with the growth of e-commerce. Recent figures indicate that 20 to 40% of
European B2C is cross-border and large part of this with the USA. This will
inevitably give rise to a growth of cross-border disputes. There is not as yet
much empirical evidence on cross-border consumer disputes but the trend in
the business sector is indicative. A recent study1 presented at the ADR
conference in Milan on 1 June, shows that costs related to international dispute
settlement amount to between 2 and 5% of export turnover for 25% of the
Italian export companies. The need for large volumes of disputes to be handled
within firm cost constraints calls for efficient systems.
The Internet is characterised by its global nature. Thus forms of dispute
resolution must be flexible so as to adapt to the heterogeneity of cultures and
jurisdictions.
Starting from localised schemes that matured in national and/or sectorial
environments, cross-border initiatives for handling consumer disputes,
including on-line initiatives, are being planned by various private, trade and
industry organisations. The trend is towards co-operation between established
and newly developed systems within sectors that are linked to third-party
organisations offering specialised dispute settlement services. This implies:
• Distributed architectures of complementary dispute resolution systems
rather than a centralised approach. This is also exemplified by the EEJ-
NET initiative to set up clearing houses in each EU member state. The
distributed approach implies that individual bodies in each state act
together as a network to form a pan-European infrastructure.
• Problems of technical interoperability and business process interoperability.
• Co-existence of both on-line and off-line systems to serve the same
customer base, at least during a certain transition period.
2.2 Nature of disputes
Due to the growth of Internet trade, advances in information processing
technologies (e.g. data mining) and convergence of web-based services
(marketing, advertising), the nature of disputes will evolve. Presently, the
majority of disputes cover services based on a contract (e.g. acquisition of
goods). It is anticipated that there will be a growth in the number of disputes
arising from problems concerning non-contractual services (i.e. not paid by the
party who receives the service) and the handling of intangibles. Problems
include issues such as privacy, advertising content, illegal content.
A typical e-commerce transaction can become complex due to the diversity of
actors involved (web shop, broker, financial services, logistics) and in particular
due to the emergence of new intermediaries, such as shopping agents. This
will affect the complexity of on-line dispute handling, in particular fact finding.
Moreover disputes about non-contractual services are often loaded with
subjectivity and characterised by a certain degree of fuziness of the arguments.
On the other hand, fully electronic transactions combined with
identification/authentication techniques (e.g. electronic signatures) would, in

1
ADR- Analysis of experiences, requirements and requests from Italian export companies. Study in Italian
language by Istituto nazionale per il Commercio Estero, Rome, January 2000.
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theory, facilitate the traceability of the history of transactions and support


evidence collection. This presupposes close collaboration of the stakeholders
involved in the transaction and access to the appropriate information by the
(trusted) dispute settlement body whilst safeguarding confidentiality and privacy
rules.
2.3 Business rationale and cost
At the service of both business and consumers, effective out-of-court dispute
settlement should provide a framework in which a priori unknown buyers and
sellers can transact in confidence.
Business incentives for alternative dispute resolution systems are still difficult to
articulate at present, in particular for smaller enterprises such as dot.com start-
ups. Business cases that better link third-party dispute resolution to customer
satisfaction good practices and to dispute avoidance need further elaboration.
Consumer incentives would focus on providing a trustworthy and effective
safety net in the on-line market.
Whilst, alternative dispute resolution systems are less expensive than court
proceedings, there are costs related to system operation, administration and
fees for mediators/arbitrators. It is generally acknowledged that the cost for the
consumer should be nil or low or perhaps proportional to the transaction value
that typically ranges between 20 and 2000 EURO. Cost pressures imply that
efficiency of systems must become higher. Characteristics of on-line systems
(paperless processes, easy availability of the parties and mediators/arbitrators)
should enable lower costs in comparison with traditional off-line resolution
methods. Possible options for cost sharing between the various parties need
further analysis. Also, Internet (micro) payment systems could be usefully
applied in this context.
2.4 Variety of confidence building processes
Processes for different forms of dispute resolution are not new and in some
cases, such as arbitration, rooted in well-established procedures. These
processes need to be ported to an on-line environment with high expectations
in terms of speed and flexibility.
An emerging business model for alternative dispute resolution is based on
schemes linked to codes of conduct combined in many cases with trust seals.
In this model, third parties offering dispute settlement services, might be linked
to these schemes via the trust seals displayed at the trader web site. In such a
scenario, e-commerce business processes need to be integrated with
comprehensive consumer confidence processes including third-party dispute
resolution processes.
2.5 Quality guarantees
Quality guarantees and principles for alternative dispute resolution and
codes/trust seals applied to consumer transactions are being discussed by
various organisations. In 1998 the European Commission published “Principles
applicable to the bodies responsible for out-of-court settlement of consumer
disputes“. They are: independence, transparency, respect of adversial
principle, effectiveness, legality, liberty and representation. Although they are
general requirements applicable to off-line as well as on-line systems, the
scope of their full application is on more formal type of dispute settlement
systems in which a third party takes a binding decision, as, for example, in
arbitration. Also the OECD has published in 1999 the “Recommendation of the
OECD Council concerning guidelines for consumer protection in the context of
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electronic commerce “, including requirements of fairness, timeliness, absence


of undue cost of burden for the consumer.
It will be important to translate these principles defined in the recommendations
to technological requirements for on-line dispute resolution systems deployed
in a global on-line environment. Some characteristics of this environment such
as:
• virtual identities and possibilities for impersonisation of the parties,
• irrelevance of the physical location,
• large competition between schemes;
imply the need for technical measures that enhance the trustworthiness both
between the parties and in the dispute resolution system. Elimination of all or
part of usual face-to-face proceedings, implies a different perception of trust in
the process. Therefore, there is a need for easily accessible procedures that
are transparent and traceable to their origin.
Accessibility criteria for on-line systems should guarantee easy access and use
of the system. For instance, by offering multi-lingual services the system would
be better prepared to the meet the expectations of users and it would
automatically gain greater visibility.

3 Challenges
3.1 Business modelling
Comprehensive business models for on-line confidence building are needed
that guide the consumer through the different options available for redress in a
visible and transparent way. These models must cope with integration aspects
with:
• Emerging B2C e-commerce models. This implies on the consumer side,
integration with the stages in the consumer transaction processes and on
the business side, integration with internal procedures for consumer
support and with third-party dispute resolution services. Both for consumer
and business, integration with next generation (micro) payment systems
should be investigated.
• Emerging cross-border initiatives for resolving consumer disputes that are
sector specific and of a more generic nature such as EEJ-NET.
Cost/benefit analysis models need to be developed to further business cases
for consumer relationship management in an on-line environment and for on-
line dispute settlement services.
Empirical evidence on the nature and volume of disputes and performance
measures of working systems would support cost/benefit analysis, e.g. based
on incident collection exercises with results published in anonymous manner.
3.2 Tools for parties involved in dispute resolution
Within existing prototype on-line tools2 there is currently a wide range of levels
of computer support. They can be broadly categorised under the following
types:
• Web sites with simple communication facilities such as e-mail.

2
Refer to JRC study report for an inventory of online initiatives. http://dsa-isis.jrc.it/ADR
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• Blind bidding tools that allow two parties to reach an agreement on financial
claims without any human intervention. Their scope is limited to certain
kinds of disputes (e.g. insurance claims).
• Group process support and decision aid tools, including structured case
filing, interactivity between parties (e-mail, web conferencing) so far
predominantly applied to niche markets or particular dispute resolution
mechanisms.
In a levelled “hierarchical” approach to resolving consumer disputes, a number
of complementary consumer redress mechanisms could provided. These
mechanisms range from complaint resolution mechanisms (e.g. organised
internally) to third-party mediation and to the more formal proceedings that
involve third-party decision makers (e.g. arbitration). A number of generic
functions for managing the various stages of a dispute that accommodate the
different mechanisms can be defined (filing of complaint, processing,
settlement) but each mechanism will have its specific functional requirements.
For reasons of cost-effectiveness, tools for managing the various stages of a
dispute should be integrated in cheap and extensively deployed Internet access
tools such as web-browsers. This implies that the various parties involved in
dispute settlement (consumers, traders, third-parties) would need to upload
from a remote site their relevant applications within their web browser, perhaps
by mobile code such as Java applets. This will also promote widespread
accessibility for large segments of the public.
In the above context, the challenge for tool providers lies in integrating tools
simple to use by all the parties and that can be easily configured and
customised according to the business process needs of particular sectors and
to specific needs of a particular dispute resolution mechanism. Moreover a
number of unresolved issues need to be addressed:
• As the transition to on-line systems will be gradual, access needs to be
ascertained by a seamless combination of traditional means of
communication and electronic means.
• Traceability of status of complaint/dispute by the consumer to better control
the finality of the process.
• Better useability for consumer by means of on-line forms combined with
translation facilities.
• Interactivity aspects in a virtual environment must be studied and reviewed
carefully, in particular for mediation in which face-to-face contact is still
considered important.
• Personalised environments, combined with appropriate security protection,
where parties can access a particular case and find all necessary
information, status of the case, etc.
• Evidence collection, fact finding by third party in an environment of multi-
stakeholder and tightly coupled e-commerce transactions. Checking of
applicable rules in multi-jurisdictional environments. Agent technology could
be experimented for these issues.
Related to security functions, issues include:
• Application of e-signature for authentication purposes of the dispute
submitted by the consumer and the settlement agreement/award by the
involved parties considering the scalability and cost-effectiveness of
solutions.
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• Assurance of confidentiality of personalised working environments in


systems for which in essence public accessibility is an important criterium.
• Privacy protection. This issue has potentially conflicting implications in
terms of striving for anonymity on one side and assurance of identity on the
other: A large part of consumer transactions in the physical world are
performed in anonymous manner. Mechanisms for allowing anonymity in e-
commerce transactions are being developed (e.g. anonymous e-mail,
pseudonyms). On the other hand, during on-line dispute resolution it will be
essential to ensure the identity of the parties concerned, integrity of the
data at all times, signature of formal documents by means of electronic
signatures and public key infrastructures, in particular when paper-less
processes are aimed for.
• Protection of trust seals and the potential role of certificate service
providers (CSP) in this process.
3.3 Large-scale on-line platforms
Important issues related to the deployment of large-scale and global dispute
resolution platforms include:
• Scalability: Handling of the potentially large volume of disputes in a timely
way.
• Interoperability between hybrid systems covers aspects of on-line/off-line
systems combination, crossing of jurisdictions and states, co-operation
between sector-specific schemes and schemes of a more generic nature.
Technological solutions could include open standards for middleware such
as CORBA, JAVA and for document exchange such as XML.
Gobal pilots and proper information exchange on their workings would be
needed to improve understanding of these issues.
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4 Annexe: Technological criteria


A number of technological criteria for on-line dispute settlement systems have
been identified in the study report “Out-of-court dispute settlement systems for
e-commerce”, 20th April, 20003. They are grouped under two key categories: to
enhance accessibility for the user to the system and trustworthiness in the
system’s operation. In the following table, we provide an initial scheme to
indicate how these technological criteria could be influenced by the minimum
guarantees expressed in the EC recommendation on the “Principles applicable
to the bodies responsible for out-of-court settlement of consumer disputes“
(98/257/EC).

authentication

confidentiality
interoperable
Interactivity/

integration

anonymity
affordable

scaleable
traceable

language
available

useable
control

secure
visible

minimum
guarantees
independence X
transparency X
adversarial X X X
effectiveness X X X X X X X X X
legality X X X
representation X X X
liberty X

4.1.1 Accessibility criteria


visible; It is expected that a wide range of competing schemes and on-line and
off-line complementary schemes will be offered to the consumer. Available
options should be visible to the user: to avoid potential confusion consumers
should be guided, in a transparent way to the apposite schemes for their
needs. This may entail starting perhaps from a trust seal to the appropriate
redress schemes.
interactivity/control: The parties should be given proper information and
interactive control over the dispute resolution process. Interactivity implies
establishment of dialogue between the distant parties themselves and with the
(remote) dispute resolution system. Proper information provision facilities,
possibly integrated in the on-line e-commerce transaction tools (e.g. on the
Web site), should enable the parties to understand in an unambiguous way the
purpose of the underlying dispute resolution mechanisms and their respective
rules. A second type of information must focus on explaining the character (e.g.
binding or non-binding) of the dispute resolution. A third type, allows for explicit
and authenticated consent of both parties to the chosen options.
traceable: At least two aspects of traceability need attention:
• Complaint/dispute traceability: This aspect is closely linked to give the
parties involved in the process a better control on the finality of the process.

3
http://dsa-isis.jrc.it/ADR/report.html
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The parties should be given on-line tools to trace the status, time history as
well as position in the process, of a complaint/dispute.
• Evidence traceability: Fact finding, evidence collection and their traceability
are a few examples of tasks that might become complex in out-of-court
dispute settlement processes and are usually very context dependent. An
E-commerce transaction in itself involves more parties than just the seller
and buyer. For instance, a typical retail transaction would include processes
of the financial institution and/or credit card company for payment, of the
logistics company for delivery of goods, etc. New types of intermediaries in
e-commerce, such as brokers or automated shopping agents increase the
novelty or complexity of transactions. All these processes individually could
be at the origin of a dispute. It is conceivable that the creation of advanced
computer tools, such as artificial software agents, may support decision-
makers in the fact finding in a multi-party environment.
available and timely: Expectations for timely response from the complaint or
dispute handling body will rise in an Internet environment. As the number of
transactions increases and the ease with which disputes may be resolved, the
numbers of complaints will rise significantly. This may impose significant
constraints on the availability of on-line processes and increase pressure for
swifter resolutions.
useable: Use-ability might be substantially improved through making available
to the consumer simple electronic complaint forms perhaps linked to automatic
translation facilities. E-mail, chat conference rooms, videoconferencing are
communications means that some on-line out-of-court dispute settlement
services provide on a single service basis. Usually they are not integrated.
Web-based multi-media tools would better exploit convergence of media into
an integrated tool-set.
language: Cross border disputes will invariably involve businesses and
consumers with little or no knowledge of each other’s languages. Although
cost-effective and timely dispute resolutions would undoubtedly be enhanced
by fully automated computer translation between the concerned languages,
some guarantee of semantic equivalence between the translations may be
required before trust can be placed on such techniques. As first measure,
automatic translation of complaint forms could be aimed for.
affordable: It is generally accepted that the costs for the parties engaging in
out-of-court dispute settlement, in particular for low-value transactions should
be low. This is particularly the case for consumers. To ensure that the systems
are as cheap as is possible from the technical point of view for the consumer,
affordable off-the-shelf commercial technologies should be used for user
access such as standard web browsers;
interoperable: Different aspects of various existing and newly developed
systems need to be reconciled. On-line systems will have to co-exist with off-
line systems and be deployed on international scale in a distributed way. Also,
so far, out-of-court dispute settlement schemes for consumers have been set
up predominantly in a localised or national environment. In cross-border
environments, existing schemes need to operate together and act as a
network. Moreover, existing schemes need to inter-operate with clearing house
systems of a generic nature and with sector specific and specialised schemes
(e.g., financial services, advertising);
scaleable: Large-scale systems would have to be developed not just from the
infrastructure point of view but also in terms of potentially large numbers of
complaints/disputes to be handled.
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integrated service: Platforms to allow for the integration of different alternative


redress schemes, including complaint resolution, mediation, arbitration into
comprehensive confidence raising frameworks based on codes of conduct
combined with or without trust seals.

4.1.2 Trustworthiness criteria


authentication: During on-line dispute resolution it will be essential to ensure
the identity of the parties concerned, to allow signature of formal documents by
means of electronic signatures and public key infrastructures, in particular
when paper-less processes are aimed for. Also, the third party involved in the
decision making process should be properly identified to allow proper
evaluation of its independence and integrity.
secure: trust seals must be designed to ensure no fraudulent reuse of the seal;
confidentiality: Confidentiality generally plays an important role in out-of-court
dispute settlement processes. The parties may prefer to keep the content of the
out-of-court dispute settlement proceedings confidential, or to have a report on
the case published by reference to the result only. It may also have to be taken
into account that the traditions of Member States concerning the reporting of
cases differ. Whereas in some Member States the case reports indicate also
the names of the parties, in other States the cases are reported anonymously.
Again, in other States, like the US, the whole court file is a public document and
accessible by everybody. However, in the case of out-of-court dispute
settlement procedures, It may be useful to provide for confidence if the parties
or the body responsible so wish. This implies greater control from the user side
on how his data will be utilised.
anonymity: A large part of consumer transactions in the physical world are
performed in anonymous manner. Mechanisms for allowing anonymity in e-
commerce transactions are being developed (e.g. anonymous e-mail,
pseudonyms).