International Conference on
Dispute Resolution in Electronic Commerce
organized by the WIPO Arbitration and Mediation Center
Geneva, November 6 and 7, 2000
THE CPR B2B E-COMMERCE INITIATIVE
(See presentation)
presentation prepared by Mr. F. Peter Phillips,
Vice President CPR Institute for Dispute Resolution,
New York, United States of America
ONLINE AUCTIONS AND DISPUTE RESOLUTION
© 2000
M. Scott Donahey
Tomlinson Zisko Morosoli & Maser LLP
200 Page Mill Road, Second Floor
Palo Alto, CA 94022
Telephone: (650) 325-8666
Fax: (650) 324-1808
email: msd@tzmm.com
web site: www.tzmm.com
Online auctions are some of the most successful e-businesses, and the numbers of such enterprises are continuing to increase. Led by eBay, perhaps the most successful auction services provider in e-commerce, auction offerings from Yahoo, Amazon, and now traditional auction houses such as Sothebys and Butterfields, feature traditional B2C auction operations. The newest auction arena is in the B2B market. Marketplaces for plastics, biomedical equipment, and shipping have now gone online, and more of these marketplaces are using auctions to determine prices. Many of these marketplaces, such as for livestock, agricultural commodities, and repossessed automobiles have traditionally used an auction format. Many of these speciality marketplaces have used arbitration systems having rules and procedures designed specifically for the types of disputes likely to arise in the given market area.
Some traditional markets are changing. Where in the past shippers would charter entire vessels to carry goods, entering a standard charter party agreement which almost always provided for arbitration of disputes, now importers and exporters bid for space on cargo ships in an auction environment. At www.gocargo.com, service providers (carriers) offer space to shippers in an online auction environment. The terms of use of the auction service provide for standard maritime arbitration to resolve any disputes. Thus, while the marketplace has changed, the culture surrounding the market still determines the way any disputes are to be resolved. In the new electronic marketplace, it is the culture of the market that determines the dispute resolution mechanism adopted more than any other factor. This is as true for the eBays and Yahoos, as it is for the shipping industry and the coffee traders.
THREE ONLINE AUCTION PLATFORMS
THREE APPROACHES TO DISPUTE RESOLUTION
eBay
As successful as eBay has become, currently offering more than 4,000,000 items for sale on any given day and having third quarter 2000 earnings of US$19.1 million, it is important to remember its origins. Its founders were collectors of Pez memorabilia, who originally founded the site to enable long distance trading in such objects. The eBay culture reflects its origins. eBay places great emphasis on the creation of a sense of community, with a common ethos. This helps to create a self-policing environment whose basis is the building of trust in the operation of the system and in each member of the community. eBays dispute resolution mechanism reflects this culture.
Feedback
The original and still primary method by which disputes are resolved or avoided is through user feedback. eBay has established a "Feedback Forum" in which buyers and sellers give one another praise or criticism. Such feedback is both tabulated to arrive at a "rating" and is generally available to be read by all users, so that each user is free to form judgments based on other users experience with a particular buyer or seller. Members of the eBay community are zealous in seeking positive feedback, and sellers and buyers frequently request that the other party to the transaction leave positive feedback to the extent that the transaction was a good one.
Knowledge of the users experience with transactions and with other users is disseminated throughout the community. This creates a sort of "small town" effect, in which there is great pressure to resolve any dispute, so that negative feedback is avoided. This community pressure to avoid disputes and to cultivate a good reputation is not unlike that in many Asian cultures.
The eBay system enables a user to leave feedback for each transaction in which the user participates, identifying the transaction by the item number assigned by eBay to the particular item that is offered at auction. Only the participants in the transaction, who are identified by their eBay user name (a "handle" created by each user to identify the user in eBay transactions), are permitted to leave feedback as to that specific transaction. Each user is asked to identify the comment as "positive," "neutral," or "negative." A positive feedback is counted as "+1," a negative feedback as "-1," and a neutral feedback as "0." The total feedback score is thereafter compiled and posted opposite the users name whenever the user is selling an item or is bidding on an item.
Written feedback is also given, limited to 80 characters in length. Once given, feedback cannot thereafter be modified or retracted. All feedback is generally available to any registered user. Users can require that their feedback be maintained as private, but eBay strongly encourages users to make the feedback available to the public so as to build a positive reputation for the recipient of the feedback. While the specific feedback may be made private, the feedback rating cannot.
The system permits the object of the feedback to respond. To the extent that there is a dispute, the users are encouraged to contact each other directly by email or telephone and attempt to "resolve misunderstandings." No reference is made in the Feedback Forum to the availability of other means of dispute resolution, nor is there a link to such means in the Feedback Forum section.
Online Negotiation and Mediation
If one looks at the eBay home page, there is no reference to the availability of dispute resolution processes. However there is a link entitled, "Why eBay Is Safe." At the linked page there is another link entitled, "Safe Harbor." That page in turn contains a link entitled, "Dispute Resolution." There the logo of the dispute resolution provider, Square Trade, is displayed and the available services described. The first of these services is a free, web-based process which allows users to resolve differences on their own. At another page this process is identified as a "proprietary Direct Negotiation tool." The second service is that of online mediation. "If necessary," the parties are free to engage the services of an online professional mediator for $15 per hour. Mediation is a process by which a third-party assists the parties in attempting to reach an agreement. The mediator has no power to impose a binding decision on the parties. Claims can be filed online at the Square Trade web site.
Insurance and Fraud Protection
While not generally thought of as "dispute resolution," insurance can serve that function in the online auction context. Where the bidder either did not receive the item for which he paid or where the item received is claimed to be materially different from that which was represented, and where the seller declines to satisfy the disgruntled bidder, eBay provides an insurance mechanism by which the bidder can have his claim resolved. The insurance is free to the user. It provides up to $200 in coverage, less $25 as a deductible. Therefore, the closing price must be in excess of $25 for the insurance option to apply. In order to qualify to use the insurance, both the buyer and seller to the transaction in question must have a rating of "0" or better.
Within 60 days of the close of the auction, a bidder must file a Fraud Report. Following the filing of a fraud report, the parties must attempt to resolve the dispute. If they are unable to reach a resolution, the bidder may file a claim with Lloyds, eBays insurer. The claim must be filed within 90 days of the close of the auction. Lloyds claim representative then has 45 days in which to issue a decision on the claim.
Yahoo
Yahoo presents a friendly culture in which it provides its users free services. Yahoos revenues come largely through banner ads. Like eBay, Yahoo strives to create a Yahoo community, using features like My Yahoo, which enables a user to customize a portal site with local weather news, favorite sports teams scores, and schedules, areas of news and business in which one is interested, etc. It is not surprising that such a community based culture would follow closely the dispute resolution processes adopted by its cultural counterpart in online auctions, eBay.
Ratings and Feedback
Yahoos ratings and feedback procedures virtually mirror those of eBay. The ratings system is identical, with positive feedback receiving a "+1," neutral feedback a "0," and negative feedback a "-1." Like eBay, Yahoo does not permit the editing or removal of feedback once it has been entered in the system. Apparently, it is Yahoo that characterizes the verbal feedback given as "positive," "negative," or "neutral" rather than the user who leaves the feedback.
Buyer Protection Program
This program is really a self- insurance scheme, similar to eBays third-party insurance program, but with some interesting differences. Like eBays, Yahoos insurance applies where the item purchased was not received by the successful bidder, or if it is materially different from that which was represented. It is a program provided without cost to the user.
The Buyer Protection Program applies whenever the closing price is more than US$25 but less than US$10,000. Standard coverage is for closing prices up to $250, with a $25 deductible. Premium Coverage is up to $3,000, with a $25 deductible. Premium coverage is only available if the buyer financed the transaction through Yahoos Paydirect system and the sellers physical address has been verified. In order to qualify for either Standard or Premium coverage, the ratings for the buyer and the seller must be "0" or above.
Within 60 days of the auctions close the buyer must submit its claim, together with email communications it had with the seller in an effort to resolve the claim and documents supporting the buyers claim. Within 45 days of receipt of the claim and all supporting documents, the claims administrator will issue a binding decision.
Dispute Resolution
On the Yahoo Auctions home page there is a link entitled, "Why Yahoo Is Safe." At that page there is another link to "Dispute Resolution." On that page there are five "suggestions for resolving a dispute." First, talk it over. Second, rate the buyer or seller. Third, file a complaint with the buyer protection program. Fourth, seek arbitration services. Fifth, report fraud to the authorities, such as the U.S. Postal Service, the Attorney General, the Better Business Bureau, or the Federal Trade Commission. One cannot help but note that the agencies referenced in the fifth alternative are almost exclusively agencies responsible or responsive to American parties. This is not truly helpful to the non-American engaged in the global marketplace promoted by the auction houses.
The fourth step contains a link to "arbitration services." Arbitration is a process that requires the agreement of both parties to undertake and one that results in a decision made by the arbitrator which is binding on the parties. The arbitration services link resolves to a laundry list of dispute resolution providers, both individual and institutional, listed alphabetically without comment. Many of these providers offer mediation in lieu of, or in addition to, arbitration services.
Nowhere on the arbitration services page is it pointed out that arbitration requires the agreement of both parties to the dispute, or that it is highly unlikely that at this stage of the dispute, both sides will be able to agree on anything, much less arbitration (or even mediation). Thus, this listing of services may be of little practical value.
Blacklisting and Minimum Bidder Ratings
As a protection for the seller, Yahoo permits the seller to "blacklist" any Yahoo user from whom the seller will not entertain bids. Yahoo also permits the seller to set a minimum rating level for bidders who will be permitted to bid on a particular item. These protections are unique to Yahoo.
Sothebys.com
Sothebys is an old line auction house; sothebys.com is its online affiliate. Traditional auction houses catered to the wealthy and were clearly above the fray. Disputes between buyer and seller were embarrassing, and certainly did not reflect well on either, but most especially on the buyer. After all, the seller had given his word as to the authenticity and condition, and in any event the buyer had the opportunity to inspect the item in advance. Consequently, minor disagreements were settled among gentlemen, with no need for formal mechanisms of dispute resolution.
Despite the fact that the online auction includes bidders from the nouveau riche and the petite bourgeoisie, with no opportunity for advance inspection and evaluation of the items offered at auction, Sothebys.com maintains the culture of its parent. There is no reference to dispute resolution on the home page, on the "Sothebys Services" link, on the "Conditions of Sale Link," on the "Terms of Use" link, or indeed anywhere on the web site. Disputes should not arise, and if they should somehow raise their ugly head, they should be handled discreetly, away from the public eye.
CONCLUSION
Dispute resolution mechanisms do not arise in a vacuum, and a particular form of dispute resolution may not be easily imposed on a market culture to which it is not naturally adjunct. Cultures vary in their preference for binding or non-binding mechanisms, in their emphasis on avoidance of disputes, or on the importance of the assertion of individual rights. In offering a mechanism for dispute resolution, a provider must be sensitive to the culture of the particular marketplace. However, markets, themselves, must be willing to adapt in order to provide those in the community a full range of choices in the resolution of their disputes.