International Conference on
Dispute Resolution in Electronic Commerce
organized by the WIPO Arbitration and Mediation Center
Geneva, November 6 and 7, 2000
Challenges and Opportunities for Dispute Resolution
in the Era of Electronic Commerce
William K. Slate II, President and Chief Executive Officer,
the American Arbitration Association (AAA),
New York, United States of America
Good morning. The subject for this panel discussion is the "Challenges and Opportunities for Dispute Resolution in the Era of Electronic Commerce", and to my observations there is an abundance of both challenges and opportunities!
But before looking discretely at arbitration and the world of technology, I think it important to first step back and see "technology" as a great deal more than just a tool or modern gadget, but as the larger force that is driving the new globalization system where the world has become increasingly an interwoven place, and today whether you are a company or a country, your threats and opportunities increasingly derive from who you are connected to. This globalization system is also characterized by a single word: The Web! In the globalization system we reach for the Internet, which is a symbol that we are all increasingly connected and nobody is quite in charge!
In a fascinating book which Im sure some of you have seen by Thomas Friedman entitled The Lexus and the Olive Tree, the author defines the dynamic ongoing process of globalization as "the inexorable integration of markets, nation-states, and technologies to a degree never witnessed before in a way that is enabling individuals, corporations, and nation-states to reach around the world farther, faster, deeper and cheaper than ever before, and in a way that is enabling The World to reach into individuals, corporations and nation-states farther, faster, deeper, cheaper than ever before." [close quote]
And this has all come into being by new technology and is the result of several innovations that came together in the 1980s involving computerization, telecommunications, miniaturization, compression technology, and digitalization. For instance, advances in microchip technology have resulted in computing power doubling, roughly every 18 months over the past 30 years. While advances in compression technology mean that the amount of data that can be stored in a square inch of disk surface has increased by 60% every year since 1991. Meanwhile, the cost of that storage capacity has fallen from $5.00 a megabyte to 5 cents making computing power stronger and more accessible every day. And innovations in telecommunications have steadily brought down the cost of a phone call, and data transfers, while constantly increasing the speed, distance and amounts of information that can be transmitted on a phone line, cable or radio signal.
Not only can you call TO anywhere cheaply, you can call FROM anywhere cheaply, including from your laptop, your mountaintop, your airplane seat or the top of Mount Everest. This is possible because innovations in miniaturization have steadily reduced the size and weight of computers, phones and pagers. Now they can be taken to more and more far-flung places and afforded by people with less and less income.
So what then is the essence of globalization driven by technology? James Surowicki, a business columnist has said: "It is the notion that: innovation replaces tradition. The present -or perhaps the future replaces the past. Nothing matters so much as what will come next, and what will come next can only arrive if what is here now, gets overturned!"
Well, while this makes the "system" a terrific place for innovation, it makes it a difficult place to live, since most people prefer some measure of security about the future, as compared to a life lived in almost constant uncertainty.
So, well, you may ask does this "globalized economy" driven by ever newer and newer technologies have implications, indeed impacts on arbitral institutions and dispute resolution processes? And, the answer is of course yes and very much so!
In the U.S. we see parties already using online dispute resolution services, and in the past year no fewer than quince (15) new entities have emerged providing online dispute resolution options:
And, so for example, there are services available today through e-commerce dotcoms, online businesses with names such as Cyber-settle, and Click and Settle, where if you have a simple dispute about a number (a dollar figure, as in dollars and cents numbers) you can submit it to one of their services which operates on an algorithm-based computer program and get up to three opportunities for a "match" (a meeting of the minds) with the party on the other side (each side is offering a figure to the computer) all technology driven, no human being involved. You may say, whod do that well, one of these providers boasts 5,000 cases handled last year, 10,000 cases this year albeit primarily auto insurance kinds of matters where fault or liability was clear and parties needed simply to agree on a number (a dollar figure), but that simply opens the door doesnt it? And warms up the business community for more possibilities.
On a much larger scale of technology is the opportunity and demand to address dispute resolution needs in the Business to Business so-called B2B vertical, digital marketplaces, where companies move all of their supply-chain operations onto the Internet. They join with other competitors to create an exchange one of the first of course being composed of GM, Daimler-Chrysler and Ford. This joining with other competitors and suppliers uses computers and Websites to buy and sell goods, trade market information and run back-office operations such as inventory control. In the end they predict they will save billions of dollars by moving all these shared purchases on to the Internet. At last count there are now 287 vertical B2B marketplaces buying everything from energy to paper goods to airplane parts. The number of business transactions for just one of these B2B marketplace exchanges is in the hundreds of thousands of individual transactions annually. And guess what traditional problems will arise, such as late delivery the condition of goods breach of contract. Again, the numbers of transactions and their total dollar amounts are huge depending on which numbers you use, B2B transactions over the Internet could explode to between $2 trillion and $13 trillion within five short years. Next year alone B2B online transactions will exceed $400 billion dollars.
Well, I ask you, will parties to B2B online exchange want to resolve their problems in Court or even by traditional alternative dispute resolution methods such as offline arbitration, the answer is no, to both questions. They will want to resolve matters online, have their complaint filed online, their documents considered online, their hearing held online, their decision made online wholly or largely online (again party choice) serviced by institutional providers like mine and others. The speed and volume of transactions of B2B online vertical markets will not tolerate inordinate time bumps in the process its economically far too inefficient. Hence online resolutions required! Of course, in the near term some complex matters will go offline to the traditional route, but over time fewer of them will migrate. And, by the way, the B2B online vertical marketplace has been helped by two recent developments ins the U.S.: (1) the biggest current B2B marketplace of (GM, Daimler/Chrysler and Ford) has been found not to be in violation of anti-trust standards; and (2) in recent weeks government authorities blessed the ability to utilize "online signatures" to documents without having to resort to off-line hard copies. So back to institutional opportunities and challenges in the face of these "new technologies."
- The opportunity is for institutions to engage B2B online markets and provide a range of services which (1) anticipate disputes (ex-escrow funds, a new service); (2) provide "online" dispute methodology services to B2B markets; and (3) provide expedited low-tech off-line options for very complex matters.
- The principal challenge here, is to think about a new paradigm where arbitration and related services are not off-line with parties coming to institutions in the traditional way, but where institutions are an integral part of the very technology systems which are enabling the very operation of the B2B vertical integrated market themselves. Here institutions must move quickly enough to remain relevant!
A second major challenge for institutions in this setting is the reality of the resources required to meet the challenge. My own Board of Directors has recently approved my use of double-digit millions of dollars to refine our institutional competence in this area, and guess what it will not be enough. And lets be clear here were not talking U.S., but rather Global markets!
Another institutional "challenge" here is to help "neutrals" to educate arbitrators and mediators hone their skills if they are not already proficient in the use of technology to receive, send and consider complex legal and business issues online. And so, online dispute resolution is already very much with us. This holds out the specter of 24/7 (24 hours a day, 7 days a week) online dispute resolution possibilities. I have come to believe that online dispute resolution is to the arbitration field what the ATM card was to the banking and financial industry; a breakthrough in technology that led to around-the-clock service, accessible from anywhere in the world. On the arbitration side - the traditional paradigm of a neutral replicating a courtroom has already given way to the resolution of disputes where only a dollar figure is involved and no neutral and no courtroom exists. Interestingly, these providers have turned anonymity in the decisional process into an advantage with no neutral and no hearing room just a computer program that matches numbers.
Within our own operations at the American Arbitration Association we are using technology partly or wholly to handle a number of specialized disputes. Last year we handled almost 60,000 mass claims disputes, all of which were filed online and which were, with the exception of five cases, all heard by telephone conference call with neutrals sometimes hearing 13 to 15 cases a day. That 60,000 was out of a total of 140,000 of arbitrations and mediations. In a state statutory caseload in New York State, we expect to handle about 70,000 conciliation cases this year, again with the majority of the activity being technologically driven.
And so, you may ask, will this online dispute resolution phenomena expand beyond an effort to reach a simple number in the near term? I think the answer is yes, and it will occur because online systems between business and consumers (B to C) and business to business (B to B integrated networks) will drive acceptance and ultimately growth of online resolutions. And by the way, to this point I have only discussed business to business, but the other piece that will also span many disputes is (B-to-C) business to consumer transactions.
In the U.S. the FTC (the Federal Trade Commission) and the U.S. Commerce Department held hearings in June along with officials from Europe and Japan to discuss the creation of an alternative dispute resolution system for the online marketplace for business and consumers; and in Europe, the European Commission is actively studying the B2C (business to consumer) as contrasted with B2B area, where the European Commission estimates that annually some 15% of all B2C online transactions will require some form of alternative dispute resolution methods and they want to insure it is fair. It surely can be but recall the traditional users of arbitration and mediation were two parties of equal strength and bargaining power B2B or business and labor union. The B2C or employer/employee situation is a little different and courts and policymakers will look for fairness standards and some concessions to traditional practices may have to be made in order to maintain a level playing field. Of course, one online B2C process actively, already in place is occurring at WIPO (The World Intellectual Property Organization) and among a handful of other institutional providers who are daily resolving Internet domain names disputes through an online arbitration process. The fees are kept low for consumers, the process is simple and quick and WIPO has disposed of over 800 such matters so far this year.
Yet another indicator of the impact of technology on the growth of the use of arbitration and mediation, domestically and globally, is reflected in the number of visits to our Internet Webster on a monthly basis. In over three years there has been a constant monthly increase month after month of hits (as they are called when people move around your Web site) within our Webster and visits by individual visitors to the site. This was true, once again, in the month of September when the site received almost 3 million hits during the 30 days of September, representing over 63,000 individual visitors. Were just one institution, but think about the degree to which technology is growing interest and making shared knowledge possible. After U.S. visitors the top 12 countries in order of the number of visitors to the Website for September were from: the United Kingdom, then Canada, Japan, Australia, Singapore, Germany, Mexico, Brazil, Netherlands, Argentina, Switzerland and France. Of course, visitors to our Website are downloading forms, rules, arbitration/mediation clauses for contracts, procedures, codes of ethics, membership applications and articles among other practical and educational offerings. And by way of speaking of matters Global, we believe the globalization of markets driven by new technologies and the interconnected thinking and mind-set which goes with it, has potentiated and enhanced the growth of our international caseload. In 1999 our International Center administered 420 cases double the number from 1996. Those 420 cases reflected parties from 72 different countries and in a growing number of cases there were no U.S. parties involved. A statement I believe about the diminishing impact of national borders. For the current year we expect the international caseload to exceed 500 new cases which would be another 20% growth of international cases over 1999. Again, we see the globalization of markets and new technologies contributing.
Now, in summarizing some of the points I have spoken to as I look over the horizon to the days ahead, and in doing so I will attempt to avoid the result that a well-known U.S. law professor noted when he said that "People who live by crystal balls are destined to eat glass." I still believe as to the growth of arbitration and mediation in the resolution of international commercial transactions that I see virtually unbridled and straight-line growth in the use of these methodologies as the world business communities become more homogeneous in their practices and interdependent in their dealings across national boarders, which will mean less and less, and, I believe the use of online technology to resolve disputes will grow very quickly to the extent that one year from now we will all be amazed at the exponential use of online modalities. This direction would suggest that arbitrators and mediators who wish to be fully involved in the resolution of international commercial issues should hone their skills if not already highly proficient in the use of technology to receive, send and consider complex legal and business issues online. I would say again that this will be significantly driven by the requirements of B to B and B to C transactions by the thousands, all of which will be occurring online.
Finally, we expect to see in the coming days greater movement in the direction of "dispute avoidance" before parties ever reach the stage of requiring mediation and arbitration. This is already taking place in the construction field, both domestically and internationally, through the use of partnering facilitation and other holistic approaches to anticipating disputes. Once again, I think that this will be further facilitated by the use of online competencies where the collection of data about disputes including the frequency and the nature and circumstances in which they arise will enable parties to anticipate with a greater degree of accuracy pressure points where disputes might arise. Think about it, with all of the pertinent information online and readily available, parties will be able to resolve more disputes, or, address potential disputes among themselves. To the extent a third party is needed, this will require a new kind of dispute resolution facilitator who will work with parties in an anticipatory way to avoid disputes and hence utilize well-developed negotiation skills. And, for those of us who like things just the way they are right now which is all of us will there still be traditional arbitrations only modestly affected by technology of course but I earnestly believe fewer with each passing year. Therefore, if you aspire to a long life, youll have to get online.
I thank you for your kind attention. I express my appreciation for the privilege of sharing my thoughts with you this morning in this important setting. Thank you.