1. 1 Building a Practical Legal Framework for E-Commerce Dispute Resolution Mike Dennis, US Department of State UNCITRAL ODR Meeting Vienna, Austria

2. 2 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.pd f at para. 8, 10. http://www.oecd.org/dataoecd/44/13/44047583.pdf?bcsi_scan_DA3493EE5FC9D524=0&bcsi_scan_filename=44047583.pd f at para. 8, 10.

3. 3 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

4. 4 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

5. 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 5

6. 6 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

7. 7 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

8. 8 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

9. 9 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

10. OAS Case DB Central Clearinghouse National Administrator ODR Providers Key Components: A Central Clearinghouse, who maintains the case database; National Administrators; and ODR providers approved by the National Administrators Seller OAS-ODR Overall System Design Sellers each opt-in to the system voluntarily ODR providers apply and are approved individually 10

11. 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 11

12. 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). 12

13. 13 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

14. 14 Building a Practical Legal Framework for E-Commerce Dispute Resolution

15. 15 Appendix

16. 16 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 http://www.europarl.europa.eu/meetdocs/2004_2009/documents/dv/juri_oj(2007)1119_romei_am_/juri_oj(2007)1119_romei _am_en.pdf

17. 17 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 http://www.europarl.europa.eu/meetdocs/2004_2009/documents/dv/juri_oj(2007)1119_romei_am _/juri_oj(2007)1119_romei_am_en.pdf

18. 18 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. 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 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 www.econsumer.gov

19. 19 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

20. 20 Building A Practical Framework for Consumer Protection U.S. Proposal 1.ODR Initiative 2.ADR Through Payment Cards 3.Small Claims Procedures 4.Collective Complaints 5.Government Obtained Redress for Deceptive Practices.

21. 21 Building A Practical Framework http://ec.europa.eu/c onsumers/redress_con s/docs/cons_redress_E U_qual_study_report_ en.pdf

22. 22 Negotiation Mediation Arbitration Enforcement OAS-ODR Initiative Phases Diagnosis ODR Provider/Arbitrator Administrator (Consumer Coordinating Agency) Consumer/ Merchant Facilitated Settlement

23. 23 Negotiation Mediation Arbitration Enforcement Each phase acts like filter resolving percentage of disputes Diagnosis ODR Provider/Arbitrator Administrator (Consumer Coordinating Agency) Consumer/ Merchant Facilitated Settlement

24. 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. 24

25. 25 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.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. http://ec.europa.eu/consumers/redress_cons/adr_en.htm

26. World Regions Population ( 2009 Est.) Internet Users Dec. 31, 2000 Internet Users Latest Data Penetration (% Population) Growth 2000-2009 Users % of Table Africa 991,002,3424,514,40067,371,7006.8 %1,392.4 %3.9 % Asia 3,808,070,503114,304,000738,257,23019.4 %545.9 %42.6 % Europe 803,850,858105,096,093418,029,79652.0 %297.8 %24.1 % Middle East 202,687,0053,284,80057,425,04628.3 %1,648.2 %3.3 % North America 340,831,831108,096,800252,908,00074.2 %134.0 %14.6 % Latin America/Caribbean 586,662,46818,068,919179,031,47930.5 %890.8 %10.3 % Oceania / Australia 34,700,2017,620,48020,970,49060.4 %175.2 %1.2 % WORLD TOTAL 6,767,805,208360,985,4921,733,993,74125.6 %380.3 %100.0 % WORLD INTERNET USAGE 26 Source:Internet World Stats www.internetworldstats.com

27. 27 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.http://ec.europa.eu/consumers/strategy/docs/EC_e-commerce_Final_Report_201009_en.pdf

28. 28 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 http://ec.europa.eu/consumers/rights/docs/impact_assessment_report_en.pdf.