Dispute avoidance

ODR can be divided into dispute avoidance and dispute resolution.⁴¹ The first refers to the use of ICT to impede the occurrence of disputes between the parties and the resolution of disputes at an early stage without requiring the disputants to become fully engaged in a dispute resolution process. The second refers to ICT as applied in the settlement of disputes. This book focuses on dispute resolution mechanisms, although it is necessary at least briefly to refer to the several dispute avoidance mechanisms as they contribute to a better understanding of the potential of ICT for resolving disputes. An effective use of these mechanisms can help businesses and consumers to alle-viate the need for external resolution procedures, saving the parties valuable time and money. There are many types of dispute avoidance mechanisms, and those referred to below are the main ones currently in use.

2.2.4.1 Internal complaint procedures

These are also called internal dispute settlements, in-house customer satisfac-tion systems, call centres, complaint services etc. Internal complaint pro-cedures are the most popular and preferred method to impede the appearance of B2C disputes.⁴² The Organisation for Economic Co-operation and Devel-opment (OECD) issued the E-Commerce Guidelines for Consumer Protec-tion, where it highlighted in 2007 the need to use these in-house processes effectively,⁴³ because it is a beneficial strategy for providing consumers and businesses with quick and inexpensive solutions.⁴⁴ In this regard it has suggested that merchants should improve their complaint handling pro-cedures before investing in external ODR propro-cedures.⁴⁵ The Global Business Dialogue on E-Commerce (GBDe) also considers that in most cases the use of these mechanisms is recommended prior the use of external ODR.⁴⁶

Direct negotiations between businesses and consumers are of paramount importance as most disputes can be solved by this method if it is used appropriately.⁴⁷ Internal complaint procedures can be made more convenient when complemented with ICT. For instance, the use of ODR software may

assure that consumers include all critical information needed for the reso-lution of disputes, thus providing effective case management tools. The potential downside of this is that ODR software may open the floodgates for frivolous, vexatious or non-meritorious claims.

2.2.4.2 Escrows and online payment providers

Another dispute avoidance system is the escrow service, which is an online payment option that, for a small fee, maintains accounts for online buyers who want to make deposits via electronic money transfers. The money is transferred to the seller once the buyer receives and approves the purchased item, after an agreed inspection period.⁴⁸ This method helps to avoid the problem of fraudulent sellers.⁴⁹

Escrow services are not commonly used by online consumers, perhaps because they cost money and complicate the otherwise quick buying process.

In addition, consumers who use credit cards or other payment services to make online purchases may already be protected to a similar degree through the credit card’s chargeback policy.

Online payment providers, such as Paypal.com, first recommend the par-ties to work through the dispute together. Paypal.com has launched a dispute resolution centre which facilitates communications between the buyer and seller. According to Colin Rule, since launching the centre, buyers’ claims against sellers decreased by 50 per cent, and seller losses on Paypal.com owing to chargebacks decreased by 20 per cent.⁵⁰ If the negotiation between the parties fails to produce a satisfactory result, the buyer may escalate the dis-pute into a claim; in this case Paypal.com will temporarily retain the money paid by a buyer when the latter makes a complaint within 45 days after the payment. Paypal.com holds the money until the dispute is settled, but only in those cases where the merchandise did not arrive, or the description of the product was ‘significantly different’ to the product itself.⁵¹ In these circum-stances Paypal.com acts as an online arbitrator which will first examine the documentary evidence provided by the parties, and then will resolve the dis-pute, providing the parties with an instant and effective enforcement. How-ever, in circumstances where the seller withdraws the money from his account before the buyer makes the claim, Paypal.com will not be responsible for the buyer’s loss. Both eBay and PayPal offer members comprehensive programmes that provide protection against loss from non-delivery or misrepresentation for most purchases up to a certain value.⁵²

2.2.4.3 Online shopping assistants

Online shopping assistants fulfil a similar role as trustmarks as they inform consumers about the sellers in order help them avoid disputes, particularly those related to fraudulent issues. An interesting example of dispute avoid-ance is a software tool created by the European Consumer Centre (ECC) in

Denmark called the Howard Shopping Assistant.⁵³ It is simple to use. The consumer only has to type the domain name of the business and the software will deliver the following information:

• when the website was registered/updated

• the results of an archive.org search, which shows the images of the website of the online business during the last few years

• official company register information

• the results of a Google search excluding the website of the online business

• the adherence of the online business to a trustmark scheme

• the existing trustmarks in the country where the online business is based

• the general limitation period, eg a minimum of two years

• the general cancellation period, ie 14 days

• examples of website comparison in the country of the online business

• contact information of the national ECC.

The Howard Shopping Assistant is therefore a website that helps consumers to check whether an online business is reliable or not. This software is a very useful initiative that promotes consumer empowerment and dispute avoidance.

2.2.4.4 Feedback systems

The aim of a reputation or feedback system is to increase the users’ confidence by giving them the information and experience of former users. Feedback systems are particularly popular among online auction houses because they occur to some extent on a ‘blind basis’, that is between unknown sellers and buyers, where the buyer cannot always adequately assess the seller and the goods.⁵⁴ As a consequence, there is a large potential for lack of consumers’

confidence. In order to minimise this, online auction houses such as eBay, which hosts around 16 million online auctions a day, have developed rating systems that show comments from former buyers in previous transactions.

The eBay feedback rating system is a prime example of a database readily available to buyers and sellers alike. Every eBay seller is ranked in each transaction with positive, negative and neutral feedback by the buyer.

Before purchasing anything on eBay a buyer will first check the reliability of the seller, and will decide whether or not to do business with that seller, taking into account the result of the seller’s previous transactions. The better reputation a seller has, the more trust that seller will inspire in future buyers. This allows sellers with good reputations to charge higher prices than other competitors. This system encourages a sustainable market com-petence that is impossible to replicate in the offline world. Katsh and Rifkin observe that ‘online auctions, even though they have an innately distrustful atmosphere, have succeeded because of software that makes the auction a

convenient multiparty negotiation space and that integrates devices for building trust.’⁵⁵

2.2.4.5 Trustmarks

Trustmarks were designed with the aim of distinguishing reputable sellers, particularly SMEs without widely recognised brands. Trustmarks assure consumers that trustmark carriers comply with quality standards and that they pledge to participate in an ODR system should a dispute arise between the seller and the buyer. For instance, SquareTrade claimed that their trustmark users increase their sales by over 15 per cent after joining SquareTrade.⁵⁶ Trustmarks, trustseals and certification programs are different words to designate protocols or standards of good practice for privacy, dispute resolution and e-commerce. Independent trustmark providers are trust enablers, which supply their seals or slogans to their member websites as long as they comply with the standards of good practice.⁵⁷ In order to do so, trustmark providers generally require a number of requisites, such as that businesses trade in the online market for a certain period of time, eg a year before they can qualify to apply for the seal or trustmark.⁵⁸ If the online business does not comply with the required standards, the seal may be removed by the trustmark provider.

According to Rule there are some websites that are reluctant to post trust-marks on their homepage for a number of reasons: it may not fit the design of the site, it may look like advertisement or a bit defensive, it may take a user away from the site etc.⁵⁹ To minimise these negative effects some merchants have decided to place their trustmark logo outside the home page.

In order to be effective, a trustmark needs to create a popular brand that reaches a critical mass. Most trustmarks are mainly national and intended for particular markets.⁶⁰ At European level the two largest schemes are Trusted Shops and Euro-Label but they have not yet obtained a significant market share.⁶¹ Despite this, the European Parliament continues to push for the expansion of a European trustmark for SMEs.⁶² Outside the EU only a few have achieved a successful penetration in e-commerce. This is the case of the Better Business Bureau (BBB) and TRUSTe.⁶³

To date, the most well known trustmark provider is TRUSTe. This is a not-for-profit organisation which aims to ensure that its members disclose how personal information obtained by them is handled.⁶⁴ It certifies website priv-acy and e-mail policies, monitors practices and resolves consumer disputes related to privacy violations. TRUSTe Watchdog is the name of the ODR program. In order to use this mechanism, TRUSTe first asks claimants to attempt to resolve their disputes directly with the seal holder through direct negotiation. When parties cannot reach an agreement TRUSTe Watchdog studies the claim and produces a decision. In its decision TRUSTe Watchdog can ask a seal holder to have certain information corrected or deleted; it can request a website to change its policy on privacy, but it cannot require

a seal holder to pay monetary damages.⁶⁵ Appeals can be submitted to TRUSTe within 10 days of the initial decision. If the seal holder refuses to comply with the decision, TRUSTe may revoke their seal and communicate, if appropriate, the matter to the national regulator or the courts.

The reliability of TRUSTe has been widely criticised because, despite having handled thousands of disputes, to date TRUSTe has never revoked a single seal. One of the most controversial cases involved a claim against Yahoo!’s decision to change its personal information policy, which affected information collected prior to the change of its policy.

The main problem of trustmarks is that their proliferation has brought confusion and a lack of harmonisation to the standards for consumer protec-tion. The creation of European minimum standards for trustmarks linking them to the ECC-Net might help to maintain a minimum criterion.⁶⁶ In the EU most e-commerce participants are in favour of creating a European trust-mark but the main hurdle is the financing of this project. It is debatable whether self-regulation and private funding in this area are efficient and fair, particularly when this is supported exclusively by the businesses. Thus, it may be more appropriate if these trustmark providers are backed by a gov-ernmental or regional authority, consumer associations and industry groups.

By contrast, if trustmarks are left without any control it may create a false appearance of protection that is to the detriment of many consumers. This would result in the opposite effect than the one for which they were created, ie that of increasing the confidence and protection of consumers.⁶⁷ Further-more, empirical evidence suggests that certified businesses are more likely to breach the code of conduct than those that are not certified.⁶⁸

The US Better Business Bureau (BBB), in a joint venture with the Federation of European Direct Marketing, Eurochambers and many other organisations that encourage consumer trust in e-commerce, embarked in the development of an international trustmark and ODR cross-border stand-ards.⁶⁹ The minimum standards are based on the self-regulation efforts carried out by the OECD and the GBDe.⁷⁰ This ongoing project is called the Global Trustmark Alliance (GTA) and it aims to launch an international trustmark, co-branding it with the existing national schemes, as well as to provide a transatlantic system for handling B2C disputes. A similar initiative related to the GTA was a cross-border complaint project provided by BBB, TrustUK and WebTraderUK.⁷¹ Unfortunately these projects currently seem to be at a standstill.

On the one hand, the major advantage of trustmarks is that they reduce fraud by making it more difficult for rogue traders to operate. On the other hand the major challenge is to attain brand recognition of the trustmark and to obtain a sustainable financial model. This will be best achieved with the assistance of a public regional coordination and an effective awareness strat-egy showing businesses that a trustmark could increase their market share, increasing consumers’ trust and reducing the chances of court actions when the trustmark program is complemented with ODR services. If this is done

effectively it will contribute significantly to increasing consumer confidence in e-commerce.

2.2.4.6 A proposal: Trustmark complemented with a feedback system

One of the main objectives of consumer ODR is to promote consumer con-fidence in legitimate businesses. This has already been largely obtained by companies such as eBay, which has achieved the trust of millions of customers by using a very successful feedback system. However, there has not been suc-cess in replicating a feedback system for the global e-commerce market. Often, when we find a new website selling something, we generally have concerns that the supplier may be a fraudster or that the product is not as good as advertised.

In order to enhance trust in potential consumers, businesses could adhere to feedback ratings designed by ODR providers and trustmark schemes.⁷²

The first likely obstacle to this is that many businesses would probably not want to participate in a trustmark scheme that could give them negative feedback. Much of the reticence in business to participate in a public forum for voicing customer dissatisfaction is the fear of negative commentary which might be unfair or exaggerated. This is particularly problematic on the inter-net, which moves so fast and allows people to rant, castigate and condemn so easily. However, if the trustmark scheme is a reputable one (ie one with public backing, such as the BBB Online and the ECC-Net) and the business is a small enterprise that does not have anything to lose by opening its product to the global market, it might be worth it for the business to join. Perhaps, something along these lines would only be appealing for small businesses; that alone would be a small step forward to improve the trust of the online community as well as the competence in the global electronic market, which is still dominated by large corporations, where brand recognition remains vitally important.