Yale Law School’s Seminar in Private Law: Online Dispute Resolution

Post by Sadie Blanchard, Research Fellow Yale Law School

Last week, Yale Law School’s Seminar in Private Law took up online dispute resolution (ODR). Colin Rule, who created eBay’s and PayPal’s dispute resolution systems and now runs a startup that builds ODR platforms, spoke together with Tom Tyler, a social psychologist who studies how judgments about the justice of procedures impact legitimacy and cooperation.

Rule began by demonstrating an ODR platform he created in cooperation with the Dutch government, and which he presented as a prototype for the future of justice and access to justice. The platform, Rechtwijzer, is for couples contemplating or going through divorce. It provides information about legal options as well as a platform on which couples can collaborate to solve problems, negotiate, and, if necessary, mediate issues such as child custody, alimony, child support, and the division of property.

Turning next to online dispute resolution for e-commerce, Rule argued that ODR does not occur in the shadow of the law for low-value, cross border disputes. The transaction costs of accessing traditional adjudication, especially in cross-border transactions giving rise to competing jurisdictional claims, are too high relative to the value of such disputes to make courts feasible forums for resolving them. Thus, when assessing ODR for most consumer disputes, he argued, we are not comparing the merits and deficiencies of ODR to those of courts but considering ODR versus other private mechanisms for handling consumer complaints, such as firms’ customer service departments, ad hoc negotiation between buyers and sellers, and mechanisms such as consumers’ ability to reject credit card charges from merchants with whom they have a dispute.

Tom Tyler agreed that the declining availability of courts will speed the trend toward ODR, even beyond the commercial context. Perhaps we don’t need to worry about this because ODR provides a good alternative. Tyler then discussed Rule’s forthcoming book, The New Handshake, which makes a case for an Internet-wide ODR system for e-commerce. The New Handshake describes eBay’s experience that customer complaints, when handled well, resulted in more loyal and more satisfied eBay users, even when the complaints were not decided in the users’ favor. Tyler noted that this finding comported with social science research showing that people who have involuntary contact with police come out of that contact with a more cooperative attitude toward police even if the outcome is unfavorable, if they have a good experience during the encounter.

Tyler praised The New Handshake’s inductive and behavioral approach to consumer dispute resolution. Rule’s team at eBay analyzed the company’s internal data on use of its dispute resolution system and users’ subsequent behavior on eBay to evaluate how the dispute resolution process impacted trust and loyalty. EBay’s conclusions mostly aligned with Tyler’s findings in his research on how perceptions of procedural justice affect loyalty to institutions. That research shows that people care greatly about being treated respectfully and that increasing transparency and providing opportunities to communicate good faith can facilitate trust between disputing parties. One finding of Rule’s that surprised Tyler was that reducing voice increased collaboration and improved disputants’ experience. Because a buyer or seller was often angry at the moment she invoked the dispute resolution mechanism, allowing her to describe her grievance in her own words tended to frame the interaction antagonistically and decrease the likelihood of a consensual resolution. EBay addressed this issue by requiring the initiator of a complaint to use pre-formulated text and allowing users to voice their grievances only at a later stage of the process if necessary. This experience did not align with the dominant view in mediation that allowing people to speak and vent is important.

A student asked whether we should be more skeptical about systems that reduce conflict. In what scenarios do we want to retain some level of conflict? Rule responded that we are not in danger of eliminating conflict. Conflict is inevitable and negotiation is constant. Capitalism, he argued, is a continuous interpersonal negotiation about our respective desires, and technology will create more disputes than it resolves because it facilitates human interaction. Tyler said that ODR is appropriate for resolving social coordination problems or clearing up misunderstandings. It is not good for deeper relationship conflicts in which important interests or values beyond resolving the conflict are at stake.

Another student observed that fostering a sense of shared identity seems to be important to perceptions of procedural justice. He asked how ODR platforms, which are less personal than customer service call centers, can facilitate shared identity. Rule responded that eBay users have a sense of community that comes not from live interaction but from devotion to the collaborative enterprise of the eBay marketplace. He observed that sellers are disproportionately concerned if they receive a single negative review among thousands of positive ones. He views this as indicative of sellers’ desire to see themselves and to be seen as respectable members of the eBay community. Tyler concurred that research shows that identification with a group can come about through fairly abstract mechanisms and not only person-to-person interactions.

Other issues discussed included concerns that public oversight of private dispute resolution will become increasingly difficult as the latter grows, whether ODR or courts are better at counteracting bargaining power inequality and differing socially constructed beliefs about entitlements, and privacy and the protection of the massive amounts of personal data held by online merchants.

A theme arose in the Seminar’s earliest sessions of evolution driven by cooperation and conflict across a social field. International arbitration has had to work to sustain the legitimacy of its practices as it has expanded to encompass a more diverse group of users (insiders) and faced contestation by outsiders. In response, international arbitration has become more inclusive, transparent, technocratic, and professionalized. Similarly, public health cooperation in the WHO’s flu research network became more formalized and transparent in response to challenges by insiders and outsiders. We see a similar evolution in corporate dispute resolution beyond the shadow of the law. A line can be traced from ad hoc internal firm-to-consumer negotiations to more formal customer complaint departments to highly standardized proprietary dispute resolution platforms that reduce the cost of complaining to several clicks of a mouse to Rule’s envisioned future of a freestanding ODR platform that makes its data available to consumer advocates and regulators. These developments aim to foster trust by insiders—buyers and sellers on e-commerce platforms—to induce them to become or remain loyal users. They also seek to guard against challenges by outsiders who would seek to limit or regulate private resolution of consumer disputes.

The next session of the Seminar will consider a quite different case of dispute resolution: the negotiations toward the Iran nuclear deal. Catherine Ashton, former Foreign Minister of the European Union and a key participant in the negotiations, will speak together with Philip Bobbitt of Columbia Law School.  

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