October 29 , 2012

1. Online Arbitration October 29, 2012

2. Roadmap • Online Arbitration and ODR • AT&T v. Conception • Examples • The ebay Arbitration Clause • Best Practices • A possible design

3. The ODR Spectrum Problem DiagnosisAn automated process that provides buyers and sellers key information and sets reasonable expectations Direct NegotiationA tool that enables disputants to communicate directly through a web forum in an attempt to reach agreement MediationA process in which an impartial third party joins the discussion between the disputants to help them find resolution EvaluationThe endpoint for ODR, where a neutral hears both sides of the dispute and renders a decision that is binding on both sides

4. AT&T v. Conception • Last summer the Supreme Court struck down a long-standing judge-made rule that arbitration agreements are unenforceable if they are included in standard consumer contracts.   • Class actions and binding arbitration • AT&T’s consumer redress process • Changes to T&Cs in the US • Evolution of consumer arbitration clauses

5. AAA Consumer Arbitration

6. NAF Lawsuit “…the Forum enforces a biased arbitration process that damages consumers. The Forum has worked behind the scenes with creditors and debt collection law firms, against the interests of ordinary consumers, in violation of federal and state consumer protection laws.” https://docs.google.com/fileview?id=0B_ShETZYawQEZTdjOWExMDgtNmFiYS00NjUyLTkwZjYtYzc5NWNiZDQ0MDM2&hl=en

7. Examples AMAZON E-COMMERCE http://www.amazon.com/gp/help/customer/display.html/ref=hp_200905880_conditions?nodeId=508088 AMERICAN EXPRESS CREDIT https://web.aexp-static.com/us/content/pdf/cardmemberagreements/gold/AmericanExpressGoldCard.pdf BARNES & NOBLE E-COMMERCE http://www.barnesandnobleinc.com/misc/terms_of_use.html DELL E-COMMERCE http://www.dell.com/content/topics/global.aspx/policy/en/policy?c=us&cs=19&l=en&s=dhs&~section=012#ustc ELECTRONIC ARTS ENTERTAINMENT http://tos.ea.com/legalapp/WEBTERMS/US/en/PC/ GROUPON E-COMMERCE http://www.groupon.com/terms SPRINT TELECOM http://shop2.sprint.com/en/legal/legal_terms_privacy_popup.shtml T-MOBILE TELECOM http://www.tmobile.com/Templates/Popup.aspx?PAsset=Ftr_Ftr_TermsAndConditions&print=true VERIZON WIRELESS TELECOM http://www.verizonwireless.com/b2c/support/customeragreement XBOX LIVE ENTERTAINMENT http://support.xbox.com/en-US/xbox-live/contractsubscription/terms-and-conditions

8. ebay’s Clause (1) Agreement to Arbitrate You and eBay each agree that any and all disputes or claims that have arisen or may arise between you and eBay shall be resolved exclusively through final and binding arbitration, rather than in court, except that you may assert claims in small claims court, if your claims qualify.  The Federal Arbitration Act governs the interpretation and enforcement of this Agreement to Arbitrate. Prohibition of Class and Representative Actions and Non-Individualized Relief YOU AND EBAY AGREE THAT EACH OF US MAY BRING CLAIMS AGAINST THE OTHER ONLY ON AN INDIVIDUAL BASIS AND NOT AS PART OF ANY PURPORTED CLASS OR REPRESENTATIVE ACTION OR PROCEEDING.  UNLESS BOTH YOU AND EBAY AGREE OTHERWISE, THE ARBITRATOR MAY NOT CONSOLIDATE OR JOIN MORE THAN ONE PERSON'S OR PARTY'S CLAIMS, AND MAY NOT OTHERWISE PRESIDE OVER ANY FORM OF A CONSOLIDATED, REPRESENTATIVE, OR CLASS PROCEEDING.  ALSO, THE ARBITRATOR MAY AWARD RELIEF (INCLUDING MONETARY, INJUNCTIVE, AND DECLARATORY RELIEF) ONLY IN FAVOR OF THE INDIVIDUAL PARTY SEEKING RELIEF AND ONLY TO THE EXTENT NECESSARY TO PROVIDE RELIEF NECESSITATED BY THAT PARTY'S INDIVIDUAL CLAIM(S).  ANY RELIEF AWARDED CANNOT AFFECT OTHER EBAY USERS. 

9. ebay’s Clause (2) Arbitration Procedures Arbitration is more informal than a lawsuit in court.  Arbitration uses a neutral arbitrator instead of a judge or jury, and court review of an arbitration award is very limited.  However, an arbitrator can award the same damages and relief on an individual basis that a court can award to an individual.  An arbitrator also must follow the terms of this User Agreement as a court would. The arbitration will be conducted by the American Arbitration Association ("AAA") under its rules and procedures, including the AAA's Supplementary Procedures for Consumer-Related Disputes (as applicable), as modified by this Agreement to Arbitrate.  The AAA's rules are available at www.adr.org.  A form for initiating arbitration proceedings is available on the AAA's website at http://www.adr.org.  The arbitration shall be held in the county in which you reside or at another mutually agreed location.  If the value of the relief sought is $10,000 or less, you or eBay may elect to have the arbitration conducted by telephone or based solely on written submissions, which election shall be binding on you and eBay subject to the arbitrator's discretion to require an in-person hearing, if the circumstances warrant.  Attendance at an in-person hearing may be made by telephone by you and/or eBay, unless the arbitrator requires otherwise.  The arbitrator will decide the substance of all claims in accordance with the laws of the State of Utah, including recognized principles of equity, and will honor all claims of privilege recognized by law.  The arbitrator shall not be bound by rulings in prior arbitrations involving different eBay users, but is bound by rulings in prior arbitrations involving the same eBay user to the extent required by applicable law.  The arbitrator's award shall be final and binding and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof.

10. ebay’s Clause (3) Costs of Arbitration Payment of all filing, administration and arbitrator fees will be governed by the AAA's rules, unless otherwise stated in this Agreement to Arbitrate.  If the value of the relief sought is $10,000 or less, at your request, eBay will pay all filling, administration, and arbitrator fees associated with the arbitration.  Any request for payment of fees by eBay should be submitted by mail to the AAA along with your Demand for Arbitration and eBay will make arrangements to pay all necessary fees directly to the AAA.  If the value of the relief sought is more than $10,000 and you are able to demonstrate that the costs of arbitration will be prohibitive as compared to the costs of litigation, eBay will pay as much of the filing, administration, and arbitrator fees as the arbitrator deems necessary to prevent the arbitration from being cost-prohibitive.  In the event the arbitrator determines the claim(s) you assert in the arbitration to be frivolous, you agree to reimburse eBay for all fees associated with the arbitration paid by eBay on your behalf, which you otherwise would be obligated to pay under the AAA's rules. Severability With the exception of any of the provisions in Section 1 of this Agreement to Arbitrate ("Prohibition of Class and Representative Actions and Non-Individualized Relief"), if a court decides that any part of this Agreement to Arbitrate is invalid or unenforceable, the other parts of this Agreement to Arbitrate shall still apply. If a court decides that any of the provisions in Section 1 of this Agreement to Arbitrate ("Prohibition of Class and Representative Actions and Non-Individualized Relief") is invalid or unenforceable, then the entirety of this Agreement to Arbitrate shall be null and void.  The remainder of the User Agreement and its Legal Disputes Section will continue to apply.

11. ebay’s Clause (4) Opt-Out Procedure You can choose to reject this Agreement to Arbitrate ("opt-out") by mailing us a written opt-out notice ("Opt-Out Notice").  For new eBay users, the Opt-Out Notice must be postmarked no later than 30 days after the date you accept the User Agreement for the first time.   If you are already a current eBay user and previously accepted the User Agreement prior to the introduction of this Agreement to Arbitrate, the Opt-Out Notice must be postmarked no later than November 9, 2012.You must mail the Opt-Out Notice to eBay Inc., c/o National Registered Agents, Inc., 2778 W. Shady Bend Lane, Lehi, UT 84043.  The Opt-Out Notice must state that you do not agree to this Agreement to Arbitrate and must include your name, address, and the user ID(s) and email address(es) associated with the eBay account(s) to which the opt-out applies. You must sign the Opt-Out Notice for it to be effective. This procedure is the only way you can opt-out of the Agreement to Arbitrate. If you opt-out of the Agreement to Arbitrate, all other parts of the User Agreement and its Legal Disputes Section will continue to apply to you.  Opting out of this Agreement to Arbitrate has no effect on any previous, other, or future arbitration agreements that you may have with us. Future Changes to the Agreement to Arbitrate Notwithstanding any provision in the User Agreement to the contrary, you and we agree that if we make any change to this Agreement to Arbitrate (other than a change to any notice address or website link provided herein) in the future, that change shall not apply to any claim of which you provided eBay with written notice prior to the effective date of the change.  Moreover, if we seek to terminate the Agreement to Arbitrate as included in the User Agreement, any such termination shall not be effective until 30 days after the version of the User Agreement not containing the Agreement to Arbitrate is posted to http://www.ebay.com, and shall not be effective as to any claim of which you provided eBay with written notice prior to the date of termination.

12. Consumer Redress Principles (1) • Consumers should have meaningful choice about whether to participate. Choice includes an understanding of the ODR process and its consequences; an option to agree to ODR; and a reasonable way to exercise that choice • Meaningful option on whether to arbitrate. Consumers should be able to decline arbitration and use other means of dispute resolution. • Understanding the process requires clear and conspicuous notice to the consumer of the arbitration option. This is particularly challenging in an online environment where consumers may be using a small screened mobile device for their transactions • Reasonable method to exercise choice, meaning that the ODR system provides clear and easy to exercise options

13. Consumer Redress Principles (2) • Consumers should not be subject to independent arbitration claims by vendors • Allowing vendor claims against consumers in an ODR setting exposes consumers to the potential for massive fraud, such as unfounded claims • Vendor claims against consumers should be limited to those arising from the same transaction. Refer to the OAS standard from its ODR project: “The Arbitrator may use a Vendor’s claims arising from the same transaction to reduce or eliminate the amount owed by a Vendor, but otherwise shall have no authority to enter an award for such relief against a Buyer,” with Buyer and Consumer defined as “a natural person who enters into a Consumer Transaction for personal, family, or household use, and not for resale or other commercial activity.”

14. Consumer Redress Principles (3) • The process must be free from bias (or appearance of bias). This requires separation between interests of the parties and the arbitrator. • This principle requires more than just a disclosure of actual or apparent financial or other ties between the parties. • Arbitrators should be bound by ethical standards • Meaningful notice of arbitration • Because this system does not contemplate independent claims against consumers, this will arise with respect to notice to the vendor and any counterclaims that may be made against the consumer by the vendor. • Notice to the consumer must be designed to ensure that the consumer is aware of such claim, and

15. Consumer Redress Principles (4) • Low or No Cost to consumer • It is axiomatic that any successful ODR program involving low value transactions must either be cost free or extremely low cost for the consumer. This has been the model used by existing successful ODR systems such as PayPal. • Clear statement of outcome • Although a simplified process cannot be expected to provide a factually specific basis for the decision, it should provide more than a yes or no outcome. The resolution should offer the claimant a general rationale for the outcome, such as “insufficient proof of non-delivery.”

16. Three Step Consumer Resolution Buyers with a problem visit consumerprotection.org. They are directed there by web seals featured on the home page and customer service pages for the participating merchant. Simple three step process: Buyer takes refund and seller penalty Buyer receives full refund plus 20% Step 3 Buyer reports issue Seller responds Buyer cancels complaint Buyer indicates if problem was solved and how Buyer chooses Step 1 Step 2 Selects merchant, explains problem, requests resolution Buyer wants to communicate further • Buyers can receive a maximum of five refunds per year. • Complaints can only be filed for transactions less than $500. • Merchants opt into the system and at launch must provide a deposit of funds to be used to provide reimbursements. Buyers decide at case closure if they want to support a group resolution, where if more than 20 buyers experience the same problem with the same merchant then all other people who experienced the problem get the same resolution, unless they proactively decide to opt out of the group

17. Resources Repairing a Broken System – FTC Report (PDF) Comments of Professor Jean R Sternlight to CFPB Arbitration Inquiry (PDF) Drive Through Arbitration, Amy Schmitz (PDF) One Slide Design of a Consumer Protection ODR System (PPT) A Company’s Voluntary Refund Program for Consumers Can Be a Fair and Efficient Alternative to a Class Action (Eric P. Voigt) (PDF) Killing Them with Kindness: Examining “Consumer-Friendly” Arbitration Clauses After AT&T Mobility vs. Concepcion (Myriam Gilles) (PDF) Online Dispute Resolution: The Next Big Thing? by Pablo Cortes (PDF) Design for a Consumer Friendly ODR Process (DOC)

18. Where It’s Heading Consumer arbitration is here Technology can make it work better Best practices can help evolve it toward more effective consumer protection There’s definitely potential for abuse Ignoring it won’t make it go away

19. Additional Information • Colin Rule, CEOcrule@modria.com • Company information available at http://www.modria.com • Demo the platform athttp://mediationroom.modria.com