The need for an online dispute resolution mechanism

Both Europe and India are looking to regulate e-commerce platforms. And while they have different approaches they agree on the need for an online dispute resolution process. As we build out these systems we should not just place a digital layer on top of existing dispute resolution methods. Instead we should take the opportunity to embed digital artefacts into the workflow that will conclusively establish whether contractual obligations have been performed.

This article was first published in The Mint. You can read the original at this link.

Over the last fortnight, both the European Commission (EC) and the government of India announced policy initiatives designed for large e-commerce platforms. Regulatory serendipity of any sort is unusual, but in this case it is a sure indication of the concern with which governments view the platform economy and its effect on traditional markets. That said, the EC and the Indian government couldn’t have been more dissimilar in their approach.

The EC has suggested measures to improve the fairness and transparency of transactions on the platform economy with a view to mitigating some of the power and influence that companies that operate them have gained in the absence of specific regulations. This includes requiring platforms to publish clear and easily understandable terms and conditions, ensuring that they explain the basis they adopt for ranking products and services, and providing opportunities for redressal if sellers are down-ranked or suspended from the site.

The Indian government, on the other hand, has published a rambling treatise on the state of the internet, replete with hackneyed cliches and jingoistic phrases that threaten to regulate far more than the policy’s statement of purpose suggests. As I mentioned in my column last week, the text of this policy displays a worrying lack of appreciation of fundamental concepts such as artificial intelligence and network effects, and demonstrates an unseemly enthusiasm for ham-fisted solutions that pander to nationalistic tropes but which will do little to address the real issues.

That said, the one element that both regulations refer to is the need for an effective online dispute resolution process through which buyers and sellers on these platforms can agitate their concerns. According to a survey commissioned by EC, nearly 50% of European businesses operating on platforms experience problems in the course of their operations. Thirty-eight per cent of the problems regarding contractual relations remain unsolved, while 26% are solved but with difficulty. The survey estimated that losses in sales on account of such difficulties are equivalent to about €1.27-2.35 billion (around ₹10,202-18,879 crore) in value terms.

It seems unlikely that the analysis will be much different in India. To the contrary, given the Indian judicial system’s reputation for tardiness, things are probably much worse with the platform economy in India as local buyers and sellers would likely rather live with their discord than subject themselves to the vicissitudes of Indian litigation.

There is, therefore, a crying need to develop an appropriate complaint handling mechanism to address disputes that arise on these platforms. Any such system we build should be capable of functioning online and operating at a scale that enables it to deal with the high volume of disputes they will doubtless need to process. Ideally, they should be capable of processing some portion of the disputes using [[automated decision making]] algorithms that leverage the digital nature of the platform and the underlying e-commerce transactions.

As we look to build these systems, we should actively resist the urge to merely place a digital layer on top of existing dispute resolution methods. If we do so, we will simply carry the flaws of the current system into the new online mechanisms we build. Instead we should look to develop solutions that take advantage of the auditability of electronic transactions by incorporating non-repudiability directly into the design to provide greater certainty of outcome. For instance, we could consider embedding digital artefacts into the e-commerce workflow that will allow online dispute resolution frameworks to conclusively establish whether or not contractual obligations have been effectively performed—along the lines of principles that have been successfully experimented with in the context of blockchain-based smart contracts.

Critical to any system we develop is trust. Parties will not willingly submit themselves to online dispute resolution unless they are convinced their complaints will be redressed fairly. This does not mean that they always have to succeed in their claim—just that, regardless of the outcome, the process should be clear and transparent and the verdict fair on its face. Whatever system we implement will need to offer that level of assurance if it is to be widely accepted. This is even more important if the system incorporates any algorithmic decision-making in its workflow.

There are no shortcuts to establishing trust. Organizations building online dispute solutions must be willing to weather long adoption cycles to build faith in their system. That said, what would really encourage widespread adoption is if large sellers on these platforms agree to accept the verdict of the online platform without demur. More than anything else, customers fear getting stuck in the interminable vortex of civil appeals, knowing that they will get no relief until their case winds its way through the court system. If, however, they can be sure that, regardless of the outcome, the organizations they are fighting will not contest the verdict of an online dispute resolution system, they will be more likely to take their chances with it.

If we can build a system that addresses these needs of the platform economy, there is no reason why some or all of these processes cannot, in time, be applied to traditional disputes as well.