Who Needs Lawyers? Mediate Online With ADR
By Maggie Overfelt

(FORTUNE Small Business) – An order comes in from a buyer on a B2B exchange where you sell your surplus merchandise. The buyer later claims you shipped the wrong goods and stops payment. He's got your stuff; you have no money. You're in Greenville, S.C. He's in Greenland. Which country's law will govern? Who has to fly where to attend court? So now what?

This may not have happened to you yet, but it probably will. You could sue, but that's expensive and time consuming. The exchanges? "Most marketplaces, like eBay, don't take sides, so they won't help resolve problems," says Steve Abernethy, CEO of SquareTrade.com. "And one of the needs of e-commerce is... recourse."

SquareTrade.com is one of a dozen dot-com fledglings (all with action-oriented names like clickNsettle.com and Mediate.com) that have sprung up worldwide in the past nine months who think they've found that recourse in online dispute resolution. Alternative dispute resolution (ADR), resolving conflicts through methods other than traditional litigation, has long been a legal staple in the old economy. This new offshoot aims to tackle the problems that are apt to arise between companies in the multibillion-dollar e-marketplace as well as to streamline the process for settling both online and offline disputes.

These sites are still ramping up, receiving about 75 to 100 new cases a week, the site owners say, but the companies seem promising, especially since they're the only problem-solving bodies people can run to when e-commerce transactions go sour.

More e-commerce companies are embracing the concept, too--and tacking on pre-transaction disclaimers specifying that complaints will be resolved online with the help of a third party. "The B2B process is going to generate a high volume of conflicts," says James Henry, president of the New York City-based CPR Institute for Dispute Resolution, an international nonprofit that tests new forms of dispute resolution. "This online ADR, without the complexity of litigation, is a process that today's economy can commit to."

Consider the case of a small Montreal manufacturing company, Fibrocap Inc., which went to register SpaceKap.com as its domain name for its trademarked product, only to find that an individual in British Columbia had already claimed it. "We couldn't afford to go through the normal course of action via the federal court of Canada," says Kamilia Wirpso, Fibrocap's lawyer. "It was too expensive and slow." Wirpso opted to use the binding arbitration service eResolution.com, which is authorized by the domain-name governing body, the Internet Corporation for Assigned Names and Numbers, to settle cybersquatting cases. Using eResolution, Fibrocap waited a shorter time for the cybersquatter to respond than it would have had to in a traditional court proceeding. Sixty days later, Fibrocap reclaimed its name.

It's clear that as more companies conduct business online, a resolution service to tackle problems like this makes sense, but are the methods being used to bridge the gap between an angry buyer and a stubborn seller effective? We tried out two of the services, SquareTrade.com and Online Resolution's Mediate.com, to find out.

Our test dispute centered around a refurbished copier that had been bought through a B2B exchange. The buyer accused the seller of shipping defective merchandise, and the seller denied it. With both ADR services, the process begins the same way: The aggrieved party initiates the action by filling out an online form describing the problem and suggesting an ideal outcome. The respondent is informed by e-mail of the problem (with a link to the ADR site to see how the claimant presented the case) and is given a chance to reply.

The parties are then expected to try to settle their dispute themselves--without a mediator. With SquareTrade, each party's e-mail exchanges are posted in their entirety--unedited. Which means that the raw emotions of the opposing parties are delivered verbatim.

SquareTrade did not smooth over or edit out the insults of my editor (and test defendant), who called me strident and a liar. This made us wonder if online ADR doesn't create a greater opportunity for emotions to flare or be misrepresented (it's hard to read sarcasm in e-mail), thus making it harder to resolve disputes. "Anytime you communicate with the written word instead of person-to-person, you have a better chance of misunderstanding," says Henry of the CPR Institute. "But I think it might be generational: Younger types may be more successful communicating via e-mail." In other words, misinterpreted words might make emotions rise, but giving the parties the chance to vent after they've committed to working out their differences won't bog down the negotiations.

If the opposing parties can't work it out on their own, enter the mediator, who cuts off direct communication between them. The mediator calms them by stripping out the emotions, hoping to speed resolution by addressing only the issues. "When it's not face-to-face, the emotional stuff drops away," says Alan Gaitenby, assistant director of the Center for IT and Dispute Resolution at the University of Massachusetts. But resolution can occur only if all the parties communicate.

SquareTrade did a great job with this. We had updated messages in our in-boxes almost daily, and our mediator even told us when he was going on vacation and wouldn't be able to respond within 24 hours. Mediate.com, on the other hand, was a little slow--two or three days would pass before our mediator had a chance to review and respond to our woes--and eventually we received no guidance at all.

As in the real world, the right mediator can make all the difference. It is not yet clear that opposing parties will be able to settle their disputes by e-mailing each other through the ADR site, nor is it clear that there are enough talented mediators and arbitrators to help them if the volume of cases exceeds these services' ability to supply one. Also, disclaimer clauses that force you to use these services could scare people away who fear they would lose the right to sue. "Not a great deal is known about online dispute services," says the CPR Institute's Henry. "It's going to take a while for it to stick."