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Is the Future of Civil Justice Online? Modria Thinks So.

Oct. 8, 2015, 12:20 PM

As a young college graduate, Colin Rule might have been mistaken for just another pie-in-the-sky idealist: At Haverford College, Rule majored in “peace studies,” and after graduating, he spent two years volunteering with the Peace Corps in Eritrea.

But as the internet was booming in the mid-1990s, Rule, who had always been interested in technology, was looking for opportunities. He soon saw a way to marry his twin passions: In 1999, Rule got a master’s degree in conflict resolution and technology from Harvard University’s Kennedy School of Government, and in 2000 he founded, one of the first companies in the country doing online dispute resolution, or “ODR.” In 2002, he published a book, Online Dispute Resolution for Business .

In the span of just a few years, Rule, a non-lawyer, had rushed to the forefront of the conversation about ODR. A few months after his book was published, eBay called. Rule spent eight years with the e-commerce giant and its subsidiary, PayPal, building systems for resolving the ballooning number of disputes between internet buyers and sellers: often low value, cross-border cases not amenable to traditional adjudication.

Rule said eBay now process about 60 million disputes a year, 90 per cent of which are resolved without human intervention. Depending on how you count, Rule said, eBay is handling as many disputes as the U.S. Court System.

In early 2011, Rule left eBay to start another ODR company, Modria , together with co-founder Chittu Nagarajan, who had worked with Rule at PayPal.

Rule, who is the company’s Chief Operating Officer, stresses that Modria doesn’t offer dispute resolution services: It’s a software company offering a dispute resolution platform that clients can integrate into their websites.

Unlike eBay, Modria heavily incorporates humans into its dispute resolution process: Disputants first have a chance to negotiate a settlement, and if that is unsuccessful a mediator is brought into the conversation, and finally, if they still haven’t agreed, the dispute proceeds to an arbitrator. All of this happens online.

Asked whether ODR works well for small-fry cases between eBay consumers, but is too simple for high-stakes commercial disputes, Rule didn’t hesitate: He cited ODR legislation in Canada and the U.K. and a pilot ODR program at General Electric as proof the online model is working its way up the food chain.

In a recent phone interview with Big Law Business, Rule said lawyers have always had a “monopoly,” but those who fight ODR are fighting a losing battle. The internet, Rule argued, will inevitably transform dispute resolution just as completely as it has transformed commerce.

Below is an edited transcript of the interview with Rule.

Big Law Business: How monumental were the ODR systems you put in place at eBay and PayPal? Were they the first of their kind?

Rule: They were the first ODR processes at scale. Nobody had done tens of millions of disputes before. I think by the time I left, eBay had done something like 400 million disputes. It depends on how you count cases within the U.S. court system, but we were actually resolving more cases on an annual basis than the courts.

As you might imagine, these kinds of cases are growing like crazy. It’s not just eBay. There are similar case volumes at Amazon and Alibaba. Now, all things are moving online — you have people renting their guest rooms on Airbnb, going to the airport on Uber, and buying freelance services from Upwork. This is the future.

Big Law Business: What about cases that a lawyer might have taken, cases that might have gone to court? Does ODR have potential there too?

Rule: It’s definitely heading in that direction. When we were at eBay, we were just trying to solve a commercial problem, but now there are a lot of people in the legal space who are thinking about it.

These tools are going to become more relevant in higher dollar value cases over time. People want the same convenience and flexibility.

In the U.K., the Ministry of Justice just convened a working group looking at online dispute resolution. They concluded that this is the future of civil justice, and recommended the creation of something called Her Majesty’s Online Court , a purely online court for all cases less than £25,000, where the parties would not have to be represented by a lawyer, and wouldn’t even have to even show up in person.

British Columbia is doing something similar. They passed a law called the Civil Resolution Tribunal Act , recommending that all low-value civil cases be worked out in online processes that don’t require legal representation and don’t require in-person attendance. We also have a relationship with the Dutch Legal Aid Board, and we’ve built an online divorce and separation process. It’s end to end online.

What we see — and we work very closely with the American Arbitration Association and some other organizations that deal with higher dollar value cases — is that these tools and approaches are going to become more relevant in higher dollar value cases over time. People want the same convenience and flexibility and streamlined process.

Big Law Business: Are there not inherent limitations on a model that doesn’t have humans in the equation? Will people really entrust important cases to an algorithm or a computer?

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Rule: The algorithmic approach is relevant in a narrow context. What we’re doing at Modria is building an online communication platform. We’re not talking about computers coming in and deciding cases.

I see every dispute as going through a series of phases. The first phase is a diagnosis process: What is the issue? What are the rights of the parties? What are some other outcomes in similar kinds of disputes?

Then there is a direct negotiation between the parties. That’s a technology-assisted negotiation, meaning, maybe, that if one party decides to make an offer, they can put that into the technology, and the other party can then accept or reject that offer, or maybe refine it.

If they can’t work it out in the negotiation, they go to mediation, where a third party joins that online conversation with no decision-making authority. The mediator helps to brainstorm and find a mutually agreed upon outcome.

If the mediator can’t resolve it, then it goes to arbitration. That’s where a third party — again a human — comes in, talks with the two sides, and essentially renders a decision.

For lawyers, this is a major threat and a major opportunity. There’s a certain segment of the law that wants to fight these changes.

At no point is an algorithm coming in and saying, “Okay. We’re going to just use this math formula and decide these cases.” This is still very much a human powered process.

Big Law Business: There are plenty of high-dollar contracts with arbitration clauses in them. Why couldn’t those contracts require going through a process like Modria’s?

Rule: We don’t offer dispute resolution services. We’re just a software company. But we work closely with [the American Arbitration Association], we work closely with JAMS, we work closely with NetNeutrals, we work closely with other dispute resolution service providers.

If you think about collaborative work spaces, like, Basecamp, and SharePoint — these are really online environments where different collaborators can come together and work on a project.

What we’re doing is building online meeting rooms that are focused on helping people resolve their disputes. This could be a divorce, a landlord-tenant case, or a workplace issue — or it could be a multi-million dollar contract issue.

There are examples of the latter. GE Oil and Gas had an ODR pilot they put together with the American Arbitration Association, and anyone who was a supplier of materials to GE Oil and Gas, if a dispute arose, they agreed to work it out through this expedited online process.

It still was human powered. It wasn’t just an algorithm that was deciding these cases. I think in the future, that’s the way it works. Two disputants in a commercial case can agree to negotiate a resolution however they want. Essentially what we’re doing is providing an environment for them to engage in that negotiation.

My opinion is lawyers who oppose these changes are in for a very hard road.

Big Law Business: Put yourself in the shoes of a managing partner at a large law firm. Would you be paying attention to these developments? Would you view online dispute resolution as a threat?

Rule: I believe that, for incumbent players in the law, this is a major threat and a major opportunity. What I find — and I’ve presented to managing partners, to ABA conferences, and to judges — is there’s a certain segment of the law that wants to fight these changes and say, “Look, this isn’t the way the law works. We’ve designed these systems over a long time to work in a very deliberative manner, and we need to resist the encroachment of technology.”

My opinion is people who take that approach are in for a very hard road. If you look at what technology has done in any number of large segments of our economy, the change has been quite disruptive. Anybody can look at those areas and see that the organizations that embraced these changes early ended up benefiting enormously, because they could anticipate where things were heading and move their organizations in that direction.

People often frame me as being anti-lawyer. That could not be further from the truth.

Whereas the folks that resisted it were fighting a losing battle. Society is changing. The law is a monopoly — you can’t have private companies sweep into the law and just sort of take over, so it’s taken longer for the disruptive power of technology to manifest itself.

But now we’re seeing it happen. For managing partners in law firms and legal organizations that say, “You know what? We’re going to embrace this,” there’s an enormous amount of opportunity.

Big Law Business: It sounds like you’re saying lawyers need to be at the forefront of the development of ODR.

Rule: Absolutely. I present at a law schools, and I say to the 3Ls, “This is what the law is going to look like over the course of your career. You’re going to be practicing for 40-50 years. Courts aren’t going to work the way they worked in the 70s and 80s, and you have the expertise. You have now been trained in the types of skills that we need to design these new systems.”

If someone asked you to build a justice system for the world of today, you wouldn’t build what we have.

People often frame this, frame me and Modria, as being anti-lawyer. That could not be further from the truth. I need lawyers. I need legal experts. I need people who have thought through these questions so that we can build systems that work, systems that leverage centuries of experience.

We’re not creating something from whole cloth, but if you had a blank sheet of paper, and you said, “Build a justice system for the world of today,” you wouldn’t build a system as we have it. You’d build something different.

What I’m saying is, “Let’s collaborate together to build a system that meets the needs of where we are today, and where we’re going.” That’s my aspiration.