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An Application Service Provider is an organisation that provides a managed software service over the Internet or a virtual private network. The idea being that, in the future, any software services or applications that are currently managed in-house are likely to be managed by an off-site organisation established for that purpose, partnering with a network service provider and an infrastructure provider as well as with software companies. This business model involving multiple partnerships and business relationships constitutes a considerable legal challenge in terms of avoiding and handling potential disputes. The World Intellectual Property Organisation (WIPO) has been working closely with the Application Service Provider Industry Consortium (ASPIC) to develop guidelines for handling dispute resolution. Arif Ali has been actively involved, on the part of WIPO, in this work. The official launch of the ASP Dispute Avoidance and Resolution Best Practices is slated for May 18 at WIPO. WIPO will be represented by Francis Gurry (Assistant Director General) and ASPIC by Traver Gruen-Kennedy (Chairman, ASP Industry Consortium).

See also the interview of Francis Gurry, Assistant Director General of WIPO, entitled "Catering for dispute resolution in new business models - the example of ASPs".

Tailor-made Dispute Resolution

The main benefit of a specialised dispute resolution scheme is that it is tailored to meet the dispute resolution needs of the client industry. In developing such schemes, the developmental process is almost as important as the final procedures and guidelines resulting from that process. It is important to work closely with the industry to identify the different liability models that are likely to arise and to define as specifically as possible the commercial and non-commercial factors effecting the dispute resolution needs of the prospective disputing parties.

Consumer confidence in a digital environment is largely based on four pillars: good laws, best practices that are articulated and implemented, trust marks (online quality-labels) and finally a formal mechanism to resolve cost-effectively, expeditiously and confidentially any disputes that may arise. In the case of the ASP industry, our aim was to produce a comprehensive set of guidelines that make sense to the industry, that have the industry’s buy-in, and that will ultimately help to build end-user confidence in the ASP model.

Regarding the process to develop the guidelines, a committee was established called DART - the Dispute Avoidance and Resolution Team - made up of WIPO staff members as well as representatives of different companies from the ASP Industry Consortium (ASPIC). Through weekly telephone conference calls and periodic face-to-face meetings in different parts of the world, we developed a series of broad guidelines which were submitted to the ASPIC-WIPO Dispute Avoidance and Resolution Experts Group, comprised of leading dispute resolution specialists from around the world as well as executives from companies such as Compaq, Hewlett Packard, and other major players in the ASP supply chain. Once the comments from the Experts’ Group were incorporated, the guidelines were submitted to the ASP Industry Consortium’s members for comment. The thousand companies endorsed the guidelines and we were able to go forward on that consensus decision.

As for future developments, DART is part of the ASP Industry Consortium's Best Practices Committee, so we expect that the work to evolve and refining the guidelines will continue. We intend to continue working with members of ASPIC and the end-user community to solicit information about disputes they are involved in and potential flashpoints. In this way, we will be able to determine whether modifications are needed to the dispute resolution rules or service level agreement clauses.

Dispute Avoidance

In addition to dispute resolution, we were asked by the industry also to focus on dispute avoidance guidelines. Hence, several of the guidelines relate to what stakeholders in the ASP supply chain should be doing to avoid disputes. This includes developing comprehensive, well-negotiated, clearly-drafted service level agreements. It also includes having good operational models and coming up with checklists for conducting effective due diligence. Also involved are insurance schemes. And then there is the entire process to establish a relationship. In the construction industry and the telecommunications industry a process has been developed called partnering which has been very successful in avoiding disputes. We explored the entire partnering procedure and came up with recommendations as to how parties should come together, to understand the contractual obligations at an operational level. In addition to exploring dispute avoidance mechanisms along those lines, we also came up with service level agreement clauses other than dispute resolution clauses, force-majeure clauses, termination clauses, scope of work clauses, and recommended that all of these be part of a dispute avoidance framework.

Key criteria for dispute resolution procedures

When a dispute arises it represents a communication failure or a failure of the contractual mechanism. Typically, a well-drafted agreement should be able to address most of the problems that will arise. Ultimately when you come to the resolution process, you are dealing with a very small number of disputes because you have been able to catch them through the avoidance process. That is why we focus on avoidance as much as on resolution. In the context of ASPs and the partnering that needs to take place, it is very important to create a mechanism that allows the relationship to continue. There is a big investment necessary in establishing that relationship and the longer a dispute goes on, the greater the chance that the relationship will break down.

In what ways have we tried to anticipate the needs of ASP disputes? Confidentiality is very important. If your dispute is out there in a public forum, it's going to effect your valuation, your ability to get funding and to bring in customers. Speed is also very important. Then there is the recognition that the solution need not be purely legal. A dispute resolution framework needs to provide a technical solution to a technical problem or a business solution to a business problem. We have also tried to create contract clauses for the very difficult problem of multiparty disputes. The fact that alternative dispute resolution is a bilateral solution doesn't mean that it cannot be imposed on multiparty situations. We recommend ASPs to adopt the contract clauses we have drafted to facilitate bringing all of the parties into a common procedure. Cost is another issue. We have built a flexible pricing scheme to reflect the value of the disputes. The amount parties will pay to have arbitration or mediation administered will depend on the value in dispute as well as the complexity of the dispute. And then there are the provisions relating to technical issues, providing guidelines to the disputing parties and neutrals as to how to decide technical issues and the ability to appoint experts. Usually these aspects are left to the parties to negotiate in the context of a dispute and it can take a long time before the parties agree. In the WIPO scheme these guidelines are given up front in order to expedite the process.

Arif Ali, World Intellectual Property Organisation
Interview by Alan McCluskey, Geneva.

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Created: April 10th, 2001 - Last up-dated: April 10th, 2001