From today’s WSJ, an article titled “At GE, Robo-Lawyers.”
Can a computer solve legal disputes? General Electric Co. thinks so.
The company’s oil-and-gas division is testing online dispute resolution with a simple goal: Reduce the time and money the company might otherwise spend on lawyers.
The GE unit, which provides equipment and services to oil companies and construction firms, is requiring thousands of suppliers to agree to cybersettlements in simple disputes.
And it saves costs!
The approach is being tested mostly in Italy to resolve disagreements over no more than €50,000, or about $65,000.
“There’s a concern that commercial arbitration is costing too much,” says David W. Rivkin, a partner at Debevoise & Plimpton LLP, who specializes in large international commercial arbitrations.
GE says the cost to pursue a €10,000 claim through typical arbitration could ultimately cost each side at least €10,000, making it hardly cost-effective.
The company’s system involves blind bidding online to see if the parties agree on a settlement amount. If that that doesn’t pan out, an arbitrator rules, but communicates only online and without a hearing.
“We get a large number of claims that are simply about money and they can take up a lot of attorney time and costs,” says Kenneth S. Resnick, general counsel of GE Oil & Gas, which is based in Florence. “This allows a cheap—and, most important, fast—way of solving them.”
GE says 15 disputes over claims for €136,000 total were settled in a three-month look at the cybersettlement process this year. The company has faced resistance from employees and suppliers skeptical that their claims will get a fair shake. Another possible hitch: The system doesn’t allow claimants a way to vent
So how does this work?
Robert C. Ballou, the chief executive of Cybersettle Inc., whose technology is used by GE and was adopted by New York City, says that for parties using a three-round online negotiation process, the overall settlement rate is 65%. That is consistent with research on litigation in general, which shows that the majority of cases will settle before they reach the courtroom, GE says. Cybersettle is paid a fee for each dispute handled.
In GE’s cybersettlement process, if no settlement is reached through automated bidding, the dispute gets bumped to online arbitration for an additional $1,000 paid by the claimant. GE asked the International Centre for Dispute Resolution, a division of the not-for-profit American Arbitration Association, to design the overall online process. The center found engineers to arbitrate cases.
A single engineer reviews the documents that were uploaded, determines a winner and tells the center, which communicates with both sides online—no lawyers, witnesses or hearing dates.
In one example, GE sought a refund for 48 tubes the company said were defective. The dispute didn’t settle on the system initially and went to an engineer for online arbitration. GE won €3,160: €3,036 for defective materials and the rest to cover some of the fees it paid. GE declines to identify the vendor.
People are worried about the future of the legal profession for all the wrong reasons.