IANAL, but the US legal system is a mess. Thanks to the common law system we’ve inherited from Her Majesty’s Kingdom, US laws are so convoluted you have to be a lawyer to know whats going on half the time (and even then you’re only slightly better off). And to top it all off, our trial courts are so clogged up it could be 5+ years before you even see a judge. Sorry folks, you have to be a criminal to reap the full benefits of the sixth amendment.
Insert the Federal Arbitration Act. Passed in 1925, this legislation offers you and I an alternative to the outrageous costs and obstacles involved with formal litigation–arbitration. Theres two types of arbitration. Mandatory–many states have laws that force small claims into arbitration because of the clogged court system–and then theres Voluntary–no matter what the dispute is if you want to arbitrate, go for it. For those who are unfamiliar with ADR, arbitration is basically a streamlined form of a standard trial. Two parties have a disagreement (plaintiff and defendant), present their cases (hearing and evidence), and an arbitrator(judge) issues the ruling.
Now with mandatory arbitration, this process is almost indistinguishable from a formal trial–theres just not a jury. Voluntary arbitration, on the other hand, is a whole new ballgame. As long as you have two people pissed off at each other and a third party to arbitrate, you’re good to go. Rules of law and evidence? If you want. Or how about a detailed explanation of the reasoning for a ruling? If you pay the arbitrator appropriately. The point is that its actually a very informal process with very formal implications. The arbitrator’s ruling is (9 times out of 10) binding in a court of law.
And businesses love it. Its private, quick, and relatively cheap [insert lame joke]. A few $1k should do the trick.
So what can be improved? Last time I checked, most bootstrapped startups don’t exactly write checks with 3 zeros in them without taking a hit. Thats potentially months of runway they’re losing just to arbitrate. Less runway equals less time to find a repeatable and scalable business model. Not a good thing.
The solution? Crowdsource it (but of course!). In most cases of voluntary arbitration, the arbitrator is basically just an industry expert who likes to help people solve their differences. And guess what? There just so happens to be a place stocked full of these experts online–LinkedIn.
The arbitration community
Here’s how the whole thing works. On one side, you have a community of arbitrators who sign up to hear disputes. These people connect their LinkedIn profiles to the site so everyone knows what industry they’re in. Then on the other side of the equation, you have users who come to the site with an unsettled dispute. Lets look at an example.
The tale of Jack and Jill
Jack and Jill are two great friends in college who decide to start a business together. They’re so excited about their super revolutionary idea and start building immediately. Its an overnight smashing success (because this happens so very often). There’s money on the table now and things start to get a little tense; Jack and Jill (shockingly) never formalized their ownership agreement.
To decide who owns what, the pair turn to online arbitration. They submit a claim (which legally locks you into arbitration) and a list of recommended arbitrators is generated. To promote fairness, each party ranks the arbitrators and once again an algorithm is used to determine the final man for the job. Jack and Jill submit all of their documents/evidence to the website. Emails, business plans, etc etc. The arbitrator reviews everything and reaches his fair and unbiased verdict. Problem solved and no feelings hurt–Jack and Jill forge on in harmony.
Does this sound like a legitimate business to you? Or do you think it’d be just one big legal nightmare? I’d love to hear any and all thoughts.