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When Should You Use Alternative Dispute Resolution in the Sale of an Internet Business?

alternative dispute resolution

When you’re buying or selling an Internet business, you can reduce the chance of an expensive lawsuit where no one truly wins by using alternative dispute resolution (ADR) provisions in your legal documents that paper the deal.

What type of alternative dispute resolution should you agree to?

It’s a good idea to put into place a two-step process. First, try nonbinding mediation with the assistance of an impartial mediator. Bringing in a neutral third party whose goal is to help you resolve your dispute frequently makes problems go away quickly at minimal cost. Many Internet entrepreneurs use online mediation. This is particularly helpful when the purchaser and seller of an Internet company are located in different states or countries.

If mediation doesn’t work, the second step is typically binding arbitration. To reduce costs, most Internet business owners prefer to use a single arbitrator as the private judge of their dispute instead of a panel of arbitrators.

Who serves as mediators and arbitrators? What rules apply? That’s for you to decide and put into your ecommerce agreements before the dispute arises. That way everyone is on the same page of the process to be used.

Are there issues that shouldn’t be resolved by alternative dispute resolution?

Yes. In the sale of an Internet business, two common carve-outs from using ADR are intellectual property infringement and non-compete disputes. When these situations arise after a sale, the buyer of the Internet company will often want to head straight to court to get an order to stop the alleged infringement or improper competition by the seller.

Should you include alternative dispute resolution in an agreement if you don’t trust the other party?

That’s kind of a trick question. If you don’t trust the other party, that’s a sign to walk away from the deal. If the other party is dishonest or unreliable, the contents of the legal documents probably won’t benefit you much except for damage control. Better for purchase or sell an Internet business when you’re confident the other party will live up to their obligations.

Mike Young, Esq.

Author Mike Young, Esq.

Mike Young has been practicing business and technology law since 1994 and is an angel investor in startups. He's been an entrepreneur since 1988. To get legal help from Attorney Young, click here now or call 214-546-4247 to schedule a phone consultation.

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