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					Settled! The Revolution in Online Dispute Resolution Draft 6   10/10/2007




                           SETTLED!
          The Revolution in Online Dispute
                    Resolution

                           By Charles Brofman




The Lexicomm Group                                                          0—1
Settled! The Revolution in Online Dispute Resolution Draft 6   10/10/2007


                                            Dedication



                                     To Ariel and Sean


            You are limited only by the boundaries of your
                             imaginations.


                                                 Love,
                                                  Dad




The Lexicomm Group                                                          0—2
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Chapter 0 - Introduction

        97.66% of claims cases settle before they ever get to court.

        Sounds great, right?

      The problem is many of these cases take months, and often
years, to reach that point. That hurts the plaintiffs – the injured
parties. But it also costs their attorneys and the insurance companies
as well.

      That’s where we come in. At Cybersettle, we’re leading a
revolution in dispute resolution. Through leveraging the power of the
Internet, we’re changing how companies, consumers and
municipalities settle their conflicts. It’s a progressive product that
started by drastically speeding the handling of insurance claims. But
the revolution is moving ahead to tackle a much wider range of
disputes, to help retailers large and small and our nation’s biggest city
satisfy customers and citizens while cutting back costs.

      And that’s just the starting point -- a glimpse of where Cybersettle
is going in the next few years. We’re finding new markets in the
health care industry, in government, even in solving disputes between
neighbors. Our patented Cybersettle technology can resolve conflicts
anywhere there are two or more parties with a dispute that can be
turned into dollars and cents.

        Cybersettle is an equalizer.

      A plaintiff’s attorney with a cell phone, a computer and no
receptionist is the equal of a giant insurance firm with a few hundred
attorneys in their legal department, when they use Cybersettle. A
claims handler can clear old cases faster using Cybersettle than he or
she ever could spending months trying to get the other guy’s attorney
on the phone. And, a consumer who doesn’t get value from a major
retailer will be able to seek redress faster and with a greater likelihood
of satisfaction using Cybersettle than by going to small claims court.

The Lexicomm Group                                                          0—3
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      There’s no top or bottom to the size or number of claims we can
handle. We’ve already facilitated more than a billion dollars in
settlements for the insurance industry that shaved nearly $200 million
off the carriers' bottom lines. That includes claims that were worth
hundreds of dollars – and one that was worth more than $12 million
dollars.

      We’re part of the expanding field of firms and services offering
Online Dispute Resolution (ODR) services; itself part of the larger
universe of Alternative Dispute Resolution (ADR). ADR basically
includes mediation and arbitration has been around for a very long
time. ODR obviously, was born once the number of people
communicating and transacting online had hit enough of a critical mass
to make it interesting.

      As an ADR provider we have an edge because we’ve joined
forces with the most respected institution in that arena, the American
Arbitration Association. And, we've begun marketing our services
together.

      As an ODR provider, we have a different type of advantage. We
have been pioneering certain types of online dispute resolution
solutions. As we break new ground, we have been protecting our
"Inventions" along the way. As you will see, that has had a huge
Impact on our ability to gain market share and to expand into new
markets.

     Perhaps the most important point is, that like almost every
important innovation, Cybersettle was created to solve a problem. We
intend to keep on solving them.

      Lines at the nation’s courthouses aren’t getting any shorter but
people have learned there are other ways of getting satisfaction and
solving disputes. The percentage of cases that never get to court
proves that. It also proves that sooner or later, everybody becomes
reasonable.

        And it’s a good thing they do. Because letting your emotions

The Lexicomm Group                                                          0—4
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control how you manage a case is a very expensive way to do
business.

      Consider this cautionary tale, from the spring of 2007. You may
have read about it. It is the story of a $54 million suit between a judge
and his dry cleaner. Administrative Judge Roy Pearson filed that
action, claiming the Korean immigrants who ran his cleaners had lost
the pants to his Hickey-Freeman suit, tried to placate him with another
man’s trousers and ultimately failed to provide the “satisfaction
guaranteed” they promised their customers.

     What did he win with that clever lawsuit? Nothing. But he lost his
good name, if he ever had one. And he almost lost his $96,000 a year
job.

    The presiding judge ruled Pearson failed to prove his pants had
disappeared in the first place. He got nothing for his efforts but a week
of news coverage that turned him into an international laughing stock.

    I don’t mean to pick on Judge Pearson too much. Irrational
behavior is part of everyone’s life, though the way he pursued his claim
to the point of risking his livelihood seems more than a little irrational.

       I've seen plenty of that sort of behavior during my years as a
lawyer; first as an Assistant District Attorney in The Bronx, then as a
general practice attorney in a small town in upstate New York. My
work included matrimonial cases, criminal defense, commercial
litigation and a great deal of personal injury work.

     Most of those clients didn’t want cases that went on for years.
They didn’t want to go to court, sit through depositions or spend any
time with their attorney, if they could help it. They wanted their cases
over and done with. They could only get that if they didn’t let their
emotions get in the way first.

     The business world is no different. It pays to seek the quickest
possible resolution, one where emotion pays no part in the ultimate
resolution. The alternative is often angry disputes that take years to

The Lexicomm Group                                                          0—5
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settle, leaving behind fractured relationships that can never be
repaired.

      Emotion costs money. Pull emotion out of disputes and costs are
reduced. Reduce or eliminate other distractions – big egos on both
sides, resistance to technological change – and costs are reduced.
Find common ground, make an effort to be reasonable -- and a
settlement follows.

     Moving disputes online, to a forum where emotion plays no part,
encourages disputants to take a clean look at issues, to make an offer
or demand that's reasonable, and to resolve their conflicts in an
extremely civilized way. The case ends. Relationships move forward
again. That’s what we’re all about.

      In 1998, I invented Cybersettle’s online double-blind dispute
resolution process with attorney Jim Burchetta. We imagined a black
box in cyberspace where plaintiffs and defendants could submit three
rounds of offers and demands in the blind. They couldn’t see each
other’s bids, so if they failed to settle, they could pick up negotiations
where they’d left off.

    But when their numbers were within an agreed upon
mathematical range of each other, the software split the difference.
Case settled.

        Cybersettle initially targeted the insurance industry, and its
endless flood of high-volume, low severity claims. Ninety percent of
those claims have a value under $100,000. Ninety percent of those
have a value of under $50,000 and ninety percent of those have a
value under $25,000. The average case in this country settles
between $8000 and $10,000 dollars. Insurance firms using our tools
have increased their efficiency by 30 percent. Insurance, however, is
only a segment of the dispute resolution universe. Anyplace you look
in the commercial world, there are disputes, from corporate litigation,
health insurance claims, employment cases to, yes: personal disputes
with your dry cleaner.


The Lexicomm Group                                                          0—6
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      The cost of settling these disputes is draining – to business,
carriers and consumers - and it’s growing every year. Insured and self-
insured U.S. tort costs rose nearly 6 per cent to more than $260 billion
in 2004, according to a Tillinghast report. That same year, U.S.
property and casualty (P&C) carriers incurred $256 billion in losses –
plus another $54 billion in additional costs in settling claims. Those
costs are passed directly to consumers in the form of higher insurance
premiums – and indirectly in price hikes for goods and services by
companies that have to pay the price to protect themselves from suits.
They’re the kind of costs that our process impacts by reducing the
cycle time – the time it takes to settle those disputes – by up to eighty
per cent.

      Colin Rule is the head of dispute resolution for eBay - and literally
and figuratively wrote the book on online dispute resolution. He says
Cybersettle is, “the most legitimate business run at the ODR problem
right now." He also thinks "insurance is a great target market, because
they have tons of cases and it is incredibly expensive for them to
maintain all of these files.” At Cybersettle, we agree with Colin, but we
are not stopping there.

    The trend towards solving disputes using tools like Cybersettle is
clear and strong. William Treanor, Dean of Fordham Law School sees
dispute resolution as a critical and burgeoning field. He says that,
“there are … an enormous number of disputes that Cybersettle has a
way to resolve-- quickly, inexpensively and without, emotional turmoil.”

      As long as those disputes come down to money, we can help
settle them. In our world, the vast majority of disputes do come down
to money.

      This book is the story of how we developed our concepts and
turned them into tools to drive a business we built during extremely
turbulent times. Some readers will relate to this story. I’m also hoping
some may learn from our missteps. But more important, this book is


The Lexicomm Group                                                          0—7
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also a window to the future. At Cybersettle we have started a
revolution. Here, I have chronicled its beginning and, I believe, pointed
out where it is heading.




The Lexicomm Group                                                          0—8
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Chapter 1 – Case Study: Taking a Bite out of the Big
Apple’s Budget

       Cybersettle got its start in an everyday showdown between
two aggressive attorneys who wanted to settle a claims case
rather than bring it before a judge. (I’ll have more on that a little
later.)

      The path we took to resolving that confrontation led directly
to Cybersettle’s unique tool for settling monetary disputes
online. Intended first for use by insurance firms and plaintiff
attorneys, we have and continue to develop other business lines,
of which municipalities are among the most promising and most
successful. In the 10 years since the idea for Cybersettle was
born, New York City has become one of Cybersettle’s biggest
clients. We’re saving the Big Apple tens of millions of dollars in
processing costs, while helping New York’s citizens resolve their
claims more efficiently. In fact, in an announcement released in
August 2007, Comptroller Bill Thompson said the city had
reduced its expenditures for settlements and judgments by $33.5
million in 2006– and gave credit for a lot of that reduction (almost
$27 million!) to Cybersettle.

     New York City is a great case study for us. It is the perfect
example of the kind of impact we can have. But of course, the
Big Apple didn't just fall into our laps.

      We began talks with New York in the winter of 2002. The
city was in serious financial trouble again that year, thanks to the
demise of the Internet “dot-com” bubble and the deaths and
damage wrought by the 9/11 attacks. New York had lost nearly
150 thousand jobs and billions of dollars in revenues and other
assets in the months immediately following September 11th.
Fear, shock and sadness afflicted many; as did expectations that
fresh attacks were on the way.

        Faced with a billion dollar budget deficit for 2002 that

The Lexicomm Group                                                  1—9
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threatened to balloon to $6 billion in the coming year, incoming
Mayor Michael Bloomberg convinced the City Council to raise
property taxes a record eighteen percent to close the gap.
Meanwhile the city’s economy wallowed in its seventh straight
recessionary quarter; long after the national economy had
recovered from the “dot-com” bust.

       New York City needed help. New leadership were looking
for new ways of doing business, to help the city become more
efficient and to stop bleeding dollars wherever it could. New
York insures itself for legal claims, and that was one area that
was completely out of control.

      Peter Speziale, at the time our Vice-President of
Operations and currently President of Cybersettle Financial
Services and our Rapid Funds product is a former litigation
attorney who’s represented both an insurance firm and private
clients. Like other claims professionals, he knew the city had the
dubious distinction of being, “the biggest single defendant in the
State of New York." The volume of their tort claims is
unparalleled.

      The numbers were staggering. At the time we first began
talking with city officials, New York had about 43,000 pending
lawsuits. That figure threatened to grow enormously, with
approximately 24,000 new notices of claim filed against the city
annually. An estimated 9,000 of those involve injuries on city
property, such as sidewalks and schools and other personal
injury cases. Settling these claims was costing New York
around $600 million a year.

      That’s what opened the door for Cybersettle. As “New
Paradigm” think tank Chief Executive Donald Tapscott reminded
me recently, New York was facing, “the irresistible force of
pressure to control the cost of government spending, at the
same time meeting up with the immovable object of consumer
requirements and demands. Consumers had an Idea of what


The Lexicomm Group                                                 1—10
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city government should be. It should be better. It should be more
responsive and it should meet their needs, and address their
complaints. “

     Fortunately a new administration lead by Mayor Mike
Bloomberg and specifically, Comptroller Bill Thompson was
wide open to innovation. Bloomberg, an innovator in the private
sector, influenced the city’s approach to technology. Bill
Thompson, wanted to use it to make a significant impact on
costs and better serve his citizens. He means it when he tells
reporters, “I am a strong advocate of harnessing technology to
improve services in government.”

      Comptroller Thompson wants to resolve New Yorkers
legitimate claims as quickly as possible. He understands the
interplay between technology and the law and looks to be
proactive. His view is that citizens are his shareholders. He’s
got to be responsive to them, if they’ve got claims. If the City
has liability, it has to pay them back as fast as possible. And it
has an obligation to cut down on its backlog.

     In trying to do that, the city was and is burdened by the
statute of limitations on claims cases. It’s one year and 90 days
under New York State law, as opposed to three years just about
anywhere else. That helped create the glut of cases, which went
to litigation simply to beat the clock.

     What often happens is a case goes in to the city system and
takes its place behind a load of prior cases. Because the city’s
load is so high, this case can’t begin to get to resolution.
Lawyers spend months trying to talk to claims people without
ever moving towards a settlement because the claims people are
working on the cases ahead in the queue. Then as the statute of
limitations deadline approaches, the case automatically goes into
litigation, to keep it alive. It has to. It either goes to litigation or it
is dismissed as a matter of law. The plaintiff’s lawyers can’t let
that happen, so a large volume of claims go into litigation.


The Lexicomm Group                                                    1—11
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       And once a case goes into litigation in the New York courts,
it takes them an average of five-to-seven years to settle. There’s
an expanding load of cases but a finite number of judges and
lawyers to handle them.

       111 Centre Street is a nondescript modern building in
downtown Manhattan’s civic center. It’s just one of the Civil
Courts, where cases against the City of New York, for amounts
up to $25,000 dollars are heard. (Cases for larger amounts are
filed in State Supreme Court.) According to the 111 Centre
Street website, each year 625,000 cases are filed in the civil
courts, where 120 judges serve.

      Think about it. That averages out to better than 5,200 new
cases per judge, per year. The most competent jurist in the
history of jurisprudence couldn’t do justice with a case load that
large.

      As attorneys, we learn in law school that “justice delayed is
justice denied.” When we go into practice, we learn that justice
delayed is also very expensive. Litigation costs are literally
consuming the country and they were helping consume New
York’s future in 2002.

     That’s what the comptroller’s office was up against. How
could New York City cut into its enormous backload of cases –
while keeping new cases from going into litigation? And how
could it innovate and come up with new solutions while
struggling with a growing deficit that made it tough to add
resources - even though existing resources had proved
inadequate?

      Comptroller Thompson’s office developed a solution based
on information management. It first installed an in-house
database called OAISIS (Omnibus Automated Image Storage
and Information System); it developed jointly with Universal
Systems. OAISIS provides central storage for any and all files


The Lexicomm Group                                                 1—12
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relating to claims and routes those claims to city representatives
in charge of investigations and negotiations. It’s a state of the art
claims management system and really quite phenomenal.

      Cybersettle became the other part of Thompson’s solution.
The comptroller was interested when we approached him
through an intermediary, saying we had a great system that
could really help the city make major reductions in its backlog of
cases. Then General Counsel Michael Carey, now a consultant
to Cybersettle, Senior Vice President (now General Counsel)
Maryann Jennings, Regina Voarino, Vice President of
Operations and John Zissu, our Director of Marketing helped
prepare the presentation which I delivered to the comptroller's
office.

     Thompson was interested. Interested enough that starting
in 2003, his office began doing significant due diligence on
Cybersettle. Members of the team talked to our insurance
company customers, did a thorough background check on our
technology and came in to see it in action.

      Critically for Cybersettle, OAISIS also paved the way for the
comptroller’s office to use our process. Senior Vice President
Mary Ann Jennings says installing OAISIS made it possible for
Cybersettle, “to integrate into their system and share the data on
a daily basis to make it even faster and easier for their
examiners". Sung Choi, who is in charge of technology, and
Gary Thater who is responsible for our information services and
work flow design, developed software (they call it "middleware")
that allowed the OASIS system to link directly to the Cybersettle
system. The first time it had been done and it worked
flawlessly. We get a feed from them every single day of all the
claims that come in, and then the adjuster or the examiner can
just go in when they're ready to settle, click on the case and all
the information is there. They just have to put their numbers in.
In fact, Cybersettles systems are designed in such a way that we
can create a seemless link to just about any claims management


The Lexicomm Group                                                 1—13
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system in use today.

      The City was sufficiently impressed to enter into a pilot
program with Cybersettle in February 2004. Because our patent
makes us the sole source of this process, it was a little easier to
get going with them than it might have been otherwise.
Generally you have to do a full request for a proposal (RFP) with
the City – but because we’re a sole source provider, and we
offered them a very inexpensive rate, we were able to get
through the red tape relatively quickly. Regina Voarino became
the onsite manager of the New York City project. She did an
amazing job.

       The City seemed to anticipate good results. Michael Bott,
CIO of the New York City Comptroller's Office told a reporter,
"We definitely view Cybersettle as a vehicle to help reduce the
amount of payments made, principally through avoiding
litigation."

    But it takes two to make – or resolve – a dispute. At the
same time New York City was moving towards using
Cybersettle, we had to persuade the other side - the trial lawyers
of the State of New York – to use our process.

    Statewide we’ve identified about 12,000 lawyers that do
plaintiffs’ personal injury work in one form or another. About
3,500 to 4,000 of them are members of the New York State Trial
Lawyers Association. They’re a very cohesive, very highly
motivated group. They champion themselves and the rights of
injured parties. That’s the whole basis upon which they exist.

    We approached Jeff Lichtman, a New York City trial attorney
who was President of the New York State Trial Lawyers
Association (NYSTLA) at the time. Initially, Jeff was very
skeptical. He was concerned we would take business away from
his members, and needed to understand how using Cybersettle
would benefit plaintiffs.


The Lexicomm Group                                                 1—14
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      And as Michael Aaronson, Bureau Chief of the City
Comptroller's Bureau of Law and Adjustment put it, “Plaintiffs'
attorneys are usually very traditional in the way they do
business.”

      But we got through to Jeff and the Trial Lawyer’s
Association. We explained the model we were using with New
York City was business-to-business. We had a great team
including Alex Badillo, Akin Johnson and Andrea Carriere who
were real MVPs working with both the NYC attorneys and
adjusters. At the time, our process was designed for claims
professionals and plaintiff attorneys (We now have a system
designed for use by unrepresented claimants, in other sorts of
cases).

     Once the trial lawyers were comfortable with that, we
showed them results from Cybersettle’s insurance industry
clients, so they could understand how using the process could
winnow down the mass of claims New York was facing while
benefiting them and their clients.

      By this time we had already proved that using Cybersettle
could help settle their cases far more quickly than they could
without us. That meant everyone would save money. Because
when claims remain pending for a long time, they become
extremely expensive to administer; for the City, the plaintiff and
for his or her attorney, who has to lay out money on the case.

     We explained all that in a long meeting with Jeff Lichtman,
who ultimately agreed with us that using Cybersettle would
benefit trial lawyers, plaintiffs and New York City.

     It helped that we had lawyers at the table for those
discussions. I had been a trial lawyer for 15 years. I’m a
member of the New York State Trial Lawyers Association and
the New York State Bar Association.

        At Cybersettle, we understand the trials and tribulations of

The Lexicomm Group                                                 1—15
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practicing law in a one, two or three person shop. That’s
generally what plaintiff’s personal injury lawyers’ firms look like.

      They work on a contingency basis and only get paid if they
succeed. That’s how they live their life. It’s tough work and the
only time they’re going to get paid is if they’re successful. Using
Cybersettle, both sides could succeed by processing claims
faster, cutting costs to reach a settlement and moving on to the
next case.

      After those meetings, the New York State Trial Lawyers
Association really got behind Cybersettle. Jeff Lichtman and the
NYSTLA publicly endorsed the City’s demonstration project.
 And with the Association’s backing, we got the pilot with the City
underway. Success with New York City was almost
instantaneous.

      In just the first three months of that demonstration, Michael
Aaronson reported that, New York City “broke the 200 settlement
mark, which was a pretty big milestone for us. By that, I mean we
successfully entered into 200 settlements using Cybersettle, and
our overall average settlement for these was a little over
$11,000. For the same types of claims, if they go on to litigation,
the average is about $27,500. So it is about $16,000 per claim in
settlement savings."

     Nearly 1,200 personal injury cases were submitted and
went through our process, over the full course of the trial. 684 of
those cases were settled, for sums ranging from $1,200 to
$75,000 dollars.

     The average claim that was put through settled in 30 days or
less. And between 60 and 65 percent, were settled either online
or in less than 60 days, because people went through the
process, got close to each other, and then settled. That’s a
remarkable number.

        The engagement rate – the percentage of lawyers who

The Lexicomm Group                                                 1—16
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participated in the process – was almost 70 percent. That
compares to anywhere from a low of 40 percent to a high of up
to 60 percent for our insurance clients. That was a great result
that took a joint effort by Comptroller Thompson’s office, the New
York State Trial Lawyers Association and Cybersettle’s
settlement center staff. And it’s a testament to the way our
process has won acceptance.

      Thirty-five percent of the claims settled online. It was a
spectacular result, as in general, we settle between 15 and 25
percent of claims submitted to Cybersettle, using just our online
tool.

     By the time the first year of the demonstration project
ended, Comptroller Thompson said the city had saved more than
$11 million dollars.

      A second demonstration project year followed. The
Comptroller wanted at least two years of hard data to make sure
that this was going to work. He also wanted to widen the scope
of the trial, telling the New York Post, “Given the initial success
of this project, we plan to expand the program to include property
damage and medical-malpractice claims.”

    The Cybersettle pilot did even better in its second year. In
November of 2005, City officials told Business Week magazine
New York had saved around another $13 million dollars using
Cybersettle. The savings came primarily from eliminating
unnecessary administrative costs -- allocated loss adjustment
expenses, as we call them. But for officials like Michael
Aaronson, that’s not all Cybersettle did. “The real savings are
those we enjoy when we don't have to go into litigation, and
when we can resolve cases that should be gotten rid of early in
the process. Then our limited resources can concentrate on
those cases that must be litigated."

        Here’s how the numbers break down. The Cybersettle pilot


The Lexicomm Group                                                 1—17
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ran from February 2004 through June 2005. According to the
city, just under a thousand personal injury claims were settled
through Cybersettle during the pilot. When Cybersettle was used
successfully, the average length of time from filing the claim to
settlement was 278 days – compared to 1,629 days for claims
“settled by other means.” And the cost of settlements made
through Cybersettle averaged $11,252. Cases settled without us
averaged $38,809.

     Nobody lost a job because of the program. Not a single
claims handler in New York City got displaced. We just created
enormous efficiency within a very significant bucket of claims.
As a result of that, Business Week named us one of the top 50
technology companies in the world.

      The New York City program is one of the greatest
successes we’ve had so far. But we were only able to get that
chance because all the stars aligned. We had a political leader,
Comptroller William Thompson, who set out a course of conduct
that said “We need to utilize technology to make New York City
more efficient.” We had a bar association that said, “You know,
we can’t be beating each others’ brains in because it takes more
than 5 years to resolve these cases. It’s not fair to plaintiffs. It’s
not fair to us, and it’s not fair for the city.” They were motivated to
get things done correctly. And, of course, we had a great
product.

   When we get the stars aligned, it works. When we get top-
down management, like we have with Comptroller Thompson,
we will be successful every time.

        Our success with the New York City pilot paid off nicely.
We have signed a three-year contract. And together we’re
setting the pace for how the world is going to do business




The Lexicomm Group                                                 1—18
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Chapter 2 – The Big Idea is Born

         Big disruptive ideas that become world-changing products
aren’t announced with a blare of trumpets and a roll of drums.
They’re not introduced at a live news conference, with the
broadcast networks, cable news and assorted bloggers hanging on
every word.

    Actually big, disruptive ideas start small, often in obscurity, and
then they grow – in ways no one, including the person with the first
flash of insight, could have imagined.

     Examples? The first telephone call in 1876 connected two men
who were just down the hall from one another. The Wright Brothers
first flight in 1903 traveled a grand total of 120 feet. The Internet
was established in the early 1960’s, so U.S. government
researchers could link to existing computer networks whose
standards were otherwise incompatible.

       No one in 1876 imagined a world with wireless telephones
that would make it possible to call a deli counter in Brooklyn from a
table at a café in Katmandu. In 1903, jetliners flying non-stop from
Tokyo to Los Angeles were the stuff of science fiction. And
eCommerce sales - that for U.S. retail alone totaled over $93
billion in 2005 – were unthinkable when the Internet was born.

       Innovations like these shaped new industries, creating new
opportunities and enormous wealth. They also disrupted and
eventually transformed the old ways of doing business in their
respective sectors. And unfortunately, disruptive change, however
productive, invariably meets resistance from entrenched interests.
Even if adapting to and accepting that change makes them more
efficient, responsive and profitable.

     At Cybersettle, resistance to change by some insurance firms
and attorneys is a barrier we’ve fought hard to overcome. Though


The Lexicomm Group                                                    2—19
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shaking up two conservative industries didn’t even cross our minds
when the idea behind our process was born.

    In the summer of 1995, I was an attorney in private practice in
Carmel, New York, a town about fifty miles north of The Bronx,
where I’d worked as an assistant district attorney. I had a solid
practice, sometimes working with, and other times against, a local
attorney named Jim Burchetta.

      We were outside a courthouse, trying to negotiate a
settlement in a personal injury case, when we had the “eureka”
moment that lead to Cybersettle.

        I represented the defense. I asked, “What’s your demand?”

        He gave me some ridiculous, off the charts number.

        I looked at him, and I said, “Jim …”

        He said, “Well, what’s your offer?”

     I told him, “I can’t make an offer against a demand like that.
There’s nowhere to go.”

   He gave me the classic response, what every lawyer says.
“Well, I can’t leave any money on the table.”

    I told him, “That may be true, but I don’t offer against over-the-
top demands.”

   And then Burchetta said, “I’m going to write down on a piece of
paper what I’m really willing to take. You can’t see my number.
You write down on a piece of paper what you’re really willing to
pay. I can’t see your number. We’re both fair and reasonable, and
we both know the law and the facts. We should be very close.
We’re going to give those two pieces of paper to the court clerk.
We’re going to let him look at the numbers. I can’t see your
number; you can’t see mine. If we’re close, say within 20% of

The Lexicomm Group                                                    2—20
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each other's bids, he’s going to give us thumbs up. If we’re not
close, he’s going to give us thumbs down. But if we’re not close, it
means one of us is not being fair and reasonable, or we don’t
understand the law and the facts.”

    That’s a crucial point. At Cybersettle, we don’t play a role in
establishing the law and the facts for disputants who use our
process. But if both sides understand the law and the facts –
which they should as professionals – and if they’re fair and
reasonable and not letting their egos get in the way or posturing to
impress a client, their “numbers” should always be within a very
close range of each other’s bids.

       Many times, professionals on both sides will know the
established value of a personal injury case, before they begin
negotiations. Peter Speziale, Cybersettle’s former Vice President
of Operations and current President of our Rapid Funds division
was a litigator. He notes that, “The value of an injury is a science.
There are histories and histories of verdicts for different types of
injuries. An auto collision in downtown Brooklyn has a value based
on how many times that type of case has been settled and what
has been awarded in those cases.”

   Our case didn’t happen in Brooklyn but Burchetta and I both
thought we knew what it was worth. His blind paper bid proposal
sounded good.

      I said, “Fine. As long as you can’t see my number, I’ll
participate.”

      I didn’t want him to know the number I’d settle for, just as he
didn’t want me to know his. That way, if we couldn’t settle right
there, neither of us would have lost any leverage when we
resumed negotiating.

     It may have been done a million times before. We both wrote
our numbers down and gave them to the clerk. The clerk
compared the bids and gave us two thumbs up. We were just

The Lexicomm Group                                                    2—21
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$1,000 apart, within the 20 percent range we'd set. We settled the
case right down the middle, without posturing or spending time
before a judge.

    Then we looked at what we’d done and knew we had
something. We didn’t know anything about the Internet, computer
technology, writing algorithms or implementing automated double-
blind bidding. We just looked at what we’d done and said, “How
can we do this thousands of times a day?”

      We were familiar with Alternative Dispute Resolution (ADR),
a term for the different organizations and processes – arbitration,
mediation and negotiation – used to help resolve disputes out of
court. We had improvised our own ADR solution when we
submitted our bids to the clerk and settled without seeing the
judge.

      As for Online Dispute Resolution (ODR) - using ADR on the
Internet – in 1995 that field was just starting to become
established. To tell you the truth, we weren’t really familiar with
ODR as a movement at the time even though we were just about
to create a very interesting ODR instrument.

      Professor Ethan Katsh, now Director of the National Center
for Technology and Dispute Resolution at the University of
Massachusetts, was one of the real ODR pioneers. In 1995, Katsh
took part in the Virtual Magistrate project, which was established
with a grant from the National Center for Automated Information
Research (NCAIR) to help arbitrate and resolve Internet disputes.

      Virtual Magistrate opened for business the following year and
stayed around just long enough to make exactly one decision, in a
case involving an America On Line (AOL) advertiser who put
offered to sell millions of users e-mail addresses for what
amounted to spam attacks. Virtual Magistrate ruled against the
advertiser, AOL removed the ad and that was the end of Virtual
Magistrate. It didn’t get any more cases and shut down.


The Lexicomm Group                                                    2—22
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     By 1999, Ethan was working with eBay on an ODR project
and was mediating Internet disputes, in addition to his academic
work. That same year, Colin Rule, now Director of Online Dispute
Resolution for eBay and PayPal, co-founded Online Resolution,
another early ODR provider.

      While there was plenty of interest in ODR by that time, Colin
says, “There was a lot of skepticism in the dispute resolution field
about online dispute resolution. Some people thought, ‘oh, you
can't do dispute resolution online. People are so uncomfortable
and you can't communicate any complex ideas.’”

      And that was in 1999. Four years before, when we had our
idea, just using the Internet for commerce was a radically new
concept. The Internet started life as a government program, and
had been controlled by the National Science Foundation, which
banned any commercial activity there until the early 90’s.

      But once the promise of e-commerce took hold, in the
“dot.com” boom of the late 90’s, work on ODR took off. Much of it
was spurred by the need to have an online mechanism to help
resolve online commercial disputes, especially in situations where
the disputants could be in different states or different countries,
with different standards for liability and different laws.

      The impulse behind Cybersettle was very different. It came
from an ad hoc settlement to a personal injury case that had no
connection to cyberspace. The Internet played no part. Our initial
goal then was to find a way to reproduce what we’d done in a
manner that would allow us to scale up to settle hundreds,
thousands or even tens of thousands of cases in a short time.

      We were lawyers, not technocrats. We didn’t look to the
Internet at first. We thought of different strategies, different
modalities. We considered using a proprietary phone system, or
establishing a secure Intranet to reproduce the arrangement we’d
improvised with the court clerk. We even thought of renting


The Lexicomm Group                                                    2—23
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conference rooms around New York City, hiring retired police
captains, and inviting the clients to let them put the bids on two
pieces of paper.

      Needless to say, you couldn’t scale those retired captains to
settle thousands of cases. But to be successful, our process
would have to offer disputants the same sort of independence and
rock-ribbed integrity symbolized by their badges. It couldn’t sit in
an insurance company on one side or a law office on the other. It
would have to exist in some neutral third-party space, so
disputants on both sides would have faith the process couldn’t be
influenced to favor one side or the other.

      That outsider role can be problematic for your business. Colin
Rule says, “the whole notion of ODR as a third party service
provided by an outside company is a huge obstacle … As an
outside organization resolving disputes, you can only get so much
penetration because you don’t get visibility into all the data.”

     At Cybersettle though, we’ve found that our independence is
essential to our success. Here’s a story that illustrates that.

       When we began selling the Cybersettle process, we were
able to get an appointment with an enormous insurance firm in
Manhattan. I walked in to see the firm’s chief litigation officer and
all his deputies, and showed them the working version on a laptop
computer.

   He looked at me and said, “It’s a brilliant idea. But what do I
need you for? We’re a multi-billion-dollar company. I have the
best technologists in the world. I could code this in 30 days.”

     I said, “You’re 100 percent right, but you would have to find the
first plaintiff’s lawyer who would actually put his demand strategy
into your insurance company’s computer system, and believe that
you’re not going to look at his numbers. If you can do that, I’m
misreading the situation. I don't think it will ever happen."


The Lexicomm Group                                                    2—24
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          He looked at me and said, “You know, you’re absolutely
right.”

       “We’re Switzerland between two warring parties,” I added
just to reinforce the point.

     By 1998, ODR was still in its infancy but the Internet had
grown up to become part of everyday life. There were personal
computers in 50 million American homes. Microsoft‘s market cap
was bigger than GE’s. People were doing their taxes on PC’s with
high-speed processors and sending email through high-speed
modems. E-commerce had arrived and buyers and sellers were
on the Internet 24 x 7.

     Burchetta and I looked at the incredible growth in activity in
cyberspace and decided the Internet should be our “mechanism.”
If Amazon could sell books 24 x 7 and Dell.com could sell
computers 24 x 7, we could help settle disputes 24/ 7.

      We realized we could do that by establishing that black box in
cyberspace I described before. It is a neutral space where plaintiffs
and defendants could submit offers and demands in the blind, so
neither side has to give away their bargaining position. Instead of
the clerk we used to help settle our case in 1995, we’d use a Web
application that would do the same thing he did - evaluate both
sides’ bids secretly, then split the difference and settle the case if
the bids came within a predetermined range.

      Pete Speziale puts it well: “When both sides are ready to put
a number on a case, our position – which is clearly supported by
the facts – is that it will take a significant amount of time to get that
case settled. Cybersettle can get that case settled a lot sooner,
because using our process eliminates the phone tag and the
haggling and the posturing that typically goes on.”

    That way everybody can win. You’ve got to make sure there is
real value on both sides because you can never take all of the ego
out of representation and negotiation. It's human nature.

The Lexicomm Group                                                    2—25
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    We beta tested the system with numerous rounds of bids: three
rounds, less than three, more than three, an unlimited number of
rounds. We implemented the process with three rounds of blind
bids because our tests showed it is how people think and how
insurance companies and plaintiffs’ lawyers operate.

      We also tried to make the process more efficient by allowing
the defendants, in this case insurance carriers, to input their three
bids simultaneously, while the plaintiff made his or her three bids
individually. Our intent was to speed the process along, which we
did. In the early days we also established a range, so cases would
settle if the plaintiff’s demand fell within $5000 or 30 percent of the
carrier’s offer. After much trial and error, we’ve simplified the
process – now if the demand is less than the offer, we split the
difference in real time and settle the dispute.

     Insurance companies look at a case they want to settle and
think: low, medium, high. “What's the lowest we think we could
give, because we have a good faith requirement to offer a
minimum amount if we have liability; what's the mid-range of what
we usually settle cases like this for; and what's the most we’re
willing to pay to make it go away?"

    Plaintiffs’ lawyers think in the exact reverse. “What's the
highest I think I could ever get on this case? What's the middle
that I think I'm going to get on this case? And what's the number
where I go, ‘Hmm, it may not be what I want, but I don’t dare turn
down, because I could lose, I could get less?’”

     We tried to mimic that basic thought structure and process
when we designed Cybersettle. If our process wasn’t as close to
the way the parties to these disputes think and behave as possible,
we would be in trouble. We knew trying to get people to make a
wholesale change in their behavior is an uphill battle. And large
scale adoption of Cybersettle would have taken a very long time.

     Once people are used to a new way of doing business, you


The Lexicomm Group                                                    2—26
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can help them adjust behavior to increase efficiency or
productivity. But you have to start them off slowly.

     The people who run eBay understand that. eBay waited until
users were comfortable with their basic auction model before
adding features like the "Buy It Now" model or the option to
program incremental bids automatically. Their users were ready
for those features because they’d accepted the basic service,
which was familiar from everyday “real world” transactions.

      Once we’d decided to put our process in cyberspace, we
found a small company that could turn it into computer code. That
vendor’s Chief Technology Officer, Rich Rosa, wrote the first
Cybersettle code and delivered it by the end of July 1998. Later
that same year, Sung Choi, who’s now Cybersettle’s Chief
Technology Officer, joined our team. Rich Rosa went on to
become Director of Technology at 1-800 FLOWERS and helped
design and write the program that operates their system. He’s now
CTO at Debtresolve, another company I founded with Jim
Burchetta.

     Sung says that, “after we took over the development, it was
probably about three or four months to take the original prototype
and to flush it out into a production ready environment. Then that
development version went into production in ’99 and we went from
there.”

    Just before we went public with the Cybersettle process, I told
my father-in-law, a patent attorney, what we‘d done. He insisted
we could patent that invention.

    I didn’t believe we could. I’m not a patent attorney but I was
pretty sure you couldn’t patent an idea.

    But I learned that Cybersettle could be considered a method
and system. The patent office had begun to recognize method and
system as patentable, and the courts were allowing them. They
were affirming them as proper inventions. We were creating the

The Lexicomm Group                                                    2—27
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right process at the right time in the history of patent law.
Yesterday’s steam engine, light bulb and telephone are today’s
business method and system.

    We filed for the patent in August 1998, right before the first
claim actually went into the system. That might have been the best
move we ever made, as you’ll see.

    We were ecstatic. At Cybersettle we had overseen
development of a process that would radically reduce the time it
takes two opposing sides to settle a dispute. Getting to that
number would take minutes, hours or days - instead of the weeks,
months or years it generally took them to reach that number on
their own.

      Creating that tool made us part of an elite group: the founders
of online dispute resolution (ODR). There are other companies
that do ODR in different forms, but we were the first, as far as I
know, that ever settled an insurance claim online, back in 1998.

     I said in the introduction that the Cybersettle process could
be applied to any dispute that could be understood as dollars and
cents -- that the technology we envisioned has broad applications
we’re realizing today. But as personal injury lawyers who’d worked
on both sides of disputes, we best understood the legal and
insurance worlds – and believed our product would sell to both.

      Pete Speziale was one of our people who took Cybersettle to
the legal community. He realized that some lawyers were afraid
that using Cybersettle meant, “changing the order of persuasion
and negotiations … (They’d say) ‘that's exactly the service that I
provide for my client and that's exactly what I want to do to get the
most value out of our case.’

       Pete countered with the argument that there is a point in time
when you know what your case is worth, when you know the
number that you should get for that case. Rather than take all of
that time to get to that number, you can put it into the system. If

The Lexicomm Group                                                    2—28
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it's blind, no one knows anyone's numbers. If the case settles for
that number you picked, then you're done. The case is settled.
Your client gets their money significantly earlier. You get your fees
significantly earlier. You've brought justice to the table significantly
earlier. Pete and many others on our team convinced a lot of
attorneys with that argument

      Adopting Cybersettle makes attorneys more efficient. Not so
many years ago, attorneys had between the hours of nine and five,
not including one hour for lunch, to get everything done. Today
they can go home after a hard day at the office, have their dinner
and watch American Idol, if they’re so inclined. Then they can go
online to Cybersettle at 10:05 and settle a client’s lawsuit at 10:10.
Send him an email: “Happy to let you know you’re getting
$30,000.” My fee is $10,000; you’re going to net $20,000. That’s
what you wanted. Have a great night. Give me a call at the office
tomorrow for the details.”

       Nothing we came up with could replace or downgrade a
lawyer’s legal skills. Getting top value for a case means attorneys
decide with their legal skills what a client’s case is worth. And
when they know that, Cybersettle has a tool to help them get to
that number more quickly.

    For plaintiffs’ in a personal injury case, Cybersettle makes
things even simpler. As a rule, they don’t want their action going on
for years. They don’t want to go to court. They don’t want to go to
depositions. They don’t want confrontations – plain and simple.

   They want it resolved. They want it settled. They want it over.
Cybersettle makes that possible.

        By September 1998 we were talking to several insurance
companies. Everyone in the business world was looking for a
technology play and we generated a lot of interest from our target
industry to start.

     But a month later, we had gone through all of our money.

The Lexicomm Group                                                    2—29
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We’d used $200,000 from our first investor, the Kaye Insurance
Group, to finish up the coding.

    Then it wasn’t long before we heard from a banker named
Rich Butler, with ING Barings. He sat on the Kaye Insurance
Group’s board. He called us and said, “Would you mind if I came
down to see you?”

    We showed him what we had invented. He looked at it and
said, “This is the smartest idea to come along in 100 years. This is
going to change the way the world does business. Do you need
any money?”

      Considering we hadn’t paid our rent in three months and
hadn’t had a paycheck in eight months and we were kind of
running the company on fumes at that point, the answer was,
“yes.”

      It took about a week for ING to sign us up as a client. We put
together a private placement memorandum, went into the private
equity marketplace, and within another week we had seven more
offers to invest in the company.

      One of our investment bankers was a woman named Linda
Bornhuetter, who was at ING at the time. Her father Ron was the
founder and Chairman of a company called NACre which stands
for North American Casualty Reinsurance. At the time, NACre was
the eighth largest re-insurance company in the United States. Re-
insurance companies insure insurance companies.

      They showed this deal to Linda, and she said “Before you do
anything, I’ve got to show this to my father.” It was the weekend
and they were at a big convention for brokers, insurance firms and
re-insurers held every year at the Greenbrier Hotel, a resort in
White Sulphur Springs, West Virginia.

     She flew the package over to him. I got a call from Ron
Bornhuetter that Sunday night at home. I got Jim on the call. Ron

The Lexicomm Group                                                    2—30
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turned out to be just an enthusiastic as Linda.

     He said told us he though Cybersettle was a fantastic idea.
He loved it! He asked us if we were willing to sit down and talk to
him about selling NACre a big stake in the company.”

        We were willing.

       The next morning NACre’s CFO Dick Miller (currently CFO of
XL Insurance), their General Counsel, Martha Bannerman, and the
head of claims show up at our office at 99 Park Avenue. They said,
“Brilliant idea. We can sell this to our customers. What do you
need?”

       We needed money. We were about to close our doors
because we had nothing, not a dime. And they lent us $500,000 at
4% interest. There was no obligation to close on an equity deal
with them. So if we closed with another company, we would just
give them the $500,000 back. It showed that they really believed
in us.

      As part of the deal with NACRE, Burchetta and I assigned
Cybersettle any rights we would have if a patent were granted us
for the purpose of settling insurance claims. The rights for other
business lines would come later.

      All of this happened as the “dot-com” boom; the so-called
“Internet bubble” entered its wildest stage. It was the boom before
the bust. Alan Greenspan, the Federal Reserve Chairman had
responded to a series of financial crises by cutting the federal
funds rate from 5.5 percent to 5.25 in September and then by
another quarter percent in October – and then by another quarter
percent in November. Those three cuts over a period of only six
weeks was like pouring a case of champagne into investors who
were already drunk at a Wall Street’s party that might never end.

     Things were happening fast for Cybersettle too. Our wild ride
had just begun.

The Lexicomm Group                                                    2—31
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      Anybody who looked at Cybersettle and understood it said,
“This is what the Internet was designed for. The Internet was
designed to handle a transaction and make it inexpensive and
happen fast. That’s what they do.”




The Lexicomm Group                                                    2—32
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Chapter 3 – Focus

          It’s the first few months of 1999. Every investment
banking firm - Goldman Sachs, Solomon Brothers, you name
them – are in and out of our office. They’re whispering in our
ears, “Make it bigger, make it better; you’ve got to be in every
country in the world. You’ve got to go wide and deep, this is
going to be the greatest thing; your face is going to be on the
front page of Time magazine.”

       Peter Speziale remembers that the company, at the advice
of its investors and also with the advice of management was
scaling up for global expansion. The opportunities, as seen by
management and our business analysts, were such that the
potential for very quick growth was huge. And so Cybersettle
was staffed accordingly, to able to accommodate claims from a
significant amount of new sources. Pete was thinking we were
growing at the speed of light.

      By May of 1999, an article in the Industry Standard had
called Cybersettle “a revolutionary Web site that … is changing
the way insurance companies settle cases.” Fireman’s Fund and
Travelers Property Casualty were just two of the insurance firms
who’d agreed to pilot with Cybersettle.

  Cybersettle was going to be the next Dell Computer, the next
Amazon. We started growing until we had as many as 120
employees in our new office space on 200 Park Avenue.

     Bricks and mortar firms were supposed to be passé. Clicks
and mortar firms were derided by many analysts as hybrid
models that would flounder when forced to compete with pure
Internet firms in the new online world. The bankers told us we
needed to be squeaky clean, a pure Internet play unshackled
from past ways of doing business, before they would take us
public.


The Lexicomm Group                                                 3—33
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      The need to be seen as a "pure play" was one factor that
encouraged us to shut down the live facilitation service, which
we had added to Cybersettle around that time. The other factor
that led to our decision to remove the facilitation piece was
concern, by some users, that introducing a human element into
the process could weaken its guarantee of confidentiality – that a
facilitator might inadvertently expose their bids.

       Even though facilitation simply gave clients the option of
talking to a trained facilitator if they fail to settle using the double-
blind bid process, we did cave to the pressure from potential
users and the investment community. That turned out to be
short-sighted. Facilitation was a valuable addition to our
process. We brought it back in 2004.

      Our current process knows internally when both sides in a
dispute are close to resolution – whether the parties know it or
not. Now if they reach that point, the process will trigger a notice
to our telephone facilitation group, who can see we have a case
that might settle by adding a human touch.

      Then a facilitator picks up the phone, calls and says, “I'm
with the telephone facilitation team at Cybersettle. I noticed your
case didn't settle but I believe I can get it settled today, over the
telephone, based on what we know. Would you be interested in
pursuing telephone facilitation? If you're willing to participate,
you have to let me have another number. Then I’ll call the other
side and draw an additional number from them. I won't reveal
your numbers to them or theirs to you but I'm doing this because
you guys are at a point where I think I can get this case settled
right away.”

     That's telephone facilitation, which has been extremely
successful and effective. Unfortunately, it was too old-fashioned
for Wall Street in the late 90’s Then it was all done manually, not
as part of a seamless process integrated with out Cybersettle
system. Today our telephone solicitation is a fully integrated, and


The Lexicomm Group                                                  3—34
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patented method and process, that only we can use exclusively.

     But in those days, if it wasn’t a technology play, Wall Street
didn’t want to hear about it And in 1999, we were focusing on the
essentials: how would we make the process work and how were
we going to sell it to the insurance industry and get plaintiffs’
attorneys to accept it?

    On the technology side, our team worked hard to adapt the
standard Cybersettle process to meet the needs of individual
insurance firms. Sung Choi’s group was in charge of
implementing the process and found major challenges, as clients
insisted on having it customized for their use.

       “It’s because of the nature of the transaction,” Choi says.
“It’s a claim - information is of paramount value. So our
insurance clients were very insistent in incorporating a lot of
specific details in their response to claims. Basically making
sure that that information was articulated to the other party.

       “Then they’d add a little complication factor. For example,
let’s take a bodily injury claim, which is 95 percent of our
transaction line. One insurance company would say, ‘Well, this
is the information that we need to present to the opposition.’

      “Then we’d talk to another insurance company, and they’d
say, ‘we actually don’t need this - we don’t need what the other
guy wants - we actually need this, this, this and this.’

      “From a technology side, it required us to do a lot of what’s
known as exception coding or to incorporate specialty rules for
different customers depending on the situation.”

      But while exception coding helped us sell Cybersettle to
front office executives, it often complicated the process for the
claim handlers and attorneys who actually used it. Choi’s group
had to grapple with that too.


The Lexicomm Group                                                 3—35
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     “We were in this mode where we just wanted to make sure
we satisfied the customers’ request,” says Choi. “At this stage in
our business we realize that may not necessarily be the best
approach and that often time we need to decide thatfor the
simplicity of the system and the sake of expediency, we can
streamline to the bare essentials, and still be able to effectively
communicate the claim to the opposition.”

       We don’t want our end-users to have to struggle with a lot
of unnecessary fields and forms. We also want them to be able
to enter the claim information as effortlessly as possibly. We’ve
learned that the more complicated we make the system, the less
likely it is that they are going to use it - and the more likely they
are to get frustrated when they actually do.

      So as much as catering to the specific data requirements of
the insurance industry is important, we need to be respectful to
the end-users and try to come allow them to effortlessly enter
claims. We want to make sure that enough of information is
captured so that when the opposition on the other end gets the
claim noticed they know exactly what it’s referring to and are
able to respond in a timely manner.

      Our learning curve was steep. It didn’t take long to
determine that each insurance customer had a bucket of claims
that were appropriate for Cybersettle and a bucket of claims that
weren’t.

     In the insurance world our strength was, and is, high-
volume/low severity claims. Ninety percent of the cases in the
claims universe have a value under $100,000. Ninety percent of
those cases have a value under $50,000 and ninety percent of
those have a value under $25,000. The average case in this
country settles for between $8,000 and $10,000 dollars. Those
cases were Cybersettle’s sweet spot.

    Timing is another factor for successful use of our process.


The Lexicomm Group                                                 3—36
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After a claim has been evaluated - before the parties go nose-to-
nose screaming at each other – is the best time to put it into
Cybersettle. At that point the claims handler has determined the
liability and has a good idea of what the insurer has to pay.

    When one side or the other in a dispute feels they’re totally
right or the other side is totally wrong or that there’s no liability,
then it’s not a proper case for Cybersettle. And because the
process doesn’t resolve the law of the facts in a claim, cases
with unresolved legal issues aren’t appropriate.

      We’ve also faced another challenge – one we might call the
selling curve. Cybersettle is efficient and effective - but it’s been
a tough sell to many of our target firms. Cybersettle was light
years ahead of where much of the insurance industry when we
started, and where some firms still are today. And in many
cases, it’s not management but the end-users who are still stuck
in the past




The Lexicomm Group                                                  3—37
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Chapter 4 – Disruptive Technology and the Insurance Wars


      Like the Internet, Cybersettle is a disruptive technology - and
that comes with issues. Disruptive technologies require that we
change the way we do things. And that makes them exciting and
nerve-wracking - especially when your firm is pushing progress to a
group that is quite attached to the status quo.

     Progress is not a real priority for many in the insurance industry.
It’s an industry that often strenuously resists change. And when
insurance firms do accept change is necessary, implementation can
be slow.

     Fortunately, as Cybersettle got started, the bullish technology
market helped make our case. Mary Ann Jennings is now our
General Counsel, but then she was one of the Cybersettle
executives assigned to sell the product – to attorneys sometimes but
mostly to carriers.

      “It was very exciting,” she says, “particularly on the insurance
side. We went to trade shows and insurance conferences and
meetings and we got a lot of interest very quickly.

      “I usually met high end executives. During the presentations
and demonstrations, I would see the light go on in their faces when
it would hit them that they could cut costs and speed up the process.
They were often overwhelmingly positive about it and wanted to
know how quickly it could be done.

     “Our preference is to go in at an executive, home office level.
We want to deal with, if not a CEO, at least the top financial people,
and technology people and claims people – so they can see the
advantages as a group. They’re the decision makers so a move to
implement Cybersettle usually flows down from there.

     “But that’s usually just the start. There’s a second level of
acceptance that you have to get, no matter what, usually at the

The Lexicomm Group                                                      4—38
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regional level. Regional managers have a lot of say in what
happens in their region and can pretty much dictate to the local
offices how things are done. So, you need acceptance there,
because even if they agree to use Cybersettle, they have to see the
advantages of it and be willing to impose it on the local offices.”

       Marketing Director John Zissu spearheads our current sales
effort, from the first round of meetings to the implementation that
follows. No one knows better what it takes to turn meetings into a
pilot – and get that pilot off the ground.

      *“We try to close a pilot commitment – a proof of value - where
they test Cybersettle out for anywhere from 3 to 6 months. Usually
we ask for a minimum claim volume, a minimum number of offices
and a minimum number of adjusters in each claims office to
participate. Depending on how large the prospect is.

      “We need a minimum number of claims to make the results
statistically significant. For a pilot to meet our standards, we like to
have around 500 submissions over the course of 120 days.
Typically that would mean the firm piloting Cybersettle would get at
least 250 settlements out of those 500 claims, within 60 days of their
being submitted. That’s a tremendous pickup in terms of cycle time,
which is pretty much the essence of our value proposition. That time
saving goes straight to the bottom line and we ask them to look at
savings as the measure of our success.”

      But a reduced bottom line and executive acceptance at the
national and regional levels may not be enough for Cybersettle to
move from pilot to implementation - if the adjusters reject the
process. It’s painfully ironic when it happens, because our process
makes their jobs so much easier. But again, it’s the part of the
price of selling a disruptive technology.

      We know - from experience - that claim adjusters have neither
the time nor the inclination to deal with lawyers shouting at them.
There’s a good deal of pressure inherent to the job. They handle


The Lexicomm Group                                                      4—39
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large caseloads, on average between 150 and 250 files in a given
year. And they're required to close at least one file for every new file
they get - more if they can - because the closing rate is very
important.

        We thought adjusters would embrace Cybersettle.

        Some did, many did not.

      John Zissu has gone through this time and time again. “We
can crack the executive code. The real resistance comes from
within the insurance companies and the claims adjusters.

      “Adjusters don’t tend to view Cybersettle as a cycle reduction
tool. They don’t fully appreciate what that means for the bottom line.
If an adjuster puts a file away for forty or fifty days, there’s no pain to
him. The fact that it is just sitting there doesn’t mean much to the
adjuster.

       “But it means a lot for the company because that file is
incurring costs. And it doesn’t get any cheaper for the company to
settle, if it just sits there. But for the end-user, the adjuster, its all
about ‘how much leg work do I have to do’ on the file. And ‘what’s in
it for me.’

    We’ve walked into prospective clients and explained the
Cybersettle process to their claims adjusters. We’ve seen them
looking at it and looking at us - and they didn’t look happy. Their
typical response was, “You’re here to take my job away. You’re
going to replace me with a computer.”

   We’d say, “No, we're not replacing you with a computer. We
know you’re great at what you’re doing.”

    We understood what claims handlers did because we’d broken
their jobs down by task. We knew 34 to 36 percent of a claims
handler's time is spent in reporting the claim, gathering evidence


The Lexicomm Group                                                      4—40
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and data – hospital reports, doctors’ reports and so on – and then
making an evaluation.

    We also knew another fifty-four percent of their time was spent
in negotiation and litigation management. It means in an 8 hour
day, more than 4 hours is taken up dialing the telephone, trying to
get hold of the plaintiff’s lawyers or their own company’s lawyers,
getting the status of cases, talking to people, getting put on hold,
being told the person they’re trying to call isn’t available and leaving
messages with attorneys voice mail.

     We’d say, “No, we’re not taking your job away. We're going to
sharply reduce that fifty-four percent of your time you spend on the
phone, and give you a lot more time to devote to evidence gathering
and evaluation; making your claim stronger, making your case better
and rooting out fraud, if it exists”

      The truth is, though, that the fifty-four percent of their time they
spend on the phone, as inefficient as it may be, may also be the one
part of the day an adjuster really looks forward too. John Zissu has
seen it in action: “They enjoy negotiating. That’s where they’re in
control, that’s where they’re in the driver’s seat, that’s what they see
as the most exciting part of their job.

     “So if they’re not doing that, then what are they really doing?
They’re just an evaluator. And their job becomes dull.”

     Change, of any kind, scares people. Even though we've yet to
find a single company that admits they fired or laid-off anyone in
their claims department as a result of using Cybersettle.

      That’s why a client’s top-down management – what New
York’s comptroller’s office has with Bill Thompson –is so crucial for
our success. “There are some companies,” notes Mary Ann
Jennings, “and I can think of certain ones, where they are, for lack of
a better term, dictatorial. ‘The rules are the rules’ and they come
from the top. That may not be the best company to work in as an
individual but it's the best company for Cybersettle to get as a client,

The Lexicomm Group                                                      4—41
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because then everybody just marches to the same drum whether
they like it or not.”

    Of course, some senior managers can still be just blind to the
need for change as some claim handlers. Our executives have
presented to $20 billion dollar insurance companies, only to hear
their representatives snort, “You’re going to tell me how I can do
business better? Right!”

     Other executives say they don’t need Cybersettle because, “We
teach our people how to negotiate well.” And some seem to feel the
adversary process is its own reward, “We like beating down plaintiff
lawyers. That’s what we like doing; and that’s what we do well. We
like to dig in our heels.”

     When they dig in their heels like that, we can’t make a sale.

    When they don’t we have great success stories. Many
insurance firms accepted Cybersettle from the start. Our chief
investor, XL, is a major insurance firm. We currently handle five of
the top ten P&C firms as well as many regional and local carriers.
Our client list grows every year.

      Zurich Insurance Company is one of our clients, a company in
120 countries, one of the largest insurance firms in the world.
They’ve tested our product and their volume with us has gone up
exponentially. They’ve told me personally, “We get to move the file
out the door faster with Cybersettle. Our expenses drop. And our
administrative costs are reduced”

    That being said, when one of our sales executives walks into a
carrier and is told the CEO and the CFO have nothing to do with the
with the claims department and the head of claims basically leaves it
up to the claims managers as to whether or not they want to use
Cybersettle, they might as well leave because it's over. It takes a
tough person to say, “This is a great tool. We are going to change
the way we do business."


The Lexicomm Group                                                      4—42
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      When managers don't do that and you leave it up to a person’s
discretion, experience shows many people will take the course of
least resistance, which is not to change. That’s human nature too.

    We did studies with firms using our process and their executives
came back to us and said, "My people can handle 20 percent more
cases because of you. I have millions of cases. If I monetize that,
you're going to save me $20 million this year." Just because they
don't have to hire another 30 to 50 employees at $50,000 a year,
plus benefits, to handle the cases.

      Getting our process accepted by the legal community was and
is the other half of the equation for Cybersettle. To put it mildly, it’s
a decentralized group. We tried e-mail campaigns and using our
call center operators to spread the word. And we targeted groups of
personal injury attorneys in cities and regions where they were
especially active. Peter Speziale, who was first a regional and then
a national director of sales, before moving on to head our
RapidFunds division, was one who took up the challenge.

       “My function was to get this product known by attorneys and
put it out there,” says Speziale. “I would go into cities for most of a
week. It was all very personal – hand-to-hand combat – because
our target market is two-to-five-attorney personal injury firms, which
are spread out like dots all across the country.

      “We would first identify who the key personal injury lawyers
were in the major cities and to go sit down and see them and demo
the system. We had lots of our own contacts locally or through the
leading advertisers or through various trade journals and bar
associations.

     “And we had cooperation from our insurance customers. I
would call a personal injury attorney’s office and say, ‘My name's
Peter Speziale. I'm an attorney from New York. I'm calling you
regarding settlement for your personal injury cases. A major
insurance firm has identified you as an attorney they do business


The Lexicomm Group                                                      4—43
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with frequently and they're interested in using our settlement tool to
help settle your case. Are you interested in discussing this?’

      “It's a compelling pitch. But once I got into the offices, there
was plenty of resistance. ‘I can't use a computer. I'm not going to
stick my number into this system – then they’re going to know about
it. Nobody can do it better than I can. Why should I use your system
when I can pick up the phone? Do the carriers own you? Are these
tools going to benefit them and not me?’”

      Speziale and our other sales people couldn’t push back if an
attorney refused to log on. But if they were willing to stay for a
demo, then Cybersettle would make a compelling case for itself.

     Let’s take a sample case where a plaintiffs’ attorney
demanded $250 thousand dollars to settle a claim – while the
insurance company offered $2,000.

      Here’s what Speziale would say to a prospect: “You’ve got a
notice from the insurance company with the information you need.
Go online. In an average of three to four minutes, you will put in a
very simple set of information: the adjuster’s name; the insurance
company; the date of loss, the claim number, and the names of the
parties to the matter. Stick in the number you’re willing to settle for
and two other bids and hit send.

      “You have just communicated within three to four minutes a
number that you wouldn't have given to the other side until the tail
end of a negotiation that would have taken months. You put in a
real number. That's the number that you want to actually settle this
case.

       “There’s a big gap to bridge between the $250,000 you
demanded and the 40,000 you’re willing to take. But while you don’t
know their number, you do know you put in $40,000 and it didn't
settle, which means the carrier’s offers were lower than you. But
this is just round one. If they come up to a number that’s equal or
greater than yours, Cybersettle will split the difference and you’ll

The Lexicomm Group                                                      4—44
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settle. Let’s say they offered you $38,000. No deal. But if they
come up to $42,000, the case will settle for $41,000. You’ll get
$1,000 more than you asked for, they’ll pay $1,000 less then they
were willing to. And it’s a win-win for both sides.”

      In the vast majority of cases, insurance companies and
plaintiffs’ attorneys both want to settle and they both need
relationships that make sense. That’s why Cybersettle works for the
insurance business. And that’s why what was 80 percent resistance
to ODR in the industry at the start, is down to 50 percent resistance
now. That's why we court them and that’s why we’re going to win
them.




The Lexicomm Group                                                      4—45
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Chapter 5 – The Power of the Patent


       Overall, it was easier to persuade attorneys to use Cybersettle,
than it was to win over insurers. But in 1999, when we were first trying
to get early adopters to change their working habits and use our
process, we had to confront another problem -- copycats.

      Imitation may be the highest form of flattery – but not if it
threatens your business. Colin Rule described the problem
Cybersettle faced in his 2002 book, Online Dispute Resolution for
Business: “(Cybersettle’s) initial activity spawned dozens of imitators.
Though Cybersettle filed the first patent on the blind-bidding
technique, many smaller companies rushed into the space. The basic
blind-bidding code was not very difficult to replicate by other
companies who wanted to get a piece of the pie once the application
really took off.”

       Replicating the code may not have been difficult but there’s a lot
more to Cybersettle then setting up a web site and a black box in
cyberspace. I’ve explained how our process was carefully constructed
to reflect the way settlements and dispute resolution works. We had to
understand the metrics of the process, how it works and how it
impacts people, to have the success we’ve had.

    Many firms seek relationships with the insurance industry because
that's where the money is. But serving the industry as we do by
revolutionizing the claims settlement process requires a deep
understanding of the many rules, regulations and business models
that govern the business.

    Some insurance companies aren’t concerned over paying
indemnities but worry about allocated loss adjustment expenses.
Other firms may not be less worried about allocated loss adjustment
expenses but let their unallocated loss adjustment expenses drive
them to distraction.



The Lexicomm Group                                                          5—46
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    Some insurance firms avoid litigation if possible. Other insurers
believe fervently that every case should go into litigation because
they're confident they’re going to beat the plaintiff’s lawyer once they
get him in court.

    Competitors can't just slap something together, put it out there and
hope firms are going to use it. But we confronted a serious challenge
that May when a small public company called National Arbitration and
Mediation (NAM) released an Internet product they called
“ClicknSettle.” It was a 100 percent pure Cybersettle knock-off.

     At that time, NAM had an established mediation and arbitration
business, which they hoped to combine with their copycat online
settlement tool. With our patent still pending, we chose not to litigate
at first. Instead we talked NAM and tried to negotiate a solution. By
2000, NAM approached us with an offer to buy “ClicknSettle,” which
we passed on. In the end, we chose to battle it out with them, our
patent pending all the while.

    Then in June of 1999, with the NAM battle brewing, Cybersettle
had a major change of fortune, when XL Capital acquired our chief
investor, NAC Re, for $1.25 billion. It wasn’t long before we were
asked to go to Bermuda where XL is based and to demonstrate what
we do. It was a great day for Cybersettle, as XL’s executives liked
what they saw.

     The relationship with XL and its chairman Michael Esposito that
developed from that meeting has had a profoundly positive effect on
Cybersettle’s fortunes. Not least was the benefit we derived from XL’s
reputation for being pretty tough when they need to. They backed us
in our battles with the copycats – including NAM – which finally
admitted defeat shortly after December 11th, 2001.

      That’s the day our patent was granted by the US Patent Office.
We advised NAM that they were infringing and they quietly closed
down their online offering, with an explanation that said they’d tried
“ClicknSettle,” and online dispute resolution and that it just doesn’t


The Lexicomm Group                                                          5—47
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work. Funny.

    There had been other copycats along the way. But they mostly
gave up, when faced with the reality of our patent and trademarks.
However, that wasn’t enough to discourage another would-be
competitor from some undue flattery. A big company this time, the
Minnesota-based National Arbitration Forum (NAF) literally tried to
take our idea.

    We found out about their move when a client called and said, "I
thought you were the only ones to offer this service? There's a
company in New Jersey that’s been hired to do the same thing you
do.”

    We learned the company was NAF and that they’d won a contract
with the State of New Jersey to create an automated online system to
settle no-fault claims filed against the State’s auto insurance personal
injury program. They had copied Cybersettle, with a process that
used three rounds of blind-bid offers and demands.

     Our legal department let NAF know they were infringing on our
patent. Their position was that they didn't know it was possible to
patent a process like Cybersettle’s and they didn’t think it was valid.
As with NAM, we tried first to negotiate a solution: we considered
partnering with them or letting them license our process. Their
counter offers were, frankly, insulting.

     Once again, Cybersettle, a company who’s sin qua non is to
make it easy for disputants to reach a reasonable settlement, was
forced to litigate. And once again the firm had the full backing of XL
and Cybersettle’s board.

      After we started the litigation, NAF took down the three-bid
system it had been running and replaced it with a modified form that
would accept one offer, one demand; and if that didn't settle, another
offer and another demand; and if that didn't settle, another offer,
another demand, and so on. We believed that also infringed on our
patent and in November 2006, Cybersettle won a complete victory in

The Lexicomm Group                                                          5—48
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the District Court for the Northern District of New Jersey.

      Judge Mary Cooper ruled that both versions of NAF’s online
settlement tool were in direct violation of our patent, and that our
patent covered any automated, online, double-blind settlement system
with one or more rounds of bidding. Judge Cooper granted
Cybersettle’s motion for summary judgment, denied NAF’s cross-
motion and invited us to submit an order for a permanent injunction
against NAF.

      We’d spent an enormous amount of money litigating that
case. NAF responded to the ruling by appealing to a special circuit
that’s set up to handle patent cases.

     That ruling was delivered in late July 2007. It upheld the validity
and application of our patent, confirming our contention that it covered
the submission of more than one offer or demand in a double-blind bid
system. The court said that if NAF’s system processed more than
one offer or demand, they were in violation.

        Needless to say, we agreed.

      However, even if NAF had won a ruling that allowed them to use
of their version of Cybersettle (based more on “ClicknSettle’s attempt
than our product) it is not likely many people would have used it.

      The NAF approach allowed disputants to nibble around the
edges of their conflict. There were no limits to the rounds of bids - one
party could have started by offering $1,000, another could have
countered with $10,000 and the back and forth could have gone on
forever - without the two parties ever getting close to settling.

     From a practical commercial standpoint that doesn’t work. (NAF
admitted it process wasn’t used much back when it was up and
running.) And that’s because their system didn’t drive users to become
more reasonable.

        Cybersettle does that by limiting the number of rounds – and

The Lexicomm Group                                                          5—49
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ultimately, it doesn’t matter if it’s three, four or ten rounds. By limiting
the number, you force disputants to get to their bottom line. And
because their bottom line is in the blind, they know they needn’t fear
they’ll suffer if they input the number they’re willing to take – because
the other side will never have to know how reasonable they were if the
case doesn’t settle.

     By offering an unlimited number of rounds, as NAF did, they
created a system that could have kept disputants negotiating for
months. And if that’s all their system could do, then claims adjusters
on one side and attorneys on the other would probably have given up,
picked up their phones and settled their cases the old-fashioned way.

   To our knowledge, all the other imitators have been shut down
now. We search on a pretty regular basis. We haven't found any.
There may be some operating in countries where we don’t have a
patent so there's not much we could do about it unless they try to do
business here in the United States

    XL stuck with Cybersettle all the way. In 1999 when they inherited
us, they picked up the ball and ran with it. They haven’t put it down.




The Lexicomm Group                                                          5—50
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Chapter 6 – Staying Afloat in Rough Waters

     Cybersettle didn’t have any real revenue yet as we went into
2000. But our investors and board members were excited and we
began the negotiation process for an IPO.

      We didn’t know though that the Internet bubble had been
stretched about as far as it could go. It was about to burst.

     Spring 2000 was when the dot.com party ended on Wall Street.
The Cinderella firms who’d lived high on hype and a venture capital
gusher that wouldn’t quit woke up, found the magic was gone and
there was nothing to do but chain up the doors and head off to
bankruptcy court.

      The NASDAQ, which peaked on March 10, 2000 lost more than
a third of its value in little more than a month. Dot.com graveyards
haunted the Internet – ghoulish sites that displayed the front pages
of dead Internet plays like Value America, Pseudo and Pets.com.

        The timing couldn’t have been worse for Cybersettle.

      In February 2000, we had started negotiating the mezzanine
round of financing for an IPO at an enormous valuation. We were
looking at an offering in late summer that year.

      When the bubble burst in April, the company behind the
financing cut their valuation by two-thirds. Plans for Cybersettle’s
offering were abandoned as the so-called “New Economy” imploded
around us, dragging much of the “Old Economy” down with it.

      It was bad news but it wasn’t a major crisis for Cybersettle,
because of XL and the employees and executives who believed in
our vision. Mary Ann Jennings had then been with Cybersettle for
less than a year. She says, “I never felt that the company was in
crisis. Cybersettle wasn't a fluke … an overnight success just
because it was a ‘dot com.’ I knew that we had a service, a tool, a

The Lexicomm Group                                                          6—51
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product that was unusual and with a patent - which was extremely
unusual. But, we would have to tighten things up, which we did and
cut costs. “

     We decided as a board, with XL, that we would go it alone. We
were not going to sell Cybersettle on the cheap. We reduced our
budget – by 75%. We had to make big changes in the company.

      Fortunately we had an executive team that could manage that
restructuring. Maryann Jennings, Ed Halas who was our VP of
Finance then, and Lillian Pressley our controller , were part of that
effort.

      So was Peter Speziale. “We scaled down significantly and
became very efficient in terms of expenses. We merged our call
center with our physical office space and moved out of Manhattan, to
Mount Kisco, New York. We brought our employee numbers down
to 40 or 50 people at that time and ultimately to less than 30.”

      Cybersettle had been advertising heavily, with huge billboards
on either end of the Lincoln Tunnel that connects New York with New
Jersey and full-page ads in the Wall Street Journal and the New York
Times. The billboards came down and we stopped buying ads.

     We had sent dozes of representatives to the 2000 Risk and
Insurance Management (RIMS) conference on the West Coast. We
trimmed that representation radically when future conferences were
booked.

      Cybersettle’s growing international presence was cut back,
though not abandoned. We had expanded into Hong Kong and
Canada and were successful in reducing our presence there without
making significant changes in our client base. We slowed our move
into Europe, though we didn’t stop it. We're there now, with a U.K.
partner and patents in many European countries.

        We survived and repositioned ourselves so that we weren't


The Lexicomm Group                                                          6—52
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looked at as a dot.com, any more. We were always a settlement
tool. We still are. But we learned that positioning is vitally important.
Even the best products need to be repositioned after seismic shifts in
the market.

      The company lost some good people and there was some
anxiety among those who stayed – but also confidence that
Cybersettle would make it. Chief Technology officer Sung Choi
says, “It was definitely a bit grim, but we knew that we were going to
be around and we were just refocusing our efforts and paring down
and trying to become leaner as an organization. Was it a
challenge? Of course, it was a difficult time, but the fact that we
survived and the fact that we’re still here now is a testament again, to
the vision and the strength of the business model.“

     If anyone needed it, we soon had further proof of our value.
Shortly after we moved from Manhattan, in October of 2000, XL
commissioned the management and technology-consulting firm
Accenture to do a study on Cybersettle to make sure the funds they
invested were going to pay off, someday.

     Andersen was very hard nosed – I would even say cynical.
They didn’t think Cybersettle had any value.

      They did an open file study of two of our insurance company
customers at the time, and came back and said Cybersettle reduces
cycle time, the time in which it takes a claim to pend, by
extraordinary amounts. To quote the study, “Cybersettle reduced
time from FNOL (First notice of Loss) to settlement from 130 days to
just 24 days, an over 80 per cent reduction.” According to
Andersen, that meant a $600-$80 savings for an insurance carrier for
each file that went into Cybersettle.

      While we were busy relocating and restructuring we also added
more value to our process. 2000 was the year we developed and
introduced what we call the Power Round, to follow up on studies
that showed a pattern of cases, where disputants had gotten close –


The Lexicomm Group                                                          6—53
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into what we call ZOPA – zone of possible agreement – but had not
yet settled.

      Cybersettle’s value derives from our ability to help parties settle
cases far more quickly with our process than they would without it.
Having found that pattern, we believed we needed a new feature –
an additional layer of technology, if you will – that would let
disputants know they were close to a settlement without revealing
their numbers.

      Here’s how the Power Round works. An insurer puts three
offers in Cybersettle and a plaintiff puts in three demands. If the
plaintiff is close to settling but still outside the parameters that allow
for resolution, he’ll be notified and allowed to make a fourth demand
against the insurer’s third round offer, which doesn’t change. It’s a
very successful feature, which has been patented.

       We also adjusted our three rounds strategy. With the first
version of Cybersettle, if an attempt at a settlement failed, there was
no inherent mechanism for both sides to try again, without reentering
all their information and starting all over again.

      Sung Choi’s team took up that problem and came up with a
solution, so if a case didn’t settle after three rounds, both sides could
enter new offers and demands without restarting the process from
scratch. In essence, we're allowing an unlimited number of rounds,
while still limiting the bids to three. The City of New York uses this
feature regularly, as does one of our big insurance customers, with
excellent results.

      Our patent also covers those additional rounds. Remember, we
picked three rounds after studies showed that’s the number that
generally drives people faster towards making a reasonable
settlement. But in cases where those three rounds are not enough,
but both sides are intent on settling, we’ve got the flexibility to match
their needs.

        At Cybersettle we have different ways of coming to the market

The Lexicomm Group                                                          6—54
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but we never change the basic formula. We spent the remainder of
2000 and much of 2001, moving forward and really getting the
customers excited again. We focused on getting our process
promulgated throughout our client firms. We were really starting to
get business, and you could see that there was new life in what we
were doing.

      By autumn 2001 we had several new proposals that looked like
they were going to be accepted by carriers. On September 10th, we
flew in some consultants from California who were going to help us
get into the workers compensation business. We thought there was a
real opportunity there.

     And then, of course, on September 11th, the world changed
overnight.

       The World Trade Center, the Pentagon, all the lives that were
lost, the real risk of terrorism and how it could impact anything,
anywhere, anytime – it all became frighteningly clear to everyone.
American manufacturing plants, oil and nuclear facilities, the
transportation network – our lives - all seemed terribly vulnerable.

      The reality that we had enemies committed to mass-casualty
terrorism was suddenly stamped on everyone’s minds. No one in the
insurance industry had really considered that terrorism on that scale
would be a great risk. Nobody could foresee a 9/11. Nobody could
imagine that kind of calamity happening. Until it did and then that
was all anyone could think about for a while.

     The insurance industry, for good reason, was frozen, stuck like
a deer in the headlights. At Cybersettle, we couldn't talk to clients or
prospects; we couldn't get a meeting. They didn't know if they were
even going exist. Nobody knew the potential liability they faced, or
what the government was going to do.

      Insurance companies, even if they didn’t bear direct risk in 9/11
– as XL did – began frantically reviewing their policies. Did they have
terrorism exclusions? Could they have terrorism exclusions? What

The Lexicomm Group                                                          6—55
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was the impact of potential terrorism on the policies they had?

     Would the government step in and become the insurer of last
resort? It ultimately did, (with the Terrorism Risk Insurance Act of
2002), but no one knew that then. Would there be other liabilities?
Was this a single, large-scale act of terrorism, or would there be
more?

     No one knew. I met with Nick Brown, who was CEO of XL’s
insurance division and Dick Miller, the XL Insurance CFO, who both
came up to New York They advised me that obviously the world had
changed and were unsure if they would be able to go forward with
Cybersettle but would do their best.

     XL is in the business of insuring large risk, that's what they do,
and they're very, very good at it, they're a highly profitable company.
But even they weren’t sure what the crisis – and its aftermath - would
mean for them.

      According to a Morgan Stanley study, the insurance industry
faced one of the largest combined property and business interruption
losses, life insurance catastrophes, and aviation disasters in history.
Not to mention the liability claims that would follow

      The collapse of the bubble didn’t faze us at Cybersettle. But
that was the moment when I feared for whether Cybersettle would
continue to do business. It was the greatest crisis we had faced thus
far.

      But XL, to their great credit, looked past the crisis and said,
they believed in our business model and in our future. They’ve
proved that by continuing to provide the financial support we needed
to get where we are today.

     There were changes in the insurance business. Ultimately
insurance rates hardened. Rates had been drifting down; the cost of
insurance had been getting cheaper for consumers.


The Lexicomm Group                                                          6—56
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      But with 9/11 and the looming threat of more attacks, a lot of
capacity left the marketplace. And insurance is like anything else in
our economy; it's all based on supply and demand. The demand was
stronger than ever though the supply, the capacity to underwrite risk,
dried up a bit. So rates began to rise substantially, and the industry
had a three-year run of high rates. I don't want to say as a direct
result of 9/11, but it certainly was heavily influenced, by 9/11.

      It probably wasn't until the summer of 2002 that things started
to get back to - I don't want to call it “normal,” because “normal” is
never the same after something like September 11th. But we started
to get back to the point where we could get into insurance
companies and see people again.

        And people kept using Cybersettle.

      Obviously there was a massive drop in usage, within the first
90 days after the attacks. It began to come back a little after the
New Year. And by summer 2002, we were getting appointments
with new clients again and building the business.

     As for the day itself, my thoughts on September 11th were not
on Cybersettle. They were with the people in my neighborhood and
the people I’d served with that had lost their lives.

      I served in the district attorney’s office and worked closely with
hundreds of police officers. I’ll never forget opening up the New York
Daily News and seeing pictures of all the officers that had been
killed, and their children. The last thing that I was thinking about was
Cybersettle.

      But at some point you get up and get back to work and to XL’s
credit, they made a decision to go forward with Cybersettle and to
make it work. And we made a decision to exploit the full potential of
the tools we’d developed and look for other business lines besides
insurance. After September 11th we knew we had to think bigger
and broader. Sometimes I think that If It weren't for all the hurdles
that we faced, we never would have seen how our system really

The Lexicomm Group                                                          6—57
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could be an important agent of change in many areas.




The Lexicomm Group                                                          6—58
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Chapter 7 – New Apps in New Markets

      We came out of 2001 determined to further develop
Cybersettle as an online dispute resolution tool that could help
settle millions of disputes having nothing to do with insurance. The
insurance industry panic that followed the 9/11 attacks had
underlined our need to develop new business lines.

     As I’ve said, the potential for widespread applications was
inherent in our process from the start. We knew Cybersettle could
be adapted to any dispute that could be understood as dollars and
cents – not just insurance cases.

      The prevailing idea before the “dot.com” bubble burst was that
Internet companies would displace bricks and mortar firms - to the
point where shopping malls would become obsolete and every
purchase beyond a Starbucks caramel latte would be bought
online.

     I don’t want to put all the blame on our would-be investment
bankers but they did help convince us to position Cybersettle solely
as an Internet play, as dispute resolution untouched by human
hands. It led us to cut the facilitation service we’d introduced in
1999 to help parties resolve cases where their blind bids brought
them close, but not close enough to settle.

      Our belief that we needed focus on the insurance industry had
also played a role. In 2000 we abandoned plans to launch a
business-to-business service that we were going to call “Claim
Court.” Forgoing that service meant giving up on a broad base of
claims that might have been real business for us.

    But even working strictly with the insurance industry, we
continued to develop and refine our tools and to add ancillary
product lines. It meant that when we were ready, it was easier for
us to expand our horizons. We really had our act together selling in
a tough industry.

The Lexicomm Group                                                     7—59
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      When we started Cybersettle, we designed it to be used by
the professionals who manage disputes – claims handlers and
attorneys. We did that in part to reassure personal injury attorneys
we weren’t trying to cut them out of the loop. But, of course, we
always knew that we could be very useful to a broader user group.

      Today the Cybersettle system is being used by clients without
legal representation, generally for claims under $5000. It's a
completely new segment of the business we’ve developed and it
has been a hit particularly with the New York City Comptroller’s
office.

       According to Peter Speziale, the demands of the marketplace
really brought that to us. We're like any business loyal to our
customers and their needs. If a customer comes to us and says,
“We like your product. We would like to expand it to a different
segment of our business.” We're not going to ignore them. We're
going to try to accommodate them and that's how it has evolved.

     We’ve also introduced a version of Cybersettle for multi-party
defendants. Here’s an example of how it works.

      Picture a construction worker, employed by a subcontractor in
New York City. He’s working on a scaffold when a painter on a
floor above him drops a can of paint. It hits the construction
worker’s scaffold, which collapses, sending him down to the
sidewalk. He lands so hard he breaks his back, leaving him
paralyzed from the hips down.

     The gory details aside, what redress does the paralyzed
worker have?

      He can’t sue his employer under New York State law because
his employer has worker’s compensation for him. But the law does
allow him to sue whoever put up the scaffolding, because that is a
different company. He can sue the painter and the painting
company that hired him. He can sue the general contractor who
employed all those people and was responsible for supervising

The Lexicomm Group                                                     7—60
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everything on the site. He can sue the building. He can sue the
City. In cases like this, as a rule, the plaintiff sues everybody in the
world that could have a degree of liability for his injury.

     Now there’s a concept under the law that says liability must be
apportioned. So how do you apportion liability in a case like this?
Everybody who is potentially liable looks at it differently.

     The general contractor says the case is worth $200,000, and
he has 30 percent liability.

      The painting company doesn’t know what the contractor
thinks. They say, “We think this case is worth $190,000 and we
have 50 percent liability.”

     And the scaffold company says, “We think this case is worth
$220,000 and we have 40 percent liability.”

        And then they go to war – with each other.

      That’s what goes on between defendants, in multi-defendant
cases. A fight to the death over what the claim is really worth, who’s
responsible for which portion of the settlement and how to make an
offer the plaintiff will accept. Meanwhile, the plaintiff’s attorney sits
back and watches these people beat each other up.

      We looked at that problem and found an easy, elegant
solution. I like to think of it in boxes, because that’s how my brain
works. I think in boxes.

        What the multi-party system does is add up those numbers,
create an average, and in effect say, “Okay. The average liability
that everyone’s come up with is $200,000. The percentages of
liability exceed 100, so the system will make the results
proportional to reflect the numbers the defendants entered.”

     The defendants input their numbers. Using the Cybersettle
process, of course, no one else can see the number the other

The Lexicomm Group                                                     7—61
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parties have entered. The process returns a result.

     The contractor looks at it and says, “I don’t know where
everybody else is, but this machine is saying the number is
$200,000, I thought I had 30 percent, but it’s coming back at 40
percent. Can I live with that? Yeah. I could live with that.”

     The painting company says, “Yeah, it’s $200,000 and it’s
saying that I have 30 percent liability. Okay. I could live with that.”

      And the scaffolding contractor says, “Well, this says $200,000
and it says that I have 30 percent liability. Well, I thought I had 25,
but I could live with 30.’

      Or maybe he can’t live with that. Then the system allows him
to put in another number. The defendants go back in forth, online,
in the blind, until they’ve created unanimity. Let's say they all agree
now its $200,000 and they’ve agreed on their percentage of liability.
They each know what they owe the injured worker; they don’t need
to know how the other defendant ended up.

      That’s it. They’re done. The plaintiff doesn’t know or care what
the division of liability is. He just cares that he is getting his
money.

      He put in his first demand: $250,000, no settlement. Second
demand: $220,000, no settlement. Okay, third demand, $190,000.
The firms offered $210,000. Congratulations! The case settled for
$200,000. Below the $210,000 the contractors were willing to pay
and ten thousand more than his third demand. It works -- really
well.

     The program splits the difference. It then takes the $200,000
and apportions it among the three parties in proportion to the
percentages that they’ve agreed on. You owe 30 percent of
$200,000 you owe 30 percent of $200,000 you owe 40 percent of
$200,000. Over and done.


The Lexicomm Group                                                     7—62
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      All we did was did was take our original concept and extend
it. Just like standard Cybersettle, the multi-defendant system
allows the parties to work through the issue in a value-neutral,
emotion-free manner where nobody has to reveal their negotiating
strategy through their numbers. And where no one can say, “The
reason that they’re trying to shove 40 percent down to me is
because he knows the judge and the judge is trying to stick it with
me.” Or “He went to school with the mediator; the mediator is trying
to force me to do it."

        This application is also a great tool for mediation. If you’re a
mediator, your biggest challenge in a case like this is “How do I get
the plaintiff and the defendants – and the defendants as a group -
to agree on the settlement number and their percentage of
liability?”

      Here you have a tool where people can be honest with
themselves and with the mediator, and not have to worry about the
other parties knowing what their bids are. We even designed it so
we can insert a mediator into the process who can look at the
settlement as it’s developing, manipulate the numbers and ask the
parties what they’re willing to accept in real time. Half the
mediator’s job is done to start because he walks in knowing what
people’s numbers are and where they’re coming from.

      But with or without a human mediator, this tool facilitates
multi-party settlements. There are millions of these types of
conflicts out there and we now have an elegant solution to resolve
them.

        Our multi-party patent application is pending.

      We’ve also developed a product for claimants and attorneys
called RapidFunds. It allows us – and them – to benefit from a
unique set of data that we possess: knowing to the moment when a
case settles on Cybersettle; knowing how much they settled for and
who settled with whom. It is information that’s tough to get if you’re


The Lexicomm Group                                                     7—63
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not on the spot, as we are. And if settlement information does
become available, it is generally pretty old.

      An attorney may settle three cases in October and not see the
end of another one until March. It doesn't mean the attorney is a
bad lawyer, or not pushing cases fast enough. That's the way it is.
It can take a long time to settle a case. And cash flow can be a
nightmare after a settlement. It can take anywhere from three
weeks to six months to a year sometimes, depending on the type of
case and the insurance carrier, to get paid. That can be a problem,
especially for a small or moderate sized firm.

        A claimant may be in even greater need for all – or a piece –
of that settlement money. They may have outstanding medical
bills to pay if they want to keep their health insurance. Or, their
disability payments may be running out.

      So we decided to create a business that extends to funding
that settlement? As soon as the settlement goes through
Cybersettle, the attorney gets a prompt on the order of,
“Congratulations, your case settled for $100,000. Would you like to
receive your money in two hours?” The claimant is informed too.

        Here’s how it works: Lets say a case has been settled for
$100,000 and the attorney’s fee is 33,000. We will purchase that
fee for $31,000, for example, and send the attorney the money
immediately. If the client is receisving $67,000, we will buy his or
her portion for $62,000 and pay them right on the spot. In return,
but the attorney and the client assign Rapidfunds the right to
receive all or a portion of those settlement proceeds when the
check is received – which sometimes takes 90-days or more.

     That’s the idea and we’ve learned a lot putting it to work.
We’ve streamlined the application and made it easier for clients to
use. We figured out how to automate some of the processes and
to work faster in-house.



The Lexicomm Group                                                     7—64
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      We also changed our underwriting guidelines, once we’d
digested some of the risks. For instance, there are cases where an
additional governing body has to come in, review and authorize a
settlement that’s gone through Cybersettle, before it can be paid.
Sometimes a settlement like that gets rubber-stamped. Other times
it gets held up or even fails review. When that happens, we’ve
bought an asset that never materializes. It is a real risk and that
kind of default has happened to us.

      We’ve learned how to evaluate those risks, and we've gotten
a lot smarter. We tweaked our guidelines so we can estimate the
time it takes to be paid. And we adjust our price accordingly, or
pass on a deal because we’ve learned it is one to avoid.

      Since we refined our models, we’ve been pretty much
mistake-free. RapidFunds works and it’s got traction. Growth in
our second year doubled from the first. We get a lot of repeat
usage from attorneys – and it says a lot when a client uses our
service and comes back again and again.

      The numbers are good. Sixty percent of our Rapid Funds
clients have used it more than once. A significant percentage have
used it more than three times. Many have used it ten times or more
and keep coming back.

      And here’s an extraordinary fact. Peter Speziale, who runs
RapidFunds, reports that, much of our business comes from cases
that don't even come to Cybersettle at all. This is because the
lawyer puts a case in Cybersettle and it settles and then the screen
pops up: “Congratulations you've settled - would you like to
RapidFund that amount?”

      The lawyer may decide he doesn’t want to RapidFund this file,
but then three weeks later he has another settlement and then he
has a cash flow need and he uses us. He's a client of ours but may
not be using us on the case that came into Cybersettle. He may be
using us on a different case. That’s the best kind of growth.


The Lexicomm Group                                                     7—65
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     RapidFunds business also comes from lawyers who have
never used Cybersettle but have heard of us because we’re out in
the marketplace in major alliances with national and local bar
associations marketing and branding our name.

     When Speziale goes out on the road to sell RapidFunds, he
hears, “Yeah, I could definitely use some cash flow. I know those
Cybersettle guys; they’re aligned with the New York State Trial
Lawyers Association. They're friends with the Florida Bar.” It ha
grown in ways we couldn’t anticipate. We thought we were just
going to pull Cybersettle cases and it didn't happen that way.

      This says to me our model makes sense, and the way we're
doing it is working. Our clients are satisfied and keep coming
back. It’s just going to get bigger to match the marketplace. .
Equally as important, it does not conflict at all with our core
insurance company customers: we’re still making claims settle
faster thus saving them money and are expediting the payment to
the claimant, at no cost to the insurer.



    I love the way RapidFunds was conceived. It was created to
meet a clear need among our constituents It is how we conceived
of and developed every Cybersettle application and product. And
that’s how every business revolution begins.




The Lexicomm Group                                                     7—66
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Chapter 8 – A Powerful Partner

     The biggest change we’ve made in recent years – both in our
product and our strategy - was to go into a marketing alliance with
the American Arbitration Association – the AAA.

     The AAA was founded in 1926, when the concept of using
mediation and arbitration to settle disputes was just that - a
concept. The founders were forward-thinking people who saw that
commercial disputes would grow with the economy and that there
was a need to handle them outside the courthouse. They
understood there had to be other forms of dispute resolution,
because, even then, litigation was both very volatile and very
expensive.

      What do arbitration and mediation mean in this context? The
AAA says “Arbitration is the submission of a dispute to one or more
impartial persons for a final and binding decision,” while “Mediation
involves an attempt by the parties to resolve their dispute with the
aid of a neutral third party.” In other words, with arbitration the
parties agree, in advance, to abide by the decision made by an
outside person or persons. With mediation the disputing parties
work together with a third party to resolve their dispute.

      Both arbitration and mediation require hearings that are held
in private and kept private. Arbitration is legally binding – mediation
is not.

    Today 81 years after its birth, AAA is literally the gold standard
in Alternative Dispute Resolution. No rival organization has had
anything like their impact – and there are thousands of mediation
and arbitration companies and organizations around the world.

      If you pick up any random contract between two parties in this
country, there is a good chance there is an arbitration clause in it
with the AAA named specifically as the arbitrating body, in case of
a dispute. The number of disputes they handle varies from year to


The Lexicomm Group                                                     8—67
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year but the number is always huge. There were around 120,000
in 2006 alone.

      The AAA’s cases cover a very wide range. Debi Miller Moore,
AAA’s Vice-President of Online Services and Claim Programs says
they handle “everything from consumer disputes to large multi-
party, multi-million dollar disputes … We have insurance, we have
labor, we have e-commerce, as a provider for Safe Harbor disputes
and we have what we call commercial disputes – which breaks
down to about 14 categories in itself. You name it, I think we’ve
done it”

       As you might expect with an organization that is at the top of
its field, the AAA maintains its own presence online. AAA CEO
William Slate has insisted in utilizing online case management and.
He says they have handled entire cases online where the parties
wanted to appear in person for final hearings. The AAA also
utilizes online mediation tools such as chat rooms.

      Why was AAA interested in an alliance with Cybersettle? Debi
Miller Moore says that AAA saw that this could be a very strategic
relationship because there were markets where Cybersettle had
focus, which AAA was trying to penetrate. One of those markets
was the insurance industry. That was an industry that Cybersettle
had a pretty good handle on in terms of the use of the online
dispute resolution tool and insurance was an area where AAA
wanted to see more business.

      Cybersettle and AAA are also philosophically aligned, with
both dedicated to resolving the dispute on the lowest level
possible—at the earliest point possible. In many cases, in
employment cases, consumer cases, the AAA doesn’t even allow
people to go immediately into arbitration. They have to have some
form of dispute resolution prior to that. Cybersettle provides a great
early resolution option, ultimately allowing AAA to settle more
cases.



The Lexicomm Group                                                     8—68
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      Everyone in this business knows that the best time to resolve
disputes is when they’re in their earliest stage, on the lowest level
possible and that Cybersettle’s process does that very well. And
since Cybersettle’s process is unique, if the AAA wanted to add it to
what the call their “ADR dispute resolution continuum,” they needed
to talk with us.

      I believe AAA also needed some help with the plaintiffs’ bar,
which had a skewed and distorted view of the AAA as leaning
towards the defendant in its cases. Cybersettle has excellent
relations with the defendant’s bar, so a close relationship with us
could potentially help them with that as well.

       And why did Cybersettle want a relationship with the AAA?
Mary Ann Jennings explains It best. “We needed to expand what
we had tried to do with facilitation, which has its limitation because
it’s not standard arbitration/mediation. There are claims that didn’t
settle in facilitation or couldn’t go to facilitation – either because the
gap between the parties was two wide or the parties were unwilling
to do that process. We needed the industry standard, which is
arbitration/mediation, and the Tiffany company there is AAA.”



      For Cybersettle – as a relatively new firm selling a disruptive
service to some conservative industries, it helps us to have a
relationship with the most respected people in the field, to have
them buy in to what we do.

      Both sides then knew they could benefit from a relationship.
But it took a few years to make it happen.

      We actually made our first contact with the AAA back in 1999
at an insurance conference in Boston. I was introduced to a senior
vice president named Bob Meade, who was very interested in
learning about Cybersettle.

     In those early days, we touted Cybersettle as the alternative to

The Lexicomm Group                                                     8—69
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mediation and arbitration. We were trying to differentiate ourselves.
Since then, of course, we’re come to understand that we’re really a
part of the mediation and arbitration world - not an alternative but,
simply, a compelling tool. We are part of the process.

     Both the AAA and Cybersettle explored similar relationships
with other possible partners in the years that followed our first
meeting In 1999. The people we spoke with at AAA were very
candid in saying they’d tried to find methodologies outside
Cybersettle to do dispute resolution using the Internet.

     AAA was concerned with how close we were to being a "start-
up." We were new, but we had patents. They said, “We kept
running into your patent and we couldn't design around it. You did
a great job. Every time we tried to design something, the best
answer was what you did.”

   They didn’t see us as a competitor. But they did want to see if
we would last. As time went by they came to the conclusion, quite
honestly, that Cybersettle was outpacing everyone in ODR. Our
patent and performance had put us on top of our field.

      . AAA has been running the no fault arbitration program for
New York Sstate since the early 1970’s. We began contacting
them in earnest in 2004, after we started working with New York
City and the New York State Liquidation Bureau, because we
thought it was a natural fit.

By the following year, they began to show some serious interest in
what we were doing and decided to go through the diligence
process. Persistence was beginning to pay off.

    We worked mostly with John Emerett, a senior vice-president
who runs their national no-fault arbitration program, India Johnson,
their senior vice-president for business development and Debi
Miller Moore. They took their time with due diligence; they kicked
our tires a lot. The team always stayed in contact; always wanted
to know what we were doing and we had good communications

The Lexicomm Group                                                     8—70
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through that period.

         We began to negotiate in earnest with AAA in 2005. We
finally signed an agreement in September of 2006, and we’re on
our way. Together we are a formidable dispute resolution solution.
For many cases we are soup to nuts.

    Here’s how the partnership works for our clients. If a case
comes close, using our basic process, without settling, a
Cybersettle facilitator will get a prompt, get on the phone and let the
parties to the dispute they’re close - even though they’ve failed to
come together through the blind bids and Power Rounds. Through
the facilitator, they get a chance to try again. (We’ve patented the
process where the file moves from the online world to the
facilitator’s world, too.)

    But now if they go through Cybersettle online and our systems
or facilitators can’t settle the dispute, we offer the parties the
services of the AAA. If the parties accept, we email AAA the
information and they pick up the ball and run with. A simple easy
handoff to an experienced and qualified organization.

    We’re thrilled to have the alliance with AAA, though there are
instances where it is far more efficient for us to facilitate in house -
the file is right there and we capture a lot of revenue when we settle
the claim through facilitation. When AAA initiates a transaction,
which goes through Cybersettle, it always holds on to the facilitation
piece. There Is no Cybersettle facilitation In those cases. It works
well for both organizations.

    The alliance is new but it is making a huge difference. One of
our major clients has already decided, as a company, that all their
claims that don't settle in Cybersettle or through our facilitation
process will be referred to AAA.

     AAA Is opening up other opportunities for us that would have
taken us years to get establish. When William Slate calls on
somebody, they take his call because he means something in the

The Lexicomm Group                                                     8—71
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world. We’re not so arrogant as to think that we’re Bill Slate. He
carries a big stick. We benefit, as his partner.

    What is the alliance worth in dollars and cents? I can’t say
exactly, because we are way too early in the relationship. But I
think, for both organizations, it is a huge opportunity to increase
business worldwide. We generally don’t get access to the higher
dollar claims, which are as valid in our system as low numbers are.
And AAA generally doesn’t get access to the low end of the claim
business, because the expenses of human arbitration and
mediation are too much. By going to market together we have
expanded our ability to touch customers by such an exponential
amount that I don’t think you could assign a number to it.

     Ultimately, it’s all about market share. If you can reach a bigger
share of the market, you are going to get more dollars in the door.
We’re seeing it with the customers that they have referred to us so
far, and if those deals land, and we believe they will, it is revenue
that we may have gotten some day in the future, but it would have
taken us a lot longer to get there. And, of course, there are often
moments in those transactions where we absolutely positively need
a human mediator with the power of the AAA.

       We are marketing ourselves together as “ODR Solutions” – a
joint offering between the AAA and Cybersettle. Clients can decide
that it’s better to file a case for arbitration, go through AAA to the
Cybersettle tool and maybe eventually back to mediation or
arbitration. Or they could start with Cybersettle and those cases
that weren’t resolved through Cybersettle would then go on to
mediation and arbitration through the AAA.”

      That's how we promote AAA and Cybersettle together -- a full
service solution that covers an extraordinary amount of territory.
We acknowledge that there are certain things that we can't do, and
they acknowledge there are certain things that they can't do. But
together we cover 80 or 95 percent of the world.



The Lexicomm Group                                                     8—72
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   And with the new products we’re developing, who is to say we
won’t get the whole world using Cybersettle?




The Lexicomm Group                                                     8—73
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Chapter 9 – Going Wide: Cybersettle for Consumers

     Cybersettle is reaching its tipping point. And the world is taking
note of our success.

    We’ve never dropped a transaction. No one has ever gone online
and found our process didn’t work. No insurance company’s ever
said they settled for more than the number they put in, and no
plaintiff’s lawyer has ever said ever said they got less than their
demand. The technology hasn’t failed once.

   We’re on the move. Our M.O. is to identify an area of commerce
we think has potential. Then we identify the really smart movers and
shakers in the business. We sit with them and learn everything we
can about their problems, where they have disputes.

    Then we look at whether our technology can help them. If we
decide it can, we build them a template. And if it works, we
implement it.

    We have an amazing team of people, many who have been with
us since the beginning. One of the great keys to success is bringing
people on board who can help you – especially when you know that
they are smarter than you are. A lot of CEO’s and business owners are
intimidated by people who know more than they do and shy away – a
pretty poor choice. In my world, I always look for the best talent I can
find. Besides the folks I’ve mentioned in this book we’ve brought
some great minds on board. Bob Schmidt, former President of Dreyfus
Sales Corporation is one of them. A marketing genius who had thirty
plus years in the advertising business and then went on to run Dreyfus
in the 90’s is one example.

     I met Bob at a wedding. I talked to him about what we were
doing, “romanced him” and now he’s Vice Chairman of the Cybersettle
board and an integral part of our sales and operations team.


The Lexicomm Group                                                          9—74
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     The thing that I am most proud about our staff is that they work
together as a team. I always say: “there is no “I” in the word team –
and my folks prove that. We all have boundless enthusiasm for the
Cybersettle that exists today and for exploring all the other areas
where we think Cybersettle can be a major agent of change.

    We're looking to be the single solution on the Internet for
disputes. There’s no one else that does what we do there. The way
we do our business corresponds with the way Internet firms do their
business. And the needs are enormous. New Paradigm’s Donald
Tapscott, says, “If you just do the math you’ll see the growth of
Internet commerce and transactions on the web, and the
concomitant exponential growth of conflict, and of problems, and of
disputes.”

    Cybersettle is a perfect fit for settling those disputes on the new
more interactive “Web 2.0” that’s coming on now – you could even
say we anticipated it in our design. Tapscott believes Cybersettle is,
“a perfect application of the new Web. It's a platform for
collaboration, and it's a platform for negotiation, and it's a platform for
the production of outcomes.” We, of course, heartily agree with him.

    We’re in the process of developing a pilot for eBay. They have
buckets of disputes, with people who wound up with counterfeit
goods, or complain the item they bought at auction wasn’t exactly
what they paid for. Colin Rule is at eBay now. He has put amazing
online systems in place that are so seamless that most buyers and
sellers don't even know they have been through a "dispute
resolution" system. But if a dispute gets more complicated than an
unpaid item or a shipping issue, eBay may need a third party.

      Colin says that when he first got to eBay he thought It was the
perfect "neutral" organization, because it’s neither the buyer nor the
seller. Colin changed his mind when, he went out and started talking
to buyers and sellers and realized eBay was not perceived as neutral
by anyone. Everybody on eBay has a very, very passionate
relationship with eBay and buyers will tell you that eBay is all biased


The Lexicomm Group                                                          9—75
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towards sellers. And sellers will tell you that eBay is biased towards
buyers. eBay is absolutely, the wrong organization to engage as a
mediator, because people have such an emotional relationship with
eBay. eBay needs both to seem and be impartial in their dealings
and to keep a very high standard.

      We can help them do that with the Cybersettle-AAA alliance.
The AAA can resolve any disputes between buyers and sellers over
the facts and the law. Then when a dispute comes down to the
dollars, Cybersettle is the answer.

      In the offline world, we’re doing business with Home Depot and
talking with other major brick and mortar retailers, including Wal-
Mart. They have claims and disputes of all kinds. From people
tripping and falling and getting hurt on their property to issues over
goods and services.

      One retailer we know of gets 37,000 property damage claims a
year. The average value of those claims is $1800 and they take an
average of 44 days to settle.

      Both sides should be able to resolve disputes like that in a
week. That’s fair. They can do that with Cybersettle. And those
retailers had better start doing that. Because any company that’s not
trying to resolve disputes with its customers faster, more efficiently
and less confrontationally isn’t going to be around in a decade.

      What’s stopping them? Sometimes it’s the retailer’s “TPA’s” –
the third party administrators they hire to manage their claims. It’s a
big business and the big TPAs would like us to go away. Because
Cybersettle is more efficient, if the firms that hire TPA’s use us, the
TPA’s have less to do and make less money.

      Cybersettle’s technology is disruptive because we force people
to change how they do business. Our numbers prove it’s a change
for the better. But like the insurance claims adjusters who thought
Cybersettle would take away their jobs, people are threatened by
change. Sometimes their fears are well-founded.

The Lexicomm Group                                                          9—76
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    Ethan Katsh, a professor who’s a pioneer in dispute resolution
puts it well. He says Cybersettle is disruptive in the sense that it
affects people whose jobs are basically built on inefficiency.

    But those sorts of inefficiencies won’t be around much longer.
We’re going to find a small TPA who wants to grow and get an
exclusive deal with them. Then we’ll go with them to retail customers
and show them how we can save them money and help grow their
business at the same time.

    If there is any industry that needs change, its the healthcare
industry. Healthcare is almost a broken business.

    Cybersettle can have a major impact there. So many healthcare
claims are in our sweet spot – they are high-frequency and low-
severity situations. The opportunities are enormous for Cybersettle
and for healthcare firms that are willing to bring in a process that will
disrupt their old ways of doing business in return for lower costs and
greater efficiency.

    The speed with which technology is being adapted is working in
our favor. However, we have run into barriers, simply because we’re
an online solution to offline disputes.

       Colin has run into the same problem at eBay. He was
surprised to find, “When we actually go and talk to Visa or we talk to
MasterCard or American Express, the problem that they have is not
all their customers are online.”

     But that’s changing too, thanks in large part to the new
generation that’s establishing itself today. Ethan thinks we’re
reaching a tipping point, in the accepted use of technology, as a tool
in any kind of negotiation, mediation or arbitration. People are just
much, much more comfortable using technology.

     Colin points out that young people are solving their own
disputes online regularly. "You know, you fight with a friend at
school and the emotions are just too high, so you go home and get

The Lexicomm Group                                                          9—77
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on instant messenger and you can work everything out. And it's very
easy to mediate also. Third party friends will come in and they will
instant message with one person and then kind of shuttle diplomacy
and then they will finally invite the other person in and three people
will chat. It's amazing to watch the facility with which the younger
generation communicates through these channels. And I can
understand why it's kind of inconceivable for people who grew up
without access to these kinds of communication channels.”

    Speaking of old school types -- we want to help the government
with its claims. We took a run at the IRS a few years ago. At any
given moment, the IRS has 80,000 claims with taxpayers and its own
internal mechanism for settling disputes. Their approach is, “I’m
going to tell you whether I think I’m right or wrong, and you’re bound
by it.” Tell me how that benefits the taxpayer.

    We met with them. They weren’t much interested in Cybersettle.
Their point of view was, “We do things the old fashioned way. We’re
the IRS and we know better.”

    Well, they don’t know better. They’re not open to new ways of
doing business that are efficient and fair to everyone involved. That
needs to change, because the government was created to work for
the people.

    I don’t want to be cynical but I guess what has to happen is for
some Congressman or Senator’s family member to get caught up in
the IRS appellate process. Once someone close to leadership finds
out what its like, after the IRS slaps liens on, makes its claims and
denies some legitimate deductions, maybe the lawmaker will get
mad and do something about it.

    It comes down to leadership. The government won’t change until
there is a leader who says it has to. And that’s unfair to taxpayers,
who are the shareholders in this country. They own the country, not
the other way around.

        The whole government needs to change the way it manages

The Lexicomm Group                                                          9—78
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disputes. Federal agencies get millions of claims a year. They need
to set up alternative forms of dispute resolution, bring in firms like
Cybersettle and independents like the AAA, to help them resolve
their disputes with their shareholders, the citizens of this country.

      It has to happen. Change is inevitable. If I said to you ten years
ago that you’d be able to file your tax return by pressing a button and
using something called ‘Turbo Tax’ and the government would
encourage you to do it, because it’s easier, you would probably have
told me I was crazy.

     Calling our tool “disruptive” is a turnoff for some. But there are
knowledgeable people willing to take another step and call it
revolutionary. Revolutionary tools and technology are quite often
disruptive.

      Fordham Law School's Dean Treanor thinks Cybersettle is,
revolutionary and has the potential to be transformative. He says,
“There are such an enormous number of disputes that Cybersettle
offers a way to resolve in a way that's quick, that's cheap and that
doesn't involve emotional turmoil. It is something that just has
enormous potential and there are countless disputes that will be able
to proceed to resolution in this fashion.”

     That means big dollar disputes as well as the smaller bread-
and-butter cases we’ve settled. We proved that in 2004.

     That year the National Highway Traffic Safety Administration
forced a major manufacturer to recall half a million tires, because of
a problem that was implicated in rollover accidents involving a
popular SUV

      Cybersettle was deployed in a case that involved a coverage
issue between the manufacturer and one of our major insurance
clients – to determine how much of the defense costs our client was
responsible for.

        We were brought in after the case had already gone on for

The Lexicomm Group                                                          9—79
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years and cost millions in legal fees. Then our client’s lawyers
decided to use us. They put their offers in; the other side engaged,
put in its demands.

        It didn't settle.

      They put in three new demands; the client put in new three
offers.

        It didn't settle.

     Then there was a third round of offers and demands. All of this
took a few days of billing time – and about twenty minutes on
Cybersettle.

   The case settled on the third round. At $12.5 million dollars, it
was and probably still is the largest online settlement in the world on
any system.

        If that’s not revolutionary, I don’t know what is.

      The lawyers weren’t happy, but you can’t make everybody
happy. I am a lawyer and I love the law and I love lawyers, but I see
a lot of inefficiencies in the business.

      Not in the Plaintiffs Bar. As I mentioned before, I think plaintiffs’
attorneys are the most efficient lawyers in the country because they
get paid only on what they produce. It comes in for a lot of criticism,
but the Plaintiffs Bar plays a very vital role. Its members protect
peoples’ rights and they’re not going to go away, nor should they.

     I thought we were going to have, well, almost a violent reaction
from the Plaintiffs Bar -- that they’d look at Cybersettle and say,
“You’re trying to steal our business away.” The exact opposite
occurred. Plaintiffs’ attorneys have embraced the technology.
They’ve got small cases where people are entitled to get resolution
and can’t be represented adequately because it is just too
expensive.

The Lexicomm Group                                                          9—80
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      Of course, there are litigation lawyers who get paid by the hour
who don’t like what we do. However, if they run their law practices
like a business, they will see by using Cybersettle, they can handle
two or three times the volume of cases they’re handling now and cut
costs by 20 percent.

      If they embrace what we do, they can build their practices
faster. If I practiced law today I’d love to use Cybersettle. I’d tell my
clients, that I would still only charge them X dollars an hour, but that I
want them to give me twice as many cases as they are giving me
now, because I know I’m going to stop the bleeding on each case
faster.

     When I get and settle more cases, my revenue is going to go up.
It is so simple.

    Sometimes I think I'd like to practice law again and change my
practice's economics using Cybersettle. That’s not going to happen.
Because I love being Cybersettle too much and there are too many
possibilities in this work. Colin Rule is right when he says, “Think
about all of the Veteran's Administration benefits and social security
stuff and voting issues. There are just tons and tons of issues. You
can look around and anyplace that there are disputes I think you can
find ways that online dispute resolution could theoretically help
resolve.”

      We want to do more for consumers. And we’re preparing to roll
out a product that will do just that.

      Get ready for Yoodue. It’s coming soon And it has the
potential to change the way the world settles disputes – not only in
the U.S. but across the globe, using any currency you can think of.
Its consumer friendly, its easy to use, settlement is instantaneous,
payment is instantaneous – as my kids would say, “It’s very cool,
Dad.”




The Lexicomm Group                                                          9—81
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Chapter 10 – The Revolution is Now

     I’d been thinking about a problem for years. How do we make it
easy for consumers and small business people to settle their
disputes?

       The answer is Yoodue. Remember, you read about it here
first. And it is going to solve a lot of problems.

     I do a lot of work on airplanes. In fact most of the ideas I ‘ve
developed have been jotted down on airplane napkins. There are no
cell phones ringing at 40 thousand feet, no email coming in – at
least, not yet. Its hours of silence up there most of the time, so I have
time to think.

 In April 2007, I was flying home from an ODR conference in
Liverpool. I was fooling around with a sheet of paper and I designed
Yoodue right there.

      We had already begun building a business- to-consumer site
for big businesses, using the basic Cybersettle platform. I was
thinking about that, and asked myself, “How can we use our platform
to solve that problem, to settle conflicts between two consumers, or a
small business and a consumer?”

      Now, even without Yoodue, parties trying to settle a conflict can
put their bids into Cybersettle and if they’re close enough, they’ll get
a number they both can live with. You don’t have to be an insurer
and a plaintiff to use our process.

      But if you’re the complaining party - and your quarrel is with the
neighborhood dry cleaner that ruined your shirts or the neighbor
down the block whose kid sideswiped your car – you can use
Cybersettle, you can settle on a number but how can you be sure
you’ll get paid?

    You know when you settle a dispute with an insurance
company, it is binding and the carrier’s going to pay you. You know

The Lexicomm Group                                                      10—82
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when you settle a case with the City of New York it is binding and the
city’s going to pay you. When you settle with a big retailer, they’ll
pay you. They’re not going to renege. The retailer wants you back as
a customer (and certainly wouldn't want the bad press that would
come with going back on its word to an individual consumer) and the
City and the carrier have a duty to pay. Your settlement is
enforceable.

     So how could I make it work so anyone could settle one of
these small disputes that keep clogging up the courts and be
absolutely sure they’d get paid?

        The answer is Yoodue and here’s how it works:

       Let's say you are the person whose shirts were ruined by your
friendly neighborhood dry cleaner. No Hickey-Freeman suits involved
this time, but ten nice custom-made shirts that cost you two hundred
dollars each when they were new.

     You love those shirts. They fit you like a glove. You get them
back before a big meeting, and they’re all ruined. Chemical stains,
burns, they are a mess. You know whatever happened to them,
happened after the cleaner got them. Now they’re ready for the rag
bin.

   You’re angry. You tell the dry cleaner about it and he says, “Not
our fault. The shirts were old and they just fell apart.”

    Now there’s a problem here. You’re mad, they’re your favorite
shirts, you want them replaced and you tell him that you want $200 a
shirt.

    But the dry cleaner has been cleaning those shirts for the past
two years and knows that while they may cost $200 each to replace,
they were worth a lot less when he got them. Maybe their value was
$100 a shirt before they were trashed.

     But you’re adamant. You want $200 a shirt. Now you’re in

The Lexicomm Group                                                      10—83
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dispute. You have a problem and your dry cleaner has a problem.
He’s going to lose you as a customer and risk a lot of bad will unless
he resolves it. And because your clothes were in his care and
custody when they were destroyed, he knows he owes you
something.

     A couple of things can happen. You could take the time to take
your cleaner to small claims court. Or if you don’t have the time, you
could pull your business and take it to a less convenient cleaner.

        Here’s how they solve their dispute with Yoodue:

     Both parties want to stay out of court so they agree to engage
through Cybersettle’s new tool. Both parties have to have an email
address to use it but that’s not much of a limitation these days. There
are hot dog carts with an email address and roadside barbecue joints
in Georgia with websites.

      You, the injured party, send the cleaner notification, through
email, that you believe they owe you $2,000. You attach the receipt
from when you bought your shirts, pictures of what the shirts looked
like when you got them back. You remind him both of you know that
when you got the shirts back they’d been destroyed.

      However, in order to save the relationship, you mention there’s
a number you’re willing to take below the $2,000 you asked for –
without mentioning what it is. You make a mental reservation that
you would be happy with $1000 and you plug that number,”in the
blind,” into our system.

      The cleaner accepts and logs on to, Yoodue which asks him if
he has a PayPal account or credit card or a bank account, takes that
information and invites him to put in three offers. Let’s say the
cleaner’s numbers are $800, $900 and $1,100 dollars.

     Yoodue then automatically looks at the cleaner’s PayPal
account, or his credit card, or whatever, makes sure he’s got funds
on reserve to pay the top number, should it settle there and freezes

The Lexicomm Group                                                      10—84
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that amount.

       Then the bidding starts. You set your bottom line at $1000 so
Yoodue looks at his $800 and says no settlement. It looks at his
$900 and says no settlement. Then it looks at his $1,100 compares
it to your $1,000 and goes, we have a match. $1,100. Case settled.


     Yoodue then immediately pings the cleaner’s credit card, or
PayPal account or debit card or bank account. It sends it over to
PayPal if you’re a PayPal user. If you’re not, Yoodue brings that
$1,100 into our money transfer system and we ask you, “Would you
like a check? Yes? $1,100 check on the way.”

    There is no issue with getting paid. Because you both agreed to
a participation agreement when you went online and the money went
out of the cleaner’s account as soon as Yoodue let you know you’d
settled. (What’s even better from a business standpoint – that
payment module off of the real time settlement – is now a patent
protected process too. Our patent 7,249,114 says – we own THAT
space.)

    Now you can go back to the dry cleaner, because after all, you
got something you were willing to accept for those shirts. The
cleaner doesn’t lose a customer and risk all that bad will. And if you
took a check, Cybersettle touched the money. That is an interesting
way for us to expand.

     There is enormous business potential here. Yoodue is a vehicle
for resolving all kinds of disputes. For example, there's a company
online now called "Complaints." It doesn’t charge anything, just says,
if you’ve got a complaint, write it down and we’ll pass it on.

    We're saying to them that if the complaints are valid, we'll contact
the other side with a settlement proposal. There’s no need to go to
small claims court or hire a lawyer. You can settle your dispute
quickly online with Yoodue.


The Lexicomm Group                                                      10—85
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      We believe people will settle if you give them a tool that makes
it easy for them. If your kid hits the neighbor’s car, you don’t want an
emotional confrontation; you don’t want to be embarrassed. You
want to settle the problem and get it out of the way. With Yoodue
we’re offering a tool to do just that.

      It offers recourse to the little guy who can't get any
representation or doesn’t want to call a lawyer because the case isn’t
worth that much. People don't want to be in conflict with neighbors if
they can help it. With Yoodue, just like with the standard Cybersettle
model, we’re taking the emotion out of a dispute, so people can pay
their neighbor without slinking over with a check and having to say,
"My son's an idiot."

       Cybersettle was designed for professionals. Yoodue is
designed for consumers. The Yoodue site is going to have a little
funkier look and feel to it. People want to see the content they're
looking for. We’ll have just one screen there where that they can put
in all the information they want, upload copies of their bills or other
evidence and write a statement of their demands.

     We’ve learned that if most people have to go through multiple
screens and multiple pieces of data, you lose them. Consumers are
used to going to Amazon where its click-click, credit card number,
send, bang.

     And if they can’t settle on Yoodue they’ll have access to all our
other services. We’ll offer them our telephone facilitation service.
And if facilitation doesn't work, we’ll refer them over to the AAA.
We’re building a chat-room function for their in-house mediators and
a message board to help them take charge if they’re needed. We’ll
outsource it if we have to, but with 8,000 mediators and arbitrators
on staff I think AAA are pretty well staffed to do this.

     That’s Yoodue. We believe it will become an integral part of
people's lives. In time, it may be just part of a continuum of services
Cybersettle will offer consumers. We want partnerships and


The Lexicomm Group                                                      10—86
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alliances with the Better Business Bureaus and Chambers of
Commerce around the country. Better Business Bureaus already
provide forms of dispute resolution for consumers who’ve had
problems with local business firms. Cybersettle would give the Better
Business Bureaus the chance to say, “Hey, we have this mechanism
that’s very simple, it’s not confrontational, why don’t you use that.”

     Taking the heat out of disputes, reducing the level of
confrontation is a major benefit in using Cybersettle. As Dean
Treanor says, “It's very important in difficult disputes to lower the
temperature, and when you move from face-to-face confrontation to
a simple mechanism for resolving disputes online, you take a lot of
the emotion out of the conflict and you allow people to move jointly
towards what's really in everybody's best interest.“

      Allowing anger and emotion to play a role in disputes is a very
expensive game. Taking it out allows people to resolve their conflict
in a civilized way, and then go on with the relationship. Because
that’s really what great dispute resolution is all about – maintaining
relationships.

      In that vein, we have started work on ways to use our system to
settle matrimonial cases. People spend tens of thousands of dollars
in those duels and destroy themselves and their children and the
lawyers feed the fire. It doesn’t have to be that way.

     I’ve said when that Cybersettle is at a tipping point. The
business lines I discussed here have a lot to do with that. So do our
insurance clients – we got five new insurance clients in the first
quarter of 2007. And the key may be the deal with our biggest client
today, New York City. Don Tapscott says, “Having a marquee
customer is often the thing that pushes companies over the edge
where they can scale rapidly. And solving a big problem for
America's most complex city would certainly be marquee
implementation.”

        Building this company is a passion for all of us at Cybersettle.


The Lexicomm Group                                                      10—87
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So many of us have been here since the early days. It is very
exciting to see it happen. It started as an idea. We got a patent and
turned the whole thing into a company. To see the company prosper,
see the company become a household name in certain areas, to see
how it can expand into other areas and change people’s lives --
there’s nothing like it. It’s not about the money. It’s about
accomplishment. And what we’ve accomplished so far is just the
beginning.

     We’re changing the way the world settles its disputes. This is a
revolution where everybody can win!




The Lexicomm Group                                                      10—88

				
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