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Electronic signature legislation

Ubiquity, Volume 2000 Issue May, May 1 - May 31 2000 | BY Ephraim L. Michael 

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As the world uses the Internet for an increasing number of communications and transactions that have heretofore required paper-based documentation, the legal community has raced to create the legal framework to facilitate this shift. One of the hallmarks of our system of commerce is the ability of individuals to enter into private transactions. In order for such a system to flourish, each party to a transaction must be assured that the other party will be held to the terms of their agreement and, likewise, a recipient of a written communication must have some assurance of the origin of the document. Signatures provide these assurances, thereby serving as the underpinning of our system of commerce.

When most of us think of a "signature," we think of the product of a person manually writing his name on a document. Actually, the law recognizes a much broader range of symbols as valid signatures. The law generally accepts any mark or symbol that is executed or adopted by a person with the intention to authenticate a particular document. The intent of the person applying the symbol or mark is much more important than the form of the mark. Accordingly, a signature can be an "X," initials or a stamp.

Applying a signature to a writing or document accomplishes the following:

Authentication: A signature identifies the source of a particular document, thereby providing assurance as to the authenticity of that document;

Nonrepudiation: A signature precludes the person applying the signature from later denying that he sent the signed document or that he approved of its contents; and

Assent: With respect to a written agreement between two or more parties, a signature memorializes a party's approval of the terms or contents of the writing.

A given signature may not be used for all of the aforementioned purposes. The circumstances surrounding the application of a signature dictate the purposes for which it is used. For instance, a person receiving a personal letter is only concerned with the authentication function of a signature. On the other hand, a person who has entered into an agreement with another party looks to that party's signature as a means to (i) authenticate the document, (ii) show that the other party has agreed to the terms set forth in the written document, and (iii) preclude the other party from repudiating the agreement (the other party would have to show that his signature was forged in order to avoid the nonrepudiation function of a signature).

Although electronic commerce has grown at a fairly rapid pace, most of its proponents recognize that for electronic commerce to continue to grow and thrive, individuals and businesses must be able to enter into enforceable agreements in cyberspace. For this to happen, there must be a legally acceptable functional equivalent of paper-based signatures. Most states are attempting to address the issue through legislation that legally recognizes "electronic" or "digital signatures." However, as so often happens when local solutions are attempted for what is essentially a national issue, incompatible rules are created that actually exacerbate the original problem. This is what has happened with electronic signature legislation. As the states have rushed to implement legislation to make electronic signatures enforceable, they have created a patchwork of different and sometimes incompatible requirements for the enforceability of electronic signatures. Electronic commerce is by its very nature extraterritorial, so any state regulation of an aspect of electronic commerce as elemental as signatures is doomed to failure. At present, it is impractical for most businesses to accept electronic signatures because they would need to (i) determine the state where the signer is located, (ii) determine that state's law on electronic signatures (if any), and (iii) determine what law governs the transaction. The first question is easy to determine by obtaining the address of the signer. Unfortunately, the two other issues are much more difficult to resolve. Only about half of the states have enacted legislation regarding the enforceability of electronic signatures. Determining the issue of what state law would govern the enforceability of the electronic signatures used in the transaction would require a significant and impracticable amount of legal analysis. Hence, the need for some uniform federal legislation on the issue of electronic signatures.

Currently, the United States Congress is drafting what everyone involved hopes is the final version of legislation to give legal effect to electronic signatures. The United States House of Representatives and the United States Senate have both approved bills to facilitate the use of electronic signatures. Unfortunately, they approved two different bills. Presently, the two houses of Congress are seeking to harmonize their respective bills in a conference committee.

Once they have agreed on a bill (and most members of the committee seem to think they will reach a compromise before the end of this congressional term), it will be submitted to both houses of Congress for approval. The President will most likely approve any bill approved by both houses. Substantively, the two bills are not significantly different. They both provide that electronic signatures will have the effect of paper-based signatures and, unlike some state legislation on the issue, refrain from endorsing any particular form of electronic signature. In other words, federal electronic signature legislation will most likely be technology neutral. The bills provide that parties to a transaction can elect the type of electronic signature they prefer to employ, if at all. The term "electronic signature" is defined in the House of Representatives' bill as "information or data in electronic form, attached to or logically associated with an electronic record, and executed or adopted by a person or an electronic agent of a person, with the intent to sign a contract, agreement, or record." Similarly, the Senate bill defines an "electronic signature" as "an electronic sound, symbol, or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record." As you can see, both definitions are essentially the same.

The primary issue confronting the conference committee is the provision of the proposed legislation that would allow businesses to provide notices to their customers via e-mail. Consumer groups allege that, as drafted, the legislation does not adequately protect consumers that do not have Internet access. The House version of the legislation contains some consumer protections, while the Senate bill contains none. This is the major substantive difference between the two bills. Interestingly, the issues stalling passage of federal electronic signature legislation have very little to do with the validity of electronic signatures. In fact, there is talk of attaching new bankruptcy legislation to the bill, which may further complicate the passage of an electronic signature law this year. However, there are powerful forces seeking to get an electronic signature law passed this congressional term and they will most likely prevail. In any event, whenever electronic signature legislation becomes federal law, most predict an unprecedented surge in electronic commerce. Businesses are salivating at the money to be saved by moving away from paper-based communication with their customers and vendors.


Ephraim L. Michael, Esq. (emichael@akl.com) is an attorney in the technology practice group at Altman, Kritzer & Levick, P.C. (www.akl.com), an Atlanta based law firm with offices in Chicago and New York City. Michael practices in the areas of electronic commerce, intellectual property and general business law.

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