Electronic Signature Act A Headache for the States

By David Silverberg, Contributing Writer



The Internet industry may still conjure up an image of pimply geeks fooling around in their garages, but the reality is it has become a multibillion-dollar juggernaut — and increasingly, it's a political juggernaut as well.

Given the hype and hope of the Internet, it is hard to imagine people thinking of themselves as its political victims. But as the juggernaut rolls forward, certain interests are getting crushed. Chief among these are the states. With the Internet and electronic commerce being borderless, the oldest American jurisdictions are having trouble adjusting — or at the very least getting out of the way of the wagon.

Take last year's Internet taxation moratorium. State governors opposed the Internet Tax Freedom Act, introduced in the Senate by Sen. Ron Wyden, D-Ore., arguing that it was a one-size-fits-all piece of legislation that deprived the states of vital revenue. Govs. Michael Leavitt, R-Utah, and Roy Romer, D-Colo., called the legislation "hastily crafted" and "laden with hazardous consequences for states"in an article published last June.

State lobbying did not stop the legislation. However, in a compromise, a 19-member Internet Taxation Commission was formed to come up with a suitable taxation structure by the time the moratorium expired. The commission, likely to be headed by Virginia Gov. Jim Gilmore, R, may meet in Williamsburg, Va. in the third week of June.

But despite a careful balancing of national, corporate and local commissioners, so strong are concerns over its possible indifference to local revenue needs that county and municipal officials filed a lawsuit against the commission in March, charging that it would do irreparable harm to city and county budgets.

On top of this there's a new battle, this time over the Millennium Digital Commerce Act, introduced in the Senate by Sen. Spencer Abraham, R-Mich., and in the House by Rep. Anna Eshoo, D-Calif.

The act would give digital contracts the same legal standing as paper ones and, in many ways, level the legal playing field between business done in old and new technologies.

Electronic commerce is presenting all authorities with new legal conundrums, but the Millennium Digital Commerce Act is giving the states particular headaches with subsection 6(b), allowing two parties to a contract to determine for themselves the technologies and procedures for electronic signatures.

The intent is to create a consistent interstate criteria for valid signatures — without which commerce cannot take place.

States fear this would conflict with existing state laws and procedures, and those that fail to fit national standards would be pre-empted.

As Bret Hester, a policy analyst for the National Governors Association put it in a policy brief: "The act would enable parties to electronic transactions to determine independently legal procedures to apply to their business dealings without regard for state laws."

The differences between the act and the states are still being worked out. The signature verification differences notwithstanding, Hester called the legislation overall "fairly friendly to states' interests." In an interview with Washington Technology, he praised Abraham and Eshoo for making "a very concerted effort to address the e-commerce issue. I think the bill reflects a good effort to do that."

The millennium bug has also created friction between the states and the federal government as each grapples with different approaches to liability issues.

The states are fully aware that e-commerce and the Internet are going to bring changes in federal-state relationships.

"We're just at the beginning of the process of thinking about what changes all this is going to mean," said Hester. "Ultimately, the interests of the Internet industry and the states will align. It's a major transformation that is going on, and it requires a re-evaluation of everything."

There will be more issues coming up. This year the governors may try to put some teeth in past vague urgings that the states be considered partners in federal e-commerce legislation.

The governors also have their eyes on issues of broadband access, a priority of the information industry.

There are also significant areas of state-industry-federal cooperation. The National Governors Association, the White House science adviser and the Secretary of Commerce have established the United States Innovation Partnership to leverage technology and science to everyone's benefit. Further, the states are supporting other technology agenda items, such as a permanent extension of the research and development tax credit.

It's ironic, although not surprising, that controversies keep cropping up between two of the most innovative sectors of American politics. The Internet lobby represents cutting-edge technology and commerce.

The states, having largely thrown off the restraints of big, centralized government, represent cutting-edge politics and government services. When these two forces successfully align, that will create a juggernaut indeed.