Seeking Uniform E-Commerce Law

Infotech and the Law David Nadler

Jonathan Cain

Seeking Uniform E-Commerce Law

A handful of states have enacted laws designed to encourage electronic commerce. Some are adopting digital signature statutes, while others are removing requirements that certain types of transactions be supported by paper records. But the intended benefits of these state-by-state statutes have been lost because there is little uniformity of electronic commerce statutes across states lines.

One of the chief benefits of electronic commerce is the ability to link buyers and sellers quickly and efficiently wherever telecommunications reach. Conducting commerce in such a setting requires compatible legal standards.

In early 1997, a committee of Uniform State Law Commissioners (the same group that is responsible for the Uniform Commercial Code and other uniform state laws) began work on a Uniform Electronic Transactions Act. Its goal is to create a law
that will be adopted by the 50 states to govern several key aspects of electronic commerce.

The UETA project has moved quickly, and the draft UETA will receive its first round of consideration by the commissioners later this month. It will then be further refined in two meetings planned for later this year and may receive final approval by next summer. The resulting act will then be presented to the states' legislatures for enactment.

As drafted, the UETA will apply to electronic records and electronic signatures that relate to any transaction, unless specifically excluded by another law. This means virtually no commercial, governmental, legal or other transaction would be invalid or unenforceable merely because the only record of the transaction, or the only signature of a party to the transaction, was made in electronic form. If an existing law requires a record be in writing in order to be enforceable, the UETA simply provides that the existence of an electronic record satisfies that requirement.

The most difficult - and as yet unresolved - issue with respect to electronic records is what to do when law or practice requires an "original" of the record. Negotiable instruments, bills of lading, deeds and wills are examples of such records.

There are several reasons for the legal requirement of an original. For deeds and negotiable instruments (checks and promissory notes), the paper original is a token, and delivery of the token constitutes delivery of the property the token represents. In other cases, such as wills or bills of lading, requiring an original ensures the integrity of the document because alterations might be difficult to detect from a copy.

For integrity purposes, electronic records can be designed to be as secure from counterfeiting as their paper counterparts. But the ease with which electronic records may be replicated poses a challenge when the original record itself serves as a unique token of other property.

The UETA also adopts electronic signatures. If a rule of law requires a signature to give a record legal effect or validity, then the UETA provides that the requirement is satisfied if the record contains an electronic signature.

Signatures serve many purposes, whether in paper or electronic form: they identify the signer, verify the party creating or sending a record, verify the integrity of the record and its information content, indicate acceptance or adoption of the record, verify the party's authority to accept or adopt the record and acknowledge receipt.

The UETA does not establish substantive requirements for creating valid electronic signatures. But for purposes of the act, and thus for all these legal purposes, an electronic record will be deemed signed by an electronic signature if the signature is "verified in conformity with a commercially reasonable security procedure."

Unlike some state legislatures that already have enacted digital signature statutes, the drafting committee contends the statute should be "technologically neutral" and should not require regulatory agencies to oversee electronic signatures.

This approach permits technology advances, but it undoubtedly will result in initial uncertainty as to what constitutes "commercially reasonable" security.

Jonathan Cain chairs the Technology Practice Group of Mays & Valentine LLP, McLean, Va. His e-mail address is

Copyright 1998 Post-Newsweek Business Information, Inc. All rights reserved

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