INFOTECH AND THE LAW

E-Signature Bill a Sure Bet to Raise Havoc

Jonathan Cain

by Jonathan Cain

On June 30, President Clinton signed the Electronic Signatures in Global and National Commerce Act into law with the claim that it will "remove legal barriers to doing business online while preserving consumer protections."

We can anticipate these benefits beginning Oct. 1, when the new law takes effect. One of the act's principal sponsors admits, however, "there remain some problems with the bill, but I do not believe them to be overwhelming."

In fact, closely reading the new law shows it is vaguely phrased, anticipates rule-making by several federal agencies, and will provide fodder for legal disputes over several of its key provisions. The author does not wish to be relegated to a class of e-commerce Luddites over the new statute, but it can be said fairly that this law creates as many problems for e-commerce as it purports to solve.

The statute is supposed to free e-commerce from traditional legal constraints found in the so-called statues of frauds, or laws that require certain agreements to be in signed writings before they are legally enforceable. It does so, quite broadly and simply, by providing that:

• A signature, contract or other record relating to a transaction may not be held legally unenforceable simply because an electronic signature or electronic record was used in its formation.

• A contract cannot be denied legal effect simply because an electronic signature was used.

The transactions the act covers are defined broadly, and include any action or set of actions relating to the conduct of business or commercial affairs between two or more persons. It specifically includes all transactions for the sale, lease, licensing or disposition of goods and intangible personal property (such as intellectual property rights), services and the sale, lease or exchange of any interest in real property.

Only a handful of transactions are exempt: wills, documents relating to adoption and divorce, legal pleadings and court orders, parts of the Uniform Commercial Code, documents required for the transportation of hazardous substances and certain consumer notices. Any state laws that attempt to override the statute are void, except that a state may adopt the Uniform Electronic Transactions Act, upon which this federal statute is loosely modeled.

The law tries to be technology neutral, but the confusion that it will produce comes from its broad, inclusive language coupled with its transparent failure to address the purposes served by signatures on traditional paper documents: identification, consent and maintenance of a genuine record.

This is, most emphatically, not a digital signature statute. Digital signatures are unique identifiers created by an encryption program that incorporates aspects of the document signed together with the signer's personal code key in a computationally irreversible text string. Thus, a digital signature both identifies the signer and alerts to subsequent alteration of the document when used. A consent to an electronic contract can be used with at least as much confidence as a written signature.

The statute contains none of these protections. An electronic signature is defined as any "electronic sound, symbol or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record." Under the law, the tone of a telephone key pad or a mouse click on a Web site hyperlink can create a binding contract. Such electronic signatures do not identify the signer or protect against subsequent changes to the electronic documents.

This failure exposes users of such electronically signed documents to the danger that the contract will be set aside because the signer successfully claims that the "signature" was forged or the documents changed.

The ease of entering into electronic contracts using e-signatures illustrates another vital characteristic of signatures. Signing a document is woven into the fabric of our culture as an act of singular importance. It is a symbol both of acknowledgment of the contents and consent to terms in a document ? quite different from flipping a page or pushing a button. Courts will need to decide whether to accord the same weight to the consent implicit in a mortgage made with a telephone key pad that is implied when documents are signed before a notary.

The law also invites disputes, because signatures made by electronic agents have the same effect as those made by
individuals. It is not even necessary that the consumer be provided with the electronic contracts to be signed, so long as the "category" of documents to be signed has been "made available" sometime "during the course of the parties' relationship."

Lengthy and expensive disputes are certain to arise as the technology of e-signatures, commercial practice and the decisions of the federal courts interpreting this law converge. This is not the place to be on the bleeding edge.

Jonathan Cain is an attorney at Mintz Levin Cohn Ferris Glovsky & Popeo PC in Reston, Va. His e-mail address is jcain@mintz.com.

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