E-Sign On the Dotted Line

Electronic signatures are now legally binding nationwide, but dont expect to see big e-commerce changes anytime soon.

by / November 8, 2000
By Tod Newcombe | Features Editor

Electronic signatures are now legally binding nationwide, but dont expect to see big e-commerce changes anytime soon.

Electronic commerce took a big step forward last June when President Clinton signed into law a bill granting legal status to electronic signatures. The Electronic Signatures in Global and National Commerce Act, otherwise known as "E-Sign," ensures that any document or transaction signed with an electronic signature carries the same legal weight as a signature written with pen and ink.

The federal statute, eagerly sought after by Internet firms and e-businesses, could accelerate electronic commerce. But the technology-neutral legislation will have little impact until electronic signature standards become common. "Electronic commerce isnt going to move forward because of the statute," said Larry Zanger, an attorney with McBride, Baker and Coles, a law firm specializing in technology and e-commerce law. "Its going to move forward when the marketplace adopts some kind of electronic signature standard that everybody agrees is viable. Right now, there are a number of different companies out there doing different things."

The statute also brings a moment of truth to states. Over the past five years, all 50 states have passed an array of electronic-signature bills. But none of these statutes can preempt E-Sign unless they adopt the Uniform Electronic Transactions Act (UETA), a model for electronic-signature legislation enacted by the National Conference of Commissioners on Uniform State Laws.

E-Sign and the States

Like E-Sign, UETA is technologically neutral. Right now, states have e-signature statutes that range from being completely neutral and requiring minimal security to being technologically specific and requiring high levels of security. And whereas state statutes apply only to particular uses of e-signatures, E-Sign applies to all forms of interstate commerce.

A number of states have begun moving toward adopting UETA, according to Zanger, but its still unclear just how committed all 50 states are to the model legislation. Some states, such as California and Pennsylvania, have passed UETA versions, but they have done so with amendments that may lead to federal preemption. One reason for the ambiguity is that, while both E-Sign and UETA give electronic signatures the same legal enforceability as written ones, the two statutes are not identical. "UETA is more comprehensive than the federal legislation," wrote Patricia Fry in a memo posted at the UETA Online Web site.

Fry, a professor of law at the University of Missouri School of Law, pointed out that UETA defers to state law in a number of cases. "UETA was drafted to displace as little existing law as possible and to further the idea that electronic media are on a legal par with paper," she said.

One of the complaints about E-Sign is that it is so technologically limited that it will hinder rather than help the spread of e-commerce. The two statutes have some differences that have yet to be ironed out, and its clear that more work needs to be done. "There [are] still some muddy waters," said Dennis Reynolds, government relations manager of Entrust Technologies and a former state legislator from North Carolina.

Despite the legal inconsistencies, the effect of E-Sign will be largely positive. "E-Sign gives everybody a little more confidence in moving toward e-signature technologies," said Reynolds.

E-Sign, which passed both Senate and House votes by resounding margins, was a hard-fought bill that endured more than a year of political wrangling before last-minute changes were made to appease both the financial services industry and consumer protection advocates.

Zanger called consumer rights groups the big winners with the bill because of the elaborate, if somewhat cumbersome, method of opting in and out of provisions for the use of electronic signatures. But Jamie Love, director of the Consumer Project on Technology, countered by saying the bill was designed to solve business problems, not protect
consumer rights. "The E-Sign Act increases the legal obligations on consumers who interact with businesses on the Internet and through other digital media."

Love believes the law will leave consumers more vulnerable to unauthorized use, compared to conventional transactions.
Dissecting E-Signatures Electronic signatures are expected to streamline consumer purchases of products and services over the Internet. Governments and businesses are also expected to benefit through more efficient operations that reduce costs and improve profitability. The signatures are based on public key technology and can guarantee that the form or transaction originated from the sender and was not altered during transmission.

Specifically, electronic signatures serve three purposes:

1) Authentication. Ensuring a persons electronic signature is unique and not a copy.

2) Non-repudiation. Once signed, an electronic signer cannot disclaim or non-repudiate the signature, binding that person to the transaction, and protecting the other party from online fraud.

3) Data integrity. Electronic signatures also protect the document or transaction from any accidental or intentional tampering of data.

Unfortunately, vendors have come up with different technological approaches to meet these criteria for e-signing documents and transactions. Besides Entrust, firms such as Digital Signature Trust, Verisign and Silanis have developed equally effective but competing ways for using electronic signatures. Until standards and interoperability take precedence, interstate electronic commerce isnt going to be fully feasible.

Then theres the bandwidth issue. Right now, using electronic signatures slows down the transaction process. The algorithms needed to check public keys for authenticity and data integrity are slow when someone uses a 56K modem. "Its another bunch of bits tacked on to your message that takes longer to go through the tube," said Zanger.

Tod Newcombe Features Editor