The Electronic Signatures in Global and National Commerce Act' passed
by the U.S. Congress establishes that contracts may not be declared void
solely on the grounds that they are recorded electronically or that they
are signed or affirmed by an electronic signature.
law applies only to contracts within the jurisdiction of the Congress,
those involving interstate or foreign commerce. While contracts with individual
states are subject only to state law, there is a body of laws, with titles
like "Uniform Commercial Code" and "Uniform Electronic Transactions Act"
that are worked out between the states and then generally adopted to assure
that business rules stay largely the same from state to state. There is
already a draft Uniform Electronic Transactions Act being developed by
the National Conference Of Commissioners On Uniform State Laws
newly passed Federal law contains a number of protections for those who
retain their fondness for paper. All parties to a contract must agree
to the use of electronic record or signatures; as we read the bill they
are permitted to use e-mail to establish that agreement. In cases where
a law requires that a paper document be provided to a consumer, the consumer
must agree "by means of a consent that is conspicuous and visually separate
from other terms" to the use of electronic records, and before giving
consent must be presented with the hardware and software requirements
for accessing the document.
kinds of documents, including wills, living wills, and adoption and divorce
documents are exempted from the law. Also exempted are notices of termination
of utility services, cancellation of health or life insurance policies,
and notices of loan defaults. The new law specifically makes electronic
records and signatures legal for the purchase and sale of stock
Canadian provincial governments are busy passing similar laws. Ontario's
parliament will begin considering such a law, following in the steps of
Saskatchewan and Manitoba, with Quebec reportedly next in line.
It must be noted that the new law does not specify which technologies
would be acceptable, beyond leaving it to the parties of a contract to
decide among themselves. In fact, the section on the application of the
law to stock transactions specifically denies the Securities and Exchange
Commission the ability to "discriminate in favor of or against a specific
technology, method, or technique of creating, storing, generating, receiving,
communicating, or authenticating electronic records or electronic signatures;
or discriminate in favor of or against a specific type or size of entity
engaged in the business of facilitating the use of electronic records
or electronic signatures." The law thus leaves it open for the marketplace
to develop secure and efficient methods for electronic record handling.
immediate effect will be on companies already heavily involved in e-commerce,
such as those using various kinds of trading exchanges. While CFO's will
initially be leery of electronic contracts and signatures, they will soon
be visited by a barrage of salespeople from companies like Verisign, and
they will eventually change their minds.
those companies visiting will undoubtedly be a flock of startups, since
the new law will certainly spur new technological approaches - or new
ways to package older technologies - for recording and verification. Following
upon their heels will be a new breed of consultants who offer to work
with smaller companies to advise then as they enter into their first digital
contracts; larger companies will be served by their traditional large
consulting partners. In short, sit back and watch the creation of a new
will by-and-large be more wary even than CFOs about electronic records;
we think that they will be happier to provide electronic signatures than
to accept them. On-line stock traders will be among the earliest adopters,
but we suspect that most will require some kind of incentive from their
on-line brokers - which is only fair since the brokers are the ones who
stand to save from the reduction of paper flow.
The question you must ask first is what happens when your electronic record
differs from those in the hands of your contract partners? More than security,
we think that the real concern is to protect documents from being changed.
In particular, what happens when a contract that you have signed electronically
is modified before being presented to a third party?
would probably not be liable for any damages if someone else cooked the
contract, but the results might nevertheless be disastrous for you. For
example, now that architects can provide electronic drawings, they run
the danger that a contractor will make changes before passing the documents
to a subcontractor. Whatever the architects' liability, the end result
might be a building that differs in look, function or quality from the
one that their clients signed off on. This kind of thing is generally
not good for business.
IT executive may be put in a difficult position. Verification technologies
are somewhat esoteric to begin with. Furthermore, the details of the use
of electronic signatures will be worked out through court cases that probe
and elucidate the details of the written law. Therefore choosing a technology
to suit the business needs of the company and to provide appropriate protections
is only partly technological in scope.
since the essential concept embodied in the law is so simple, perhaps
it won't end up being a headache that involves the IT department with
Finance, Legal, and other confused and angry executives. We can always