Digital Signature Legislation

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DIGITAL SIGNATURE LEGISLATION

Legislators and business leaders long recognized that the passage of some kind of digital legislation was of central importance to the development of e-commerce. However, for several years Republicans and Democrats in the U.S. Congress haggled over what should be included in such a bill. In the meantime, several states passed their own legislation allowing some forms of digital signatures to be legally binding in certain situations. When a major piece of national legislation went into effect in 2000, it was heralded as a giant step toward the harmonization of interstate and international laws, and was expected to help propel e-commerce forward in the early 2000s.

The most sweeping digital signature legislation on the books in the early 2000s was the Electronic Signatures in Global and National Commerce Act, popularly known as the E-Sign Act. President Bill Clinton signed the act into law on June 30, 2000, and it became effective on October 1 of that year. Under E-Sign, digital signatures used in interstate and foreign commerce assumed the same legally binding status as old-fashioned, handwritten signatures. The act defined electronic signature broadly 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." This flexibility allows the legislation to remain valid through the course of technological development. It was expected to open the way for a flood of financial transactions over the Internet, from securing loans to transferring money between accounts to closing home sales.

Significantly, no individual is required to use a digital signature in any situation, nor is any business compelled to accept them. However, once parties agree to make use of digital signatures, then all parties are bound to recognize the signatures as legally binding. In short, the act bars discrimination against a signature for the sole reason that it is electronic.

Prior to E-Sign, almost every state had at least one law on the books that validated electronic signatures in some situations, while 20 states had signed onto the Uniform Electronic Transactions Act (UETA), which recognized digital signatures as legally binding for contracts. However, in adopting UETA, several states made their own modifications that progressively eroded the uniformity of the law. Such state laws tended to veer into their own directions, creating disharmony that could hamper interstate commerce. In particular, they tended to reflect the more popular technologies of the day, thereby reducing the degree of flexibility e-commerce law may need to remain valid over time and across borders. For example, Utah's Digital Signature Act of 1995 tended to favor electronic signatures using digital certificates over public key encryption systems. Effectively, E-Sign facilitated the harmonization between such laws and took national what many states had already allowed.

In addition, E-Sign includes provisions for electronic record keeping. It allows electronically stored records to be considered legally valid, provided they accurately convey the information in the original record and are freely accessible to all involved parties in a form that can be accurately reproduced. As long as these conditions are met, the record keeper fulfills the legal obligation to retain records in their original form.

E-Sign is a self-executing law. Thus, it makes no provisions or requirements for a state or federal regulatory agency to adopt or enforce its measures. Regulatory actions that involve aspects of E-Sign are permissible only if the regulations remain consistent with E-Sign, do not issue any requirement that a record be in paper form, remain technology neutral, and confer no unreasonable costs on the use of electronic signatures.

E-Sign charges the secretary of commerce with promoting the use of digital signatures in international transactions and the harmonization of signature standards. For these efforts, the act refers to the Model Law on Electronic Commerce as its basis, which was adopted by the United Nations Commission on International Trade Law. By the time E-Sign went into effect, many European countries already recognized digital signatures. Japan, meanwhile, began officially recognizing them in April 2001. Therefore, with its heavy emphasis on international commerce, E-Sign placed the United States on the same playing field as the most developed countries.

E-sign's importance to e-commerce is difficult to estimate. It may take some time before digital signatures take hold on a widespread basis, particularly in business-to-consumer markets. However, their growing approval at the national and international levels translates to more current laws that reflect the sweeping changes the Internet and other technologies effected through the 1990s and early 2000s.

FURTHER READING:

Edfors, Patty. "Your John Hancock Goes Digital." Communications News. December 2000.

Glover, K. Daniel. "John Hancock Goes Digital." Financial Executive. March/April 2001.

Harrell, Ron. "Electronic Signatures Will Change Business Practices." American Agent & Broker. February 2001.

Kromer, John. "The ABCs of the E-Sign Act for Community Banks." Community Banker. January 2001.

McElligot, Tim. "Pen Pals." Telephony. January 1, 2001.

Montana, John C. "The Electronic Signatures in Global and National Commerce Act: A Sea Change in Electronic Records Law." Information Management Journal. January 2001.

Wright, Benjamin. "Technology File: Laws Guide Uniformity for e-Signatures." Credit Union Executive Journal. November/December 2000.

Zinkewicz, Phil. "Sign on the Dotted Line." Rough Notes. December 2000.

SEE ALSO: Cryptography, Public and Private Key; Digital Certificate; Digital Certificate Authority; Digital Signature; Encryption

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