Electronic Signature Act: A Sign of Things to Come

The signing of legislation by a sitting President is often a momentous affair. Surrounded by reporters, supporters, and staff, the President makes a great show of this executive ritual during which he uses his name and title to authorize the adoption of new law. In fact, the actual pen used to sign the law quickly becomes a historical icon coveted by friends and supporters.

So it was with great fanfare that President Clinton transformed this time-honored tradition on June 30th 2000 by signing into law important legislation using a new type of technology - the electronic signature. Ironically (and not so accidentally), this new law, called the Electronic Signature in Global and National Commerce Act, paves the way towards the legal acceptance of electronic signatures, electronic records, and the furthered adoption of electronic commerce. (1)

Let's Make an E-Deal

The act of signing our names to a paper contract is second nature. We understand what it means to take pen to paper and the general comfort level associated with paper records taken with the (more or less) uniqueness of our signatures allows this practice to flourish. It's not perfect, but it works.

In the electronic world, things are much different. The transient state of e-records, the anonymity of the internet, and uncertain legal precedent have all contributed to a sense of general uneasiness when it comes to creating an electronic contract.

The Electronic Signature in Global and National Commerce Act is an attempt by government to curb a consistent fear felt by many companies: the fear that an electronic record/contract could be deemed invalid purely because the record is electronic. Specifically, this Act provides assurances that electronic records and contracts can have the same legal authority and protection as paper records and contracts.

And by providing this assurance, the Electronic Signature in Global and National Commerce Act hopes to further encourage the impact of the internet on global commerce.

The Bottom Line for Business

E-commerce has long promised to transform business. The speed, efficiencies, and cost savings associated with doing business over the internet offer exciting promise for those who embrace this new and growing frontier. President Clinton characterized this promise shortly after signing the Electronic Signature in Global and National Commerce Act into law:

"Companies will have the legal certainty they need to invest and expand in electronic commerce. They will be able not only to purchase products and services, but [also] to contract to do so. And they could potentially save billions of dollars by sending and retaining monthly statements and other records in electronic form."

While these promised benefits are tantalizing, many companies and vendors will quickly recognize an issue not resolved by the Electronic Signature in Global and National Commerce Act - namely what safeguards a company must implement in order to prove the authenticity of an e-record/contract. The Electronic Signature in Global and National Commerce Act is deliberately technology and process neutral and does not set any minimum standards for authentic e-records/signatures. Instead, the Act leaves that for industry and the courts to decide.

And as many companies are already aware, there are many types of electronic signature solutions, each offering various degrees of security and authenticity. Options range from the simple, such as a digitized bitmap of an actual signature, to the complex including what is commonly referred to as a digital signature.

So while the Electronic Signature in Global and National Commerce Act would prevent a cranky judge from declaring a contract non-binding purely because the contract is electronic, it would not prevent the same judge or jury from characterizing the authenticity provided by a particular e-sign process as insufficient.

What this means for businesses is that companies must address their e-commerce activities and implement appropriate measures to ensure that these activities meet acceptable standards. Companies must carefully weight the available e-signature and authentication options and implement those solutions that best meet their particular needs (as well as the needs of their customers and suppliers).

The past decade has proven the need to embrace technological change or risk lost opportunity; smart companies will heed this warning and plan accordingly.

(1) Technically speaking, the President symbolically signed the Electronic Signature in Global and National Commerce Act with an electronic signature. Previous to his e-sign, he signed the Act using an "old-fashioned" pen.