Mon, 03/16/2009 - 18:51
On June 30, 2000 President Clinton signed the "Electronic Signatures in Global and National Commerce Act" (ESIGN) using his electronic signature ID, and thereby established the validity of electronic signatures for interstate and international commerce.
In the four years prior to this Act’s passage a dozen states had passed similar laws and guidance for state specific business purposes, and in the five years since the Act’s passing every other state has passed similar laws and legislation. What does it all mean, and in the end how can it benefit businesses, individuals and the nation or world as a whole?
The best way to answer a question like this is to take a look at the origins of the law, and understand the reasoning behind its passage and the passage of federal and state laws.
The Birth of Electronic Signatures
Over 100 years ago, people were using Morse code and the telegraph to electronically accept contracts. An early validation of electronic signatures came from the New Hampshire Supreme Court in 1869 [Howley v. Whipple, 48 N.H. 487].
"It makes no difference whether [the telegraph] operator writes the offer or the acceptance in the presence of his principal and by his express direction, with a steel pen an inch long attached to an ordinary penholder, or whether his pen be a copper wire a thousand miles long. In either case the thought is communicated to the paper by the use of the finger resting upon the pen; nor does it make any difference that in one case common record ink is used, while in the other case a more subtle fluid, known as electricity, performs the same office."
But it was the invention of another wired box that brought electronic signatures into everyday usage.
In the 1980’s companies and even some progressive individuals began using fax machines for high priority or time sensitive delivery of paper based documents. Today, the fax machine is a staple of the business world. Most people do not even consider the original hurdles this new medium created, nor do they consider its impact on the speed of communication and the advantages of its use. However in its infancy many of the same issues surrounding electronic communications and electronic signatures had to be resolved when utilizing the facsimile.
When the first contract was signed and faxed it created the basis for the discussion of electronic signature validity. After all it was the first time someone could sign something, place it in a machine, send it from one phone line to another and deliver a digitally reproduced signature. The path this signature took was not controllable or traceable, and in most cases it traversed miles of wire before reaching its destination, so how could it be considered a valid signature? The intentions of the signature were clear to everyone, but businesses wanted to know they could count on the validity of the signature, and if no one actually witnessed the action of one individual or of a corporation how could a business put any faith in it? This of course caused quite a stir and in rapid fashion the courts ruled this signature carried the same validity as if the parties were standing in the room together. With this, the fax became standard operating procedure world-wide.
The courts found validity in this method of signature capturing and businesses also felt secure in this method. Quite a leap of faith considering the complications initially caused by fax machines. Many people didn’t realize that the original fax paper’s ink would vanish after a period of time and you had to make another copy of the fax using a copier if you wanted to store it permanently. Also many times the quality of the image was poor or barely legible, but businesses understood the intention and would consider it signed even if there was only a partially legible signature. So in essence you had a copy of a copy of a digital image, and even with so many loopholes for alteration and criminal malfeasance the fax still worked and business flourished.
The business logic behind this thinking was easily justifiable. Before the fax machine, the contract could have been signed verbally between the sales person and the client, and then somewhere down the road a paper copy would have been signed and mailed. Many sales before the fax machine were consummated with a simple “OK let’s do it” comment over the phone. This drive to get business and make the wheels turn demonstrates the most vital point in an electronic communications based world, or for that matter in a digital world with no physical or direct contact, is most businesses can operate on trust. They provide a service to a customer and the customer trusts they will provide that service in a satisfactory manner, while the service provider trusts that the customer will pay for services rendered.
Trust is not a new thing in business; it was often indicated by a hand-shake or “You have a deal”, and that was all you needed to get a deal done. Has that changed today? I believe the answer is no, but what about the courts, and their opinion on the validity of the electronic signature? After all the courts’ goal is not just to keep the wheels turning and generate revenue, so why did they trust this type of signature and what was the legal question this signature answered? This line of thinking brings us back to Electronic Signatures in Global and National Commerce Act (“ESIGN”) and the other federal and state guidelines.
Electronic Signatures, the Courts and the Government
The Government Paperwork Elimination Act (“GPEA”) , Uniform Electronic Transactions Act (“UETA”) , sections within the Code of Federal Regulations (“CFR”) , as well as the Electronic Signatures in Global and National Commerce Act (“ESIGN”) are all attempts by Congress, federal departments and the states to define the liability and validity of an electronic signature, and help the courts answer the questions about enforceability.
So what exactly is an electronic signature? Here are the definitions from laws important laws and government agencies.
ESIGN Act Sec 106 definitions:
(2) ELECTRONIC- The term `electronic' means relating to technology having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities.
(4) ELECTRONIC RECORD- The term `electronic record' means a contract or other record created, generated, sent, communicated, received, or stored by electronic means.
(5) ELECTRONIC SIGNATURE- The term `electronic signature' means an 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.
GPEA Sec 1710 definitions:
(1) ELECTRONIC SIGNATURE.—the term "electronic signature" means a method of signing an electronic message that—
(A) identifies and authenticates a particular person as the source of the electronic message; and
(B) indicates such person's approval of the information contained in the electronic message.
UETA Sec 2 definitions:
(5) "Electronic" means relating to technology having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities.
(6) "Electronic agent" means a computer program or an electronic or other automated means used independently to initiate an action or respond to electronic records or performances in whole or in part, without review or action by an individual.
(7) "Electronic record" means a record created, generated, sent, communicated, received, or stored by electronic means.
(8) "Electronic signature" means an electronic sound, symbol, or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record.
Federal Reserve 12 CFR 202 definitions: refers to the ESIGN Act
Commodity Futures Trading Commission 17 CFR Part 1 Sec. 1.3 definitions:
(tt) Electronic signature means an electronic sound, symbol, or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record.
Food and Drug Administration 21 CFR Sec. 11.3 definitions:
(5) Digital signature means an electronic signature based upon cryptographic methods of originator authentication, computed by using a set of rules and a set of parameters such that the identity of the signer and the integrity of the data can be verified.
(7) Electronic signature means a computer data compilation of any symbol or series of symbols executed, adopted, or authorized by an individual to be the legally binding equivalent of the individual's handwritten signature.
These laws and guidelines merely provide for the legality of the electronic signature, and not the specific method or technology. Actually, Congress and the law left it to each of us to determine what method works best for our purpose when implementing an electronic signature capturing system. For example, an electronic signature could be a pen pad device connected to a computer where consumers can sign for products at the checkout counter. But for a business in California, trying to send a contract to Florida, pen pad devices are not practical and therefore the California business may choose a more Internet friendly implementation.
It is this openness to technology that not only benefits businesses but also the consumers; because in trying to comply with Sec. 101.b/c/d the business will strive to use a technology that best meets the needs of their specific business and consumers.
Links to more Electronic Signature Laws