Electronic Records and Signatures in Cyberspace “E-Sign” -How the New Electronic Signatures Act Effects Your Business and Internet Transactions
By Mary Kay Elloian, Esq.
With the turn of the 21st Century and the internet age in full swing, many of the laws created long ago no longer seem to meet the needs of a growing fast-paced economy. In today’s e-commerce world, the need for expediency has never been greater. With the press of a key, electronic mail can be sent literally around the world in a matter of seconds-never before has the speed of information transmission been so quick or the demand for it been so high.
Fortunately, our government has recognized that document preparation, creation and delivery methods of yesterday does not nearly fill the information needs of busy multi-national corporations as well as consumers. To curb the gap between and yesterday and today’s booming economy, President Clinton recently signed into the law, in June of this year, the first ever modification of “the writing” requirement in United States history. Entitled Public Law 106-229, now codified at 15 USC 7001 (2000). This new law revolutionizes the way we do business and the way we store and access our legal documents, giving legal effect to documents like never before.
The law, still new and in its infancy, will continue to recognize its written counterpart, but as time goes by, more and more statutes will defer to the fact that the electronic age is here to stay. By doing so, many of the statutes we see today relating to contracts in many areas of the law will be replaced or preempted by the electronic counterparts. Because electronic signatures are now given the full force and effect of law, more and more deference will be given to this electronic “child” of today, rather than the trite and outdated “written” counterpart of yesterday.
The move towards the paperless office is increasing, although it probably will not replace the traditional paper medium that we have come to know and trust over the years. Nevertheless, the new signatures law has given consumers another medium that is more accessible, more expedient, and more readily available to masses of people than any traditional methods of paper documentation, verification, and retrieval system ever employed.
What the Electronic Records and Signature in Commerce Act (aka E-Sign) does, is validate a new method of document authentication–meaning that now a signature, contract, or other record relating to a particular transaction may not be denied legal effect, validity, or enforcement solely because it is in electronic form. In addition, a contract relating to such transaction may not be denied legal effect, validity, or enforceability solely because an electronic signature or electronic record was used in its formation.
What this new law does, is provide that if a statute, regulation, or rule of law be made available to a consumer in writing, the use of an “electronic record” to provide or make available those documents will satisfy the “written signatures” requirement. To satisfy the written signatures requirement the following procedures must be strictly followed. This includes verification that:
(A) the consumer has affirmatively consented to use of the electronic medium, and has not withdrawn such consent;
(B) the consumer, prior to consenting, is provided with a clear and conspicuous statement of notice thereby:
1. informing the consumer of any right or option to have the record provided or made available on paper or in non-electronic form, and the right of the consumer to withdraw the consent or (“opt-out”) of this format of verification. This would allow the consumer to withdraw consent and have the record provided or made available in a traditional non-electronic paper form.
2. A statement of hardware and software requirements for access and retention of electronic records is also necessary. Anytime a business changes their hardware or software in a manner that will affect consumers, the business must obtain a new statement of consent from the consumer.
The force and effect of the E-Sign Act permeates all aspects of our internet economy, but at the same time it gives consumers a choice. In effect, it allows companies as well as consumers to give consensual validity to their electronic signature documents that traditionally was not available to them by law. Because the E-Sign Act is so new, taking effect on October 1, 2000, its full force has not been felt in all areas of law and commerce. However, this electronic medium will gradually replace signatures in traditional areas, but the phase in period may take some time and consumer confidence must be nurtured to gain wide-spread acceptance.
On the other hand, many local statutes will not be preempted by federal law if they touch on a specific area that the government feels would be detrimental to consumer protection. Such “exclusions” from the E-Sign Act include contract or other record governed by a statute, regulation, or other rule of law governing the creation and execution of wills, codicils, testamentary trusts; a State statute, regulation, or other rule of law governing adoption, divorce, or other matters of family law; or specific areas of the Uniform Commercial Code which cover some aspects of commercial transactions.
Importantly, what is excluded from the E-Sign Act is the areas that require “notice” to be given as a precursor to any event. Therefore such exclusions from the Act include: court orders, official court documents; cancellation or termination of utility services; default, acceleration, repossession, foreclosure, eviction, right to cure under a credit agreement, rental agreement, for a primary residence of an individual. Also excluded from the Act are: cancellation or termination of health insurance or benefits or life insurance benefits (excluding annuities); or recall of a product or material failure of a product that risks endangering health or safety; or any documents required to accompany any transportation or handling of hazardous materials, pesticides, or other toxic or dangerous materials.
But where the new law differs from traditional law is that it provides common legal guidelines effecting interstate commerce in a dynamic way. However, because of the widespread use of financial transactions that take place over the internet everyday, it will be necessary for encryption technology to be widely used in order to preserve and protect the privacy of the documents which will now find their way over the telecommunications lines, microwaves, and airways. We must all remain vigilant to maintain privacy of our highly-sensitive documents, so that highly confidential documents remain tamperproof and confidential. By using public key and private key encryption technology, the privacy of everyone’s documents can be maintained…but both sides both sender and receiver must employ advanced encryption technology, or highly-confidential documents may be subject to attack or piracy. What both sides need to do is to verify that there is a 128 bit encryption scheme in place automatically, in addition to a completely secure firewall, so that each time a document is sent and received over the internet, it will remain secure. Vigilance is the key in this new e-commerce age, especially now where critical e-commerce documents will be given the full force and effect of law as never before seen in U.S.history.
Whether your company is a new business working with new technology or an older established business transferring your business documents over the net must be taken seriously. As always, a good support staff is invaluable to maintaining the integrity of corporate documents in the age of the information super-highway. Remember, the best defense is the best offense, and the one who get’s there first usually wins.
Copyright 2000, Mary Kay Elloian
Attorney Elloian is a principal of the Law Offices of Mary Kay Elloian in Burlington, Massachusetts. She holds an M.B.A., and has an extensive background in high-tech and computer documentation and analysis. Her practice area includes cyberlaw, licensing, and high tech contract law as a complement to her general business/corporate law practice. She can be reached by email at counsel@mkelaw.net or on the worldwide web at www.mkelaw.net