• Questions and Answers for Electronic Signatures
  • May 2, 2003 | Author: Howard M. Cyr
  • Law Firm: Harvey, Pennington Ltd. - Philadelphia Office
  • 1. What is an electronic signature?

    Digital Signature: despite its name it is not merely a computerized picture of your signature - in most cases it looks nothing like your signature.

    While the distinction between an electronic and digital signature is an important one, the terms frequently are used interchangeably. For purposes of consistent analysis here, "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." (Section 106 (5)

    A writing, therefore, is deemed to be electronically signed and authentic if an electronic signature is logically associated with such writing. An example may range from an e-mail which contains a user ID and password to an encrypted message.

    2. Is one required to use a specific technology under the Federal E-sign legislation?

    It is not defined in the E-sign legislation other than an electronic sound, symbol or process attached to a contract. There is no standard endorsed in the federal legislation. Some of the state statutes, however, dictate specific technology such as encryption.

    3. Can your customers create contracts just by clicking on a hyperlink or by using a touchtone phone?

    There is a controversy on this subject.

    The phrase "digital signature" never appears in the law. Electronic signature is vaguely defined as "an electronic sound, symbol, or process, attached to or logically associated with a contract." "The process of clicking now generates a legal relationship with a vendor, and can bind the consumer for categories of records," said William Simpson, a cryptographer who is active inside the Internet Engineering Task Force. "This gives legal weight to website product disclaimers, poor privacy practices, or installer shrink-wrap conditions, simply by making them available."

    Simpson argues that the broad definition of e-signatures leaves open the possibility of the consumer consenting to the electronic contract by merely clicking "continue" on a software installer, and could allow vendors to charge a fee if a customer backs out of the transaction at the last minute.

    The computer industry disagrees: The computer industry backed it, and argues that the law covers privacy and protection by adhering to the principles and practices of fair trade. "The bill basically covers the superset," said Tom Arnold, chief technology officer at CyberSource, an e-commerce transaction firm. "You've got notice, disclosure, authentication, and authorization. I would say that (the fact) that clicking engages the consumer into a binding contract with the vendor is a broad and vague interpretation of the law."

    It is recommended for important contracts that the full process of notice, disclosure, authentication, and authorization take place with some third party cryptography firm such as VeriSign.

    4. Why didn't the federal legislation put in a standard for digital signature?

    They were planning for the future.

    Traditionalists might like a stylus, which is a pen-like device for signing the old fashioned way.

    Futurists might look forward to biometric devices designed to look for individual characteristics such as thumb prints, voice patterns or retina scans.

    When President Clinton signed S. 761 (Electronic Signature in Global and National Commerce Act) at Independence Hall on June 30, 2000 into law he used a felt tip pen and then swiped a signature card through a scanner and typed a password.

    The federal electronic signature legislation specifically designates the Secretary of Commerce to review the legislation and to report to Congress on the effectiveness of the Legislation and suggestions for improvements, presumably due to changing technology and broader applicability.

    5. When did the federal E-Sign legislation take effect?

    Effective date of October 1, 2000, was adopted by Congress on June 16, 2000 and signed by the President June 30, 2000 in a ceremony at Independence Hall.

    6. Do the states have any electronic signature laws?

    State Legislation: A majority of states have signed versions of the Uniform Electronic Transaction Act. Some of these laws dictate cryptography as the legally recognizable form of digital signature.

    7. What if my company transacts business in different states and jurisdictions?

    The federal E-Sign legislation would preempt the state statutes in most instances. However, the best way to ensure a binding contract is to follow the state legislation which has a more restrictive approach and use the third party cryptography which is typically recognized in the UETA (Uniform Electronic Transaction Act).

    8. What are the benefits of e-contracts?

    A. Electronic contracts can be executed in a matter of minutes rather than days;

    B. Do not need to use the mail or couriers to transmit physical copies of the contract.

    C. Savings in postage and courier fees as well as the cost of paper and envelopes.

    D. Storage costs are cut because of relaxed record keeping requirements under the act.

    9. How can you ensure that your company has legally enforceable electronic contracts?

    A. Must give the consumer the option between paper and digital communication. If law or regulation require written notice, the consumer must affirmatively consent to the use of electronic communication in like fashion.

    B. In addition your company must provide a statement of hardware and software requirements to use an electronic signature.

    C. Finally, the customer must also assent to the use of the electronic signature electronically, thus demonstrating their ability to use and access the records electronically.

    Again, it is recommended that a third party cryptography firm (VeriSign, Global Sign, Digital Signature Trust Co. and RSA) be used, especially for important contracts.

    D. Exemptions:

      1. Utilities cannot terminate service without first giving paper notice;

      2. Court notices and judgment cannot be done electronically; i.e. Landlords cannot evict without paper notice;

      3. Insurance companies must give written notice of lapses in health or life insurance for cancellation or termination;

      4. Creation of wills or trusts;

      5. Documents necessary for divorce, adoption or family law;

      6. Foreclosure notices;

      7. Recall of a defective products;

      8. Documents necessary for the transmittal of hazardous or toxic materials.

    10. What are some examples of the use of electronic signatures?

    A. If you run a stock brokerage or money management firm, you can now accept the necessary applications transmitted via Internet. You can also send confirmations to customers via Internet. The following brokerage firms are now opening and managing accounts entirely on-line: E-Trade, Charles Schwab, Invesco, Marsico, Wasatch, Berger Funds, and Quant Fund.

    B. Insurance agencies can now accept applications transmitted via the Internet. But you cannot send out the termination notices via Internet.

    C. Can apply for mortgages over the Internet; the digital signature is legally binding. There was recently a report in the news media that an individual from Venezuela applied for a mortgage for a Florida property on-line in a process which totaled only about 3 hours as opposed to the traditional 30 to 45 days at Mortgage.Com.