• The Importance of Electronic Data Interchange Agreements
  • March 1, 2005 | Authors: John W. Greenleaf; Michael A. Doctrow
  • Law Firm: McNees Wallace & Nurick LLC - Harrisburg Office
  • With increasing frequency, businesses are engaging in transactions and exchanging large quantities of data electronically rather than through more traditional paper-based documents. For example, many companies submit purchase orders and invoice information to vendors and/or customers electronically. Electronic technologies that allow this practice save businesses the time and expense associated with paper transactions.

    However, it is important that both parties to electronic transactions reach an understanding as to what will constitute legally binding electronic transmissions. Because laws are unclear with respect to many issues involving electronic transactions, and because of the increasing importance of these transactions, parties should have an Electronic Data Interchange (EDI) Agreement, also frequently called a Trading Partner Agreement. EDI Agreements define what types of electronic transmissions will and will not be considered legally binding as between the parties, and these agreements can be customized to fit the specific needs of any business arrangement.

    EDI Agreements typically address a number of issues:

    • What documents can be transmitted electronically? It may be that the parties only desire certain types of documents (for instance, purchase orders) to be transmitted electronically. An EDI Agreement should address what documents are eligible for electronic transmission.
    • Will the parties use third parties to handle the electronic transmissions? If so, the EDI Agreement should specify the terms of such arrangements. For instance, the agreement might provide that each party is responsible for the costs of any third party service provider that it utilizes, and that each party is likewise responsible for the acts or omissions of their respective third party service providers.
    • Are there system or transmission requirements needed to perform the electronic transmissions? If so, the EDI Agreement should identify these requirements, and require the parties to notify each other of new equipment or software that may affect reliable transmissions. Some files may be too big to transfer, depending on what type of networks the parties are using. Accordingly, an EDI Agreement should clearly identify any file size limits.
    • How is system security ensured? The EDI Agreement should identify each party's obligations to protect and maintain the security of transmissions by, among other things, preventing unauthorized access to the system or to transmitted information. This is particularly so if sensitive business records and other proprietary data will be electronically transmitted. The EDI Agreement may provide encryption standards for the parties.
    • How is confidential information to be treated? If the parties will share proprietary or other confidential information with each other electronically, the EDI Agreement should define what information is considered confidential, and provide that each party is prohibited from disclosing such information to third parties.
    • What is done to prevent viruses from attacking the system? The agreement should impose standards on the parties to ensure that their respective systems are free from computer viruses that might corrupt the other party's computer systems through electronic transmissions.
    • What backup systems are enabled? The EDI Agreement should address how the parties plan to back-up files to recreate transmissions as needed. The agreement should also address how long each party is responsible for retaining information contained in electronic transmissions and back-up files.
    • Are signatures required for the transactions to be binding? If the parties intend to use electronic signatures (which are essentially electronic identifications consisting of symbols or codes to be affixed to each transmitted document), then they should provide for such use in the EDI Agreement.
    • If the system includes orders, when will a transmission be considered "received" and "accepted?" The EDI Agreement should clearly identify when an electronically transmitted document will be deemed "received" by the other party, and whether any further steps are necessary for that party to be deemed to have "accepted" the contents of that transmission.
    • What happens if a transmission is unintelligible or "garbled?" The EDI Agreement should require parties to promptly notify each other of such transmissions.

    Familiarity with issues surrounding the use of EDI Agreements can help business people avoid unanticipated pitfalls in their transactions.