E-Signature Act implemented Oct 1st

[Marjorie Simmons <lawyer () USIT NET>]

[I'm observing new state laws related to this being drafted to provide
stricter penalty provisions for forgery than for traditional forgery.
Obviously, e-signature forgeries accomplished concomitantly with
cracking will be a focus activity for state prosecutors.  In a civil
suit, it will help companies avoid a comparative negligence loss
to have the databases storing the entries from their access-security
logs cross-referenced with their logs of signature verifications, and
to routinely run a reference-checking algorithm against the
assembled data.  -- Marjorie]

http://www.law.com/cgi-bin/nwlink.cgi?ACG=ZZZRG8CA6DC
E-SIGN: A Nudge, Not a Revolution
Oct. 1 is big day for E-signature implementation, but states,
business have work to do

Mark Ballard
The National Law Journal
September 19, 2000

When president Clinton signed the E-Signature Act into law on
June 30, an insurance lobbyist called it "the single most important
piece of technology legislation."

And everyone pretty much agreed. Not since notarized written
signatures replaced wax and signet rings has history seen such a
fundamental change in contract law, they said. For the first time,
beginning on Oct. 1, digital executions, known as e-signatures,
will be accepted as legally binding.

But despite the historic nature of the act, the sea change, initially,
will be slow.

"It's not so much a change-the-state-of-the-world law as it is a
statement" that the government approves of the paperless way
of doing business, says Gary L. Kaplan, a partner at Pittsburgh's
Reed Smith Shaw & McClay. "It's a statement that lends confidence
to the business community. But there's still a lot that needs to be
worked out in real-world application before we'll see the real effect
of the E-Signature Act."

The Electronic Signatures in Global and National Commerce Act
(E-SIGN) was aimed at bringing the legal community in line with
the galloping pace of business-transaction technology and aimed at
fostering uniformity among states that have weighed in on the
electronic authentication of contracts.

The law is a broad and general statement that contracts cannot be
invalidated simply because they are in a digital form. The law is
designed to pressure states to pass the uniform legislation enabling
its citizens to use e-signatures. Some states have already done so.
But E-SIGN addresses neither contract enforcement nor the safeguards
that seemed almost automatic in the old pen-and-ink days.

Even though transactions will be paperless, companies nevertheless
still must provide an adequate trail of records for regulators and auditors.
Therefore, businesses must develop systems and procedures which
prove that records have not been tampered with, that the signatures
are accurate, and that all parties know that all the other parties had
approved the agreement.

"The short message to clients is that E-SIGN doesn't end the analysis,
the need for diligence for developing effective procedures," says
Kaplan. "Businesses still have a significant responsibility to get their
ducks in a row." Larry Zanger heads the information technology and
electronic commerce law department at Chicago's McBride, Baker &
Coles. Zanger also sees a year or so shake-out before e-signatures
become everyday things.

"Until the issues are worked out, I don't think there's going to be a
great hue and cry to implement e-signatures on the consumer level,"
Zanger says. "There's still an awful lot of gray out there."

LACK OF HARMONY

One major problem was the reason for E-SIGN in the first place, and
that was the lack of harmonization between the laws being passed by
states. In July 1999, the National Conference of Commissioners on
Model State Laws, meeting in Denver, recommended a model statute
called the Uniform Electronic Transactions Act.

As its name implies, the act is designed to standardize various laws
across state lines so that business can make its contracts and ordering
procedures more uniform to take advantage of the Internet. Problems
arose almost immediately as states passed their own laws. Several
states, including California, attached so many exemptions that the
nationwide uniformity being sought was undermined.

Twenty-two states already have passed some form of electronic-
transaction laws, and another 24 have addressed e-commerce contracts
in some way. Several other states passed statutes that allow for
e-signatures, but, like Utah, mandated how the e-signature would
be used and verified. In those states, an industry has developed to
provide that technology. But E-SIGN will immediately supersede
laws in several states -- such as California, because it allowed too
many exemptions, and Utah, because it specified the technology
to be used for electronic signatures.

Thus, E-SIGN has created enough trouble, says Zanger, that it's
not a far reach to suspect that some state may challenge the
constitutionality of a federal law that, in effect, imposes the
federal will on the traditional state prerogatives to set standards
and interpret contract law locally. But Edward J. Finn, the general
counsel of New America Network Inc. and NAI Direct Inc., related
New Jersey-based international networks of real estate brokers,
says that effective uniform rules and regulations are imperative
for e-commerce to flourish.

"From my point of view, from working in a number of different
states involved in transactions that are intrinsically local but may
involve buyers and sellers in a number of separate jurisdictions,
the development of a standard can only facilitate business," Finn
says. While he says that E-SIGN leaves many questions open, "it
does provide a clear signal to the states that the federal government
supports some sort of means to level the standards." He adds,
"I would advise a client to get involved in state-level movements
towards enacting the unifying legislation. But, frankly, I don't see
an immediate groundswell among the service providers."

A WAITING GAME

David Peyton, director of technology policy for the National
Association of Manufacturers, a Washington, D.C.-based trade
association and lobbying group, agrees that it will take time.

"It'll take the states several years before they enact the
legislation. In the meantime, the federal legislation will act
as a bridge," he says, adding that the new law memorializes
what businesses already have been doing among themselves.

For instance, in the mid-1980s, the big automakers announced
that they would only do business with suppliers that followed
Electronic Data Interchange guidelines. About 150,000 companies
adopted the guidelines. But far more firms found the standard too
expensive or complex and opted out of competing for the business.

Now, as a direct result of E-SIGN, Peyton says, the Big Three
automakers organized a company to handle the purchasing of
parts and supplies on the Internet. Ford Motor Co., General
Motors Corp., and DaimlerChrysler A.G. control the new firm,
called Covisint.

Peyton says that Covisint opens the competition for the $200
billion yearly business to all sorts of companies, large and small,
that chose not to be a part of the Electronic Data Interchange.

Likewise, the National Association of Manufacturers released a
survey on Aug. 8 that showed the top priority for 30 percent of
America's businesses with more than 500 employees was to make
most of its purchases on the Internet in order to reduce order
processing and transaction costs.

A major proponent of E-SIGN was the American Bankers
Association, a Washington, D.C.-based trade and lobbying group.

"Effective Oct. 1, you can say that you have a very broad provision
in federal law that says that you can no longer deny the validity of
a contract solely because it is in electronic form," says L.H. Wilson,
associate general counsel for the association. "Beyond that? People
are still trying to digest it and see the best way to proceed."


- - - - - - - -
Marjorie Simmons
lawyer () usit net
http://www.carpereslegalis.com

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