On June 30, 2000, President Clinton signed the Electronic Signatures in Global and National Commerce Act (S. 761) (the “Act”). The Act, which takes effect on October 1, was intended to abolish uncertainty about whether on-line contracts are legally enforceable. The Act is expected to promote the online contracting for goods and services by allowing consumers and businesses to sign contracts online, secure in the knowledge that their electronic signatures are just as binding as paper signatures. Once the Act becomes effective, consumers will, for example, have the option of buying insurance, getting a mortgage or opening a brokerage account on-line, without waiting days for the paperwork to be mailed back and forth.
Clearing a Path
The Act aims at eliminating legal barriers to electronic commerce by providing that no contract, signature or record shall be denied legal effect solely because it is in electronic form.1 Moreover, the Act provides that most electronic contracts and records are only legally enforceable if they are in a form that is capable of being retained and accurately reproduced for later reference by the relevant parties. However, the Act does not require that any person or entity agree to use or accept electronic records, signatures or contracts. Rather, it is left to the parties to a transaction to decide whether to deal with one another electronically.
In situations where a record, notice or contract is required by law to be provided to a consumer in writing, the Act provides that the consumer must affirmatively consent to receipt of an electronic (rather than paper) document. Prior to consenting, the consumer must receive notice of his or her rights to receive the required documents electronically. In addition, the company must verify that the consumer will be able to access such documents electronically, by providing the consumer with a statement of the hardware and software requirements for their access and retention. This means, for example, that the company must ensure that the consumer will be able to open any attachments sent by the company via e-mail. This provision is intended to protect consumers from persons who might try to confuse or coerce them into agreeing to receive electronic documents that they have no capacity to access or retain. The Act likewise protects businesses by requiring that a consumer who consents to the receipt of legally required documents electronically affirmatively acknowledge his or her obligation to notify the company of any change in his or her electronic mail address. Additionally, if the consumer withdraws his or her consent to electronic receipt, he or she must notify the company of the location to which the required documents may be sent.
Agency Authorization
The Act further provides that most records that government agencies require businesses to retain may now be retained electronically. The government may establish appropriate performance standards for the accuracy, integrity and accessibility of records retained electronically, to ensure that compliance with relevant laws can be determined and agency missions can be accomplished. The record retention provisions meant that businesses can do away with the need for warehouses of files by storing legally required documents in a space the size of a laptop computer.
The Act is technologically neutral. It does not specify the technology that must be used to satisfy its requirements. The market will thus decide what types of technology work best. For example, the Act does not define the term “electronic signature.” Commentators have noted that the Act is very likely to spur a variety of technologies that provide digital variations on the traditional, non-virtual signature. Encryption, which uses secret sets of numbers or keys known only to the parties involved, is expected by many to be the first commonly accepted way to electronically sign documents. Some believe that electronic signatures will eventually become more sophisticated, involving devices that read thumb prints, scan retinas or recognize voices.