Just Sign On The Dot.Com

By John M. Moran

June 18, 2000

Move over, John Hancock. Make way for the era of electronic signatures.

Congress on Friday passed legislation that would create a new national standard for the use of electronic signatures in e-commerce.

The legislation, which is expected to be signed quickly - and electronically - by President Clinton, legalizes the use of electronic signatures in a wide range of contracts. In essence, electronic signatures - which could range from encrypted passwords to e-mail messages - would be just as binding as those written in ink on paper.

"A contract formed in cyberspace now is the legal equivalent of a contract formed in ordinary life,'' said David Colton, a staff attorney for the Information Technology Association of America, which backed the bill.

The bill targets what has been one of the most vexing issues in cyber-commerce: How do you enforce a business deal when the distant participants can't quickly and easily exchange paper documents?

Thus far, electronic commerce has been fine for relatively small and simple transactions, such as the sale of books, CDs and airline tickets.

But for more complex deals, often involving matters of finance, a "virtual handshake'' isn't good enough. A contract that is legally binding on the parties involved is usually required - and that often has meant resorting to the slow process of exchanging paper by mail or courier.

"We have tended to create partnerships and products in Internet time; however, the actual agreement has been in old-world time,'' said Matthew Kovar of the Yankee Group consulting firm. "Part of it has to do with what were the ramifications for the business community of not being able to have something that would hold up in court.''

Certain states, notably California, have taken steps to legalize electronic signatures within their jurisdictions. But with electronic commerce expected to explode to $1.6 trillion over the next five years, e- commerce advocates have been calling for a national standard that would avoid a patchwork of different laws in different states.

The law specifically avoids defining what form an electronic signature must take. Instead, it's left up to business and consumers to decide among themselves what types of e-signatures will be acceptable.

That steps neatly over the issue of security for electronic signatures. Some companies are already offering digital signatures that are secure from forgery. But other forms of digital signatures may lend themselves to theft, forgery or hacking. Consumers and businesses will have to decide for themselves which forms of electronic signature they will trust and which they will not.

Online brokers, bankers and lenders might be among the first to seize on the new legislation to speed their business deals. Currently, such deals can be started online, but must be completed with an exchange of signed paperwork.

"With any sort of payment obligation or contractual arrangement, generally those things require a signature,'' said Peter Gioia, an economist with the Connecticut Business and Industry Association. "But with more and more business being conducted electronically, this will give the force of law to those agreements as well.''

Electronic signatures are expected to be adopted quickly in the fast- growing world of business-to-business e-commerce, where the size and complexity of the dealings typically demand a legally enforceable contract.

"This is big news,'' said Brett N. Silvers, chairman and chief executive of Hartford-based First International Bank. The bank, which often lends to companies buying and selling on the Internet, is anxious to use electronic signatures to squeeze the paperwork out of the process, he said.

But not everyone is pleased with the rush to adopt electronic signatures. Consumer advocates, in particular, have been worried about whether citizens will find themselves getting suckered into virtual agreements that they never would have signed in ink.

The new law does give consumers the right to insist that business be conducted on printed paper, not electronically. And certain key notifications, including legal documents, foreclosures and utility shutoff notices, still must be done on paper.

Even so, Connecticut Attorney General Richard Blumenthal and others fear that's not enough protection.

"There is something unique and momentous about putting pen to paper that brings home the significance of a person's assent or agreement,'' Blumenthal said.

"People think twice about signing their name on the dotted line, as the saying goes, but the ease of digital signatures may not have the same significance in people's minds,'' he said.

Still, as Connecticut Secretary of the State Susan Bysiewicz noted, there are a lot of consumers looking forward to the chance that electronic signatures will make their business dealings quicker and easier.