This new federal law should help stimulate online sales. A new federal law will make signatures rendered electronically over the Web just as binding as if they were written by hand. These electronic signatures can take the form of simple passwords, retinal scans, fingerprints, and even actual handwritten signatures broken down into sophisticated code. President Clinton signed the Electronic Signatures in Global and National Commerce Act on June 30 using a "smart card" equipped with his digital signature.
"Online contracts will now have the same legal force as equivalent paper contracts," the president said. "Companies will have the legal certainty they need to invest and expand in electronic commerce. They will be able not only to purchase products and services, but to contract to do so. And they could potentially save billions of dollars by sending and retaining monthly statements and other records in electronic form," Clinton added.
By enabling the legal enforcement of contracts, purchase orders and other business documents signed digitally online, the law allows a wide variety of business activities - such as online banking, stock trading, and insurance transactions - to be not only initiated but completed on the Internet.
Although electronic signatures actually have been part of EDI transactions in the electrical industry for many years, several industry experts said legal validation of digital signatures was more a question of when rather than if. They believe the new law should help stimulate online sales because some manufacturers, distributors and contractors did not trust electronic signatures as authentic and therefore binding, and because they were confused by the inconsistency in the laws adapted by 40 states regulating electronic signatures.
The law amounts to "a necessary first step" to remove uncertainty, said Susan H. Nycum, international partner of the Baker & McKenzie law firm in Palo Alto, Calif., which specializes in e-business issues.
"The common thread running through legislation passed by 40 states is what shows up in the national legislation," she said. "Electronic signatures do not violate principles that allow a deal to be made in place of an ink signature.
"It (the new law) doesn't try to answer all that goes along with it. But just because it doesn't, it doesn't mean that it is noneffective. There are many issues that have not been put to bed, like how all of the laws on it relate to each other. It's an evolutionary process at the state and international levels."
Bill Sullivan, vice president of industry marketing for Purchasing-Center.com in Burlington, Mass., sees the new law as "another form of authorization for requisition." "However, we already have multiple security steps in place, such as a unique purchase-order system," he said. "Electronic signatures and the law upholding them enhance what we do, but they don't fill a void."
Sullivan and Nycum agreed that although the law could possibly assuage some users' Web security concerns, secure online ordering systems have existed for some time. "I don't think the Internet is unsafe for transacting business, as long as you are dealing with reputable parties," said Sullivan, adding users should note the security measures a firm uses to protect its Web site before making an online purchase.
He also said there's still a need for many contracts to be backed up with signed hard copy. In most cases, PurchasingCenter.com customers are not required to submit back-up on paper, but there are "certain dollar thresholds" for determining whether a transaction should be conducted entirely online. A $50 purchase online from a mass-market customer is routine. However, he said for contracts involving thousands of dollars, "No way would I do one without paper back-up."
Nycum agreed that contracts with signed hard copy as back-up will remain popular. "Many people feel more comfortable doing so," she said. "Strange things can happen in the computer world."
She also said that even with the sophisticated developments of electronic signatures, potential remains for fraud, although it's less likely when data is protected by encryption. One popular encryption method for e-business is provided by VeriSign, Mountain View, Calif., which uses individualized algorithmic computer code called Public Key Infrastructure (PKI) that serve as digital signatures.
The federal law goes into effect Oct. 1 and excludes certain business transactions. Documents excluded include wills and many types of court documents, notice of cancellation or termination of utility services, eviction notices, rental agreements, cancellation or termination of health insurance or benefits or life insurance benefits and some product recalls.
The law is expected to ensure movement toward uniform standards nationwide. The National Conference of Commissioners of Uniform State Laws adopted on July 29 a model state law that adapts existing commercial law to govern Web commerce. The group recommended that all 50 states enact the Uniform Electronic Transactions Act.