WASHINGTON - A new federal law will make signatures rendered electronically over the Internet just as binding as if they were written by hand.
These electronic signatures can take the form of simple passwords, retinal scans, facial images, fingerprints and even actual handwritten signatures broken down into sophisticated code. President Clinton signed the Electronic Signatures in Global and National Commerce Act 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."
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.
While 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 federal legislation 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. Nycum has testified before the U.S. Senate as well as before governments of other countries on regulation of e-commerce.
"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 that goes along with it. But just because it doesn't, it doesn't mean that it is non-effective. There are a number of issues that have not been put to bed, like how all of the laws on it relate to each other. It's a bit of 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 that users should always note the security measures that a firm uses to protect its Web site before making an online purchase.
He also said many contracts still need to be backed up with signed hard copy. In most cases, Purchasing Center.com customers are not required to submit back-up on paper. Sullivan said there are "certain dollar thresholds" for determining whether a transaction should be conducted entirely online. A $50 purchase from a mass-market customer is routine, he said, and could be conducted entirely online. 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 still be popular. "Many people feel more comfortable doing so," she said. "Strange things can happen in the computer world, with glitches and so forth."
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, which goes into effect Oct. 1, excludes certain business transactions. Documents excluded by the law include certain legal documents such as wills; court documents; notice of the cancellation of utility services; eviction notices and rental agreements.
The new law is expected to ensure rapid movement toward uniform standards nationwide. The National Conference of Commissioners of Uniform State Laws adopted a model state law July 29 that adapts existing commercial law to govern Web commerce. The group has recommended that all 50 states enact the Uniform Electronic Transactions Act.