Electronic Signatures in Global and National Commerce Act (ESIGN) -- FAQs and Resource Links

© Copyright 2000.  All rights reserved.

On June 30, 2000, President Clinton signed into law the Electronic Signatures in Global and National Commerce Act ("ESIGN"), which makes electronic or digital "signatures" legally valid and enforceable in the US. Like most new legislation, ESIGN raises as many questions as it answers.

This web page provides answers to frequently asked questions ("FAQs") about ESIGN and links to other sources of information on ESIGN, including a copy of the Act. We will update this page as new developments, occur, so please check back regularly.

Frequently Asked Questions About ESIGN:

1.  What does ESIGN do?
2.  When does ESIGN take effect?
3.  What is an "electronic signature?"
4.  What does ESIGN say about business-to-consumer transactions?
5.  What about business-to-business transactions?
6.  What effect does ESIGN have on state "electronic signature" laws?
7.  What are the advantages of ESIGN?
8.  What are the disadvantages of ESIGN?
9.  Where can I find more discussion on ESIGN?

Answers:

1. What does ESIGN do?

Some courts have ruled that electronic signatures are valid, and several states have passed laws validating electronic signatures. These rulings and statutes differed in their requirements and application, resulting in continued uncertainty regarding the validity of electronic contracts. ESIGN addresses this problem. ESIGN provides a uniform federal law that validates electronic signatures, effectively allowing parties to enter into a contract on the Internet without wondering which state law applies. ESIGN also allows businesses to keep electronic records, and to send electronic records and documents to consumers.

ESIGN does contain exceptions that prevent the use of electronic signatures and records in some areas, including the use of official court documents, notice of cancellation of utility services, health insurance or life insurance, and recalling products.

2. When does ESIGN take effect?

ESIGN will take effect on October 1, 2000. The section covering electronic records kept by businesses does not take effect until March 1, 2001.

3. What is an "electronic signature?"

ESIGN defines an "electronic signature" as "an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record." See § 106(5). Thus, an "electronic signature" can come in many forms, including PIN numbers, passwords, or even clicking an icon.

The definition of "electronic signature" is vague, and could be a source of frustration for businesses and consumers. The definition may cause problems if businesses are not clear on what constitutes their form of electronic signature in the course of a transaction. For example, customers could be unintentionally bound to a contract merely because they clicked on an icon. Congress, however, established specific duties for businesses under ESIGN that should prevent confusion regarding electronic signatures.

4. What does ESIGN say about business-to-consumer transactions?

ESIGN provides that specific disclosures must be made to consumers:

Consumers must be provided with "clear and conspicuous" statements regarding certain procedures involved with using electronic data.

Consumers must affirmatively consent to the use of electronic signatures or records.

The consumer must be supplied with information regarding the hardware and software used in the process, and the consumer must consent in a way that demonstrates that they have access to the information in the electronic form that will be used.

See § 101(c)(1)(A)-(D).

Businesses are not required to use any specific type of technology to verify the electronic signature or the consent.

5. What about business-to-business transactions?

ESIGN addresses business-to-consumer transactions. The legislation is silent on business-to-business transactions. Therefore, it appears that these transactions are still left up to the parties.

6. What effect does ESIGN have on state "electronic signature"
laws?

Before ESIGN, several states had their own electronic signature laws. These laws varied greatly from state to state, causing confusion when parties from different states were involved in business transactions. ESIGN effectively preempts state laws on electronic signatures, ensuring that states are under a uniform law and that parties have certainty when dealing within different jurisdictions.

ESIGN does not, however, completely preempt state electronic signature laws. States may modify, limit, or supersede ESIGN if they are consistent with the Uniform Electronic Transactions Act, which was approved by the National Conference of Commissioners on Uniform State Laws. See § 102(a)(1).

7. What are the advantages of ESIGN?

ESIGN has paved the way for businesses and consumers to do business online. The bill provides enough flexibility to allow technology to change and still be in step with the law. ESIGN also creates a more predictable e-commerce market because it relieves parties of choice of law dilemmas that were once prevalent with the advent of various state laws. The law also provides certainty that contracts formed over the Internet will be valid and enforceable, an issue that was once unclear.

ESIGN has also been touted as a way for businesses to save an enormous amount of money and time. The cost of paper correspondence and storage may be reduced. Businesses will no longer have to use the mail to send documents, a process that costs businesses time and money.

ESIGN is largely symbolic because electronic signatures have been used by many businesses in the past. The symbolic nature of ESIGN is important, however, because the bill will create greater confidence in businesses and consumers when doing transactions online.

8. What are the disadvantages of ESIGN?

ESIGN signifies the beginning of a new frontier in business. New frontiers invariably involve some uncertainty and unanswered questions. For example, the definition of "electronic signature" will most likely be an issue in the future. The status of electronic signatures in business-to-business transactions is also left in the hands of businesses.

The need for protection of consumers may force businesses to invest in expensive technology that will ensure that the party signing the contract is authorized. The cost and sophistication of this technology is still indefinite for businesses and consumers. Technology such as thumbscanners and eye sensors are viable options for big companies, but small to medium size businesses may not be able to afford such amenities.

9. Where can I find more discussion on ESIGN?

Visit these websites for more discussion on ESIGN:

• E-Signatures Become Valid
  http://www.nytimes.com/2000/10/02/technology/02SIGS.html
• Electronic signatures
  http://www.zdnet.com/intweek/stories/news/0,4164,2636710,00.html
• Consumers Union tips for consumers on use of electronic signatures
  http://www.consumersunion.org/finance/esignwc900.htm
• Office of Management and Budget guidance to executive agencies on implementing the E-SIGN Act
  http://www.cio.gov/docs/ESIGN_memo.htm
• National Governors Association Issue Brief, What Governors Need to Know About E-SIGN
  http://www.nga.org/Pubs/IssueBriefs/2000/Sum000922ESIGN.asp
• Mobile Electronic Signature Consortium
  http://www.esign-consortium.org/
• SEC interim regulation granting an exemption from the consumer consent requirements of the E-SIGN Act to permit mutual funds to provide supplemental sales literature on their Web site or by other electronic means without first obtaining an investor's consent to receive in electronic form the statutory prospectus that is required to precede or accompany the supplemental sales literature, and clarification of responsibility for Web site links.
  http://www.sec.gov/rules/final/33-7877.htm
• Non-repudiation in the Digital Environment
  http://firstmonday.org/issues/issue5_8/mccullagh
• Why enact UETA? The role of UETA after E-SIGN by Professor Patricia Brumfield Fry, Chair of the UETA Drafting Committee
  http://www.nccusl.org/whatsnew-article2.htm
• Federal Preemption and Electronic Commerce by Professor Patricia Brumfield Fry, Chair of the UETA Drafting Committee
  http://www.nccusl.org/whatsnew-article3.htm
• Electronic Signatures in Global and National Commerce Act of 2000: Effect on State Laws (discussion draft)https://www.verisign.com/repository/pubs/preemption.doc (MS Word document)
• E-Security:  The New E-Security Frontier
  http://www.informationweek.com/794/secure.htm
• E-Signatures:  Ties That Bind
  http://www.informationweek.com/793/esign.htm
• A Preliminary Analysis of Federal and State Electronic Commerce Laws
  http://www.uetaonline.com/docs/pfry700.html
• Clinton signs esignature bill into law
  http://www.cnn.com/2000/ALLPOLITICS/stories/06/30/clinton.e.signatures.02/index.html
• Electronic Signatures in Global and National Commerce (E-SIGN) Act
  http://thomas.loc.gov/cgi-bin/bdquery/z?d106:s.00761:
• President's Statement on Signing the E-SIGN Act
  http://www.whitehouse.gov/WH/New/html/20000630.html
• Transcript and Video of President Clinton using "smart card" to sign bill
  http://www.whitehouse.gov/WH/New/html/electronic_signatures.html
• E-Signatures:  a milestone
  http://cnnfn.cnn.com/2000/06/22/electronic/q_esign/
• What Do E-Signatures Mean For You?
  www.businessweek.com/bwdaily/dnflash/june2000/nf00620f.htm?scriptFramed?scriptFramed
• digital signature
  http://whatis.techtarget.com/WhatIs_Search_Results_Exact/1,282033,,00.html?query=digital+signature
• Contracts in Cyberspace
  http://www.best.com/~ddfr/Academic/contracts_in_%20cyberspace/contracts_in_cyberspace.htm

To read the text of ESIGN visit:

• Government Printing Office Web Site
  http://thomas.loc.gov/cgi-bin/query/C?c106:./temp/~c106ZbsZ8N
  

Our firm acknowledges Chris Seidl, Summer Associate, for his contribution to this article.