Digital Signature Bill Gets House's OK

WASHINGTON (06/14/2000) - The U.S. House of Representatives has overwhelmingly approved a bill that is expected to stimulate electronic commerce by putting legal force behind contracts, purchase orders and other documents that are completed online.

Declaring the dawn of the "digital John Hancock" era, the House voted 426 to 4 Wednesday in favor of the Electronic Signatures in Global and National Commerce Act (E-SIGN). The Senate is expected to take up the bill later this week, and U.S. President Bill Clinton has said he will sign it.

Before the vote, several House member spoke in favor of the bill, saying it will remove an impediment to the acceptance of electronic commerce by setting up a legal framework that recognizes electronically created signatures on a range of documents that currently require a signature on paper. The bill is also expected to ease the transition at large corporations of paper-driven systems that control inventory, production and supply to an online environment.

"We are simply giving the electronic medium the same legal effect and enforceability as the medium of paper," said Representative Tom Bliley, a Republican from Virginia. "This (legislation) will allow consumers to engage in a whole host of activities on the Internet that today are not possible."

Although consumers currently can use the Internet for various types of business transactions such as applying for a mortgage, opening an online brokerage account or getting a quote on a life insurance policy, they can only close the deal by putting pen to paper.

"E-SIGN will allow the entire transaction to be done electronically, and the transaction will have the same legal effect and enforceability as a paper contract," Bliley said.

Under the bill, no one could be forced to accept a paperless transaction taking place entirely online. The bill provides for an "opt-in" system with a "pretty extensive consent agreement," said Representative Billy Tauzin, a Republican from Louisiana.

Consumers who agree to carrying out a transaction online would have to affirm their intentions electronically, and a business would have to take reasonable steps to make sure consumers will be able to open a digital document on their computer. In addition, if the business replaces its software, it must notify the consumer and give him or her an option to end the arrangement.

The bill excludes a number of documents that still must exist in paper form, including wills, adoption papers, divorce documents, court orders, utility termination notices, foreclosures and eviction notices, insurance cancellation, and warnings required for transportation of hazardous materials. The bill also doesn't alter or override any consumer protection laws adopted by individual U.S. states.

"What (the bill) does is really reinforce confidence," said Bob Pratt, director of product marketing for VeriSign Inc. "A lot of businesses are doing business electronically already and are signing documents digitally. This bill will help to further convince the fence sitters. The federal government is now saying you can trust this. It's not just for security companies like us, but for everybody who wants to do things online."

One of the business areas that will be impacted by the legislation is government documents, Pratt said. This area includes citizen-to-government-type transactions for permits, applications for aid and other records that currently must be carried out on paper. Some U.S. states have already passed digital signature laws that apply to transactions within their boundaries. The E-SIGN Act covers transactions with the federal government and interstate transactions.

The authors of the bill complied with the wishes of the information technology industry and did not specify the types of technology that can be used to create an electronic signature. In a typical scenario, the signature is generated by a digital certificate issued by an online partner. The certificate could also generate public and private "keys" for establishing a public key infrastructure.

The bill's definition of a digital signature "essentially means it's going to be wide open for the types of technologies that are going to be used," said Matthew Tanielian, a spokesman for the Information Technology Industry Council.

"From the high-tech industry's point of view it was a core element... not to limit any type of technology."

Consumers will get certificates from a number of different institutions just as they now have different credit cards from different banks or customer service cards from a number of stores and organizations, VeriSign's Pratt said.

The customer would have to provide a specific set of data about himself or herself in order to obtain each certificate. Some organizations might require more information, or perhaps even a biometric, such as a digitized fingerprint, for highly secure transactions, said Patty Edfors, director of government operations for Baltimore Technologies PLC.

Procedures will vary from company to company and will depend on the risk of a given transaction, Edfors said. But when a company is able to issue a certificate to a customer on a CD-ROM, for example, or let the customer access the certificate from a Web site "obviously, that would take away a tremendous amount of paperwork, a tremendous amount of time, and they would have a legal representation of my intent to execute the purchase," Edfors said.

In addition, the bill helps remove confusion over varying U.S. state laws and takes steps toward harmonizing U.S. procedures with those of other countries by adopting principles issued by a U.N. committee on international trade, she explained.

Baltimore Technologies, VeriSign, RSA Security Inc. and Pretty Good Privacy Inc. are some of the companies that offer digital signature technologies that could potentially be in greater demand as a result of the bill.

The bill creates a foundation for those companies, and the next maneuver on their part will be to look for strategic partnerships and opportunities to attach their brand name to Internet and back-office functions, said David Colton, a program manager at the Information Technology Association of America (ITAA).

"When we think of e-commerce today, we are largely talking about small purchases on the Web," Colton said. "The horizon just blossoms for people to take advantage of the efficiencies of the Web."

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