Fine Print: Time Is of the Essence

FRAMINGHAM (03/15/2000) - Electronic commerce and web-based applications have ditched the realm of theory and live large in everyday reality. But today's applications only foreshadow what's to come in ease of use and legal reliability. For example, current systems use encrypted sessions to guard against eavesdroppers. But is that enough to stand up to a full-fledged legal challenge of any kind? What happens when one party to an ill-fated electronic deal denies the terms of a contract, when it was sent or that it was sent at all? Internet-based business models will require solid technical solutions to answer such questions.

REPUDIATE THIS The concept of agreement is the keystone of business relationships. In both the paper-based and online world, if Bob seeks to enforce an agreement that Alice made with him, he first of all needs to attribute that particular agreement to Alice (rather than some impostor using Alice's name). When dealing with online attribution attorneys are increasingly borrowing the term nonrepudiation from the information security field to describe a situation where Alice's agreement is robustly attributed to her.

Specifically, nonrepudiation means that a party to an electronic agreement cannot falsely deny sending the particular document or message on which a legal agreement is founded.

For example, after making an online deal with Bob that turns out to be unprofitable, Alice might try to deny that she was in fact a party to the agreement. If nonrepudiation can be established, Bob can effectively block a lying Alice from wriggling out of her bad deal. Legal nonrepudiation is where the rubber meets the road in resolving contract disputes because it helps decide who pays--Alice or Bob. It amounts to evidence strong enough to convince a judge, jury or other third party that Alice's denial of the document is false.

Traditionally, agreements are given legal significance when the parties involved sign paper documents affirming who they are, what obligations they intend to establish and when their legal relationship begins and ends. Over the centuries, statutes and court decisions have accumulated to govern commercial relationships, and the laws are not about to radically change. Yet it's clear that the models for doing business are radically changing--and fast. What happens when these worlds collide? And what can be done to reconcile the old with the new?

That depends upon the ability of technology to provide trustworthiness that is functionally equivalent (if not superior) to that of traditional methods. A paper document is generally trusted to fix the time of an event because methods exist to establish the age of the document. It requires special forgery techniques to alter a time-date stamp on paper, or to outsmart expert forensics regarding aging. If an electronic document could be marked in an equally trusted way to prove its age, then it could be just as enforceable as its paper counterpart.

SIGNED, SEALED, DELIVERED To achieve nonrepudiation, the questions of when and what can be authoritatively answered by trusted time-date stamping (TTDS), which provides a way to freeze the contents of electronic documents in time. To round it out, public key infrastructure (PKI) systems address the who and what questions using digital signatures, which reliably bind a person's identity to the content of an electronic document "signed" by that person.

One TTDS product,'s Digital Notary Service, resolves the when and what issues with an elegant approach. Local user software generates a small but unique digital fingerprint of the data in the document. This fingerprint (also called a hash) is transmitted to a central server, which notes the time of receipt and combines it with other hashes received at that time to generate a superhash value, which is written into Surety's universal registry. The server then sends the user a notary record (binary record in proprietary format).

Later, when the user needs to authenticate the document, the local software creates a test superhash from the stored document and cryptographic information in its notary record. This is then compared with the actual superhash stored in Surety's universal registry. If they match, then both the document time of creation (when) and content (what) are unassailably verified.

PKI addresses nonrepudiation of identity using a dual-key encryption system that allows users to uniquely sign documents with a digital signature. Alice (the subscriber) attaches a digital signature to a document using her own encryption key (the private key). This has a counterpart (the public key), which anyone may use to confirm that the digital signature was signed with the corresponding private key. By binding Alice's identity to her public key in a digital certificate, a trusted third party known as a certification authority (CA) allows Bob to verify that Alice signed the document. Under the American Bar Association's Digital Signature Guidelines, a court will presume that Alice did sign the document unless she can prove otherwise. This digital signature system also uses a hash process to verify the what attribute of the electronic document.

COMPLEMENTARY TECHNOLOGIES As described, PKI uses a pair of keys that require special handling. If the private key owner loses control of his or her private key, the public key certificate must be revoked. PKI uses a CA to confirm that a public key belongs to a particular individual; in TTDS the third-party computer server creates the necessary superhash at a given absolute time. The two technologies have complementary strengths. Working together, they provide a robust infrastructure for the delivery of all three services: confirming the contractual who, what and when.

Suppose Alice uses PKI to digitally sign and send an e-mail order to stockbroker Bob, instructing Bob to immediately buy a volatile stock at the market price. For unknown reasons, Bob places Alice's order hours later when the market price is much higher. Alice attempts to rescind the unprofitable purchase because of Bob's delayed execution. But in the critical issue of when Alice sent the e-mail message or Bob received it, PKI can't help--it provides legal nonrepudiation as to the who and the what but no assurances as to the when. Alice might have changed her PC system time before signing the message, Bob might have tampered with the received message. Without TTDS, other forensic means--expensive and uncertain--may be needed to prove the times when events actually occurred.

The use of TTDS to routinely time-stamp messages also eliminates after-the-fact disputes about when the digital signature was created. This is important because a digital signature created after its certificate's expiration time enjoys no more legal force than a generic signature on a naked e-mail message.

The use of both TTDS and PKI permits the formulation of simple and fair rules of legal nonrepudiation that will nurture rather than confuse the e-commerce explosion. By matching or even exceeding the legal and functional integrity of paper-based signatures, these technologies will facilitate the application of existing commercial law to brand new web-centric business models.

Charles R. Merrill is a partner of the law firm of McCarter & English in Newark, N.J. Send your comments to

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