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Legal
Significance Of Digital Signatures
A cornerstone of United States contract law is the general application
of the Statute of Frauds to contractual agreements. Emerging forms
of electronic commerce and new types of contractual relationships
have begun challenge the very idea of defining the four corners
of a contract. Many obstacles concerning contractual relationships
arise with the proliferation of electronic commerce, most notably
determining what constitutes a valid signature. Traditionally, the
Statute of Frauds is a collective term describing various statutory
provisions that deny enforcement of certain forms of contracts unless
they are reduced to writing and signed by the party to be charged.
The problem with this traditional idea of the Statute of Frauds
is how it relates to electronic commerce in determining whether
the party being charged with the contract has actually “signed”
the contract for purposes of enforcement.
Various forms of legislation dealing with internet law have attempted
to define and describe digital and electronic signatures for purposes
of determining enforceability.
Generally, there are two broad categories of signatures when dealing
with electronic contracts.
1. Electronic Signatures (“E-Signatures”)
2. Digital Signatures
I. Electronic Signatures
The Uniform Electronic Transactions Act (UETA) defines electronic
signature as “an electronic sound, symbol, or process attached to
or associated with, an electronic record and executed or adopted
by a person with the intent to sign the record.” UETA, §2. Often
referred to as ‘click-wrap’ agreements, these forms of electronic
signatures are given a broad presumption of enforceability through
acts such as UETA and the Electronic Signatures in Global and National
Commerce Act (ESGNCA/ “E-Sign”). These acts make it clear that binding
contracts may be created by the exchange of email or by simply clicking
“yes” on those click-on licensing agreements that we have all accepted
w ith all types of internet transactions. Like the UETA, the ESGNCA
does require that consumers affirmatively consent to the click agreements
and that the vendor must provide the consumer with a clear and conspicuous
statement regarding the effect of agreeing to click, but parole
evidence is rarely allowed in order to prove or disprove intent
to contract. ESGNCA§101(c)1. By simply clicking “I agree” intent
is presumed.
The widespread enforceability of electronic signatures is also recognized
as completely valid for purposes of liability protection by the
Digital Millennium Copyright Act. DMCA§512(3)(A)(i). As a relatively
settled area of internet law, it is important to understand the
enforceability of electronic signatures, whether or not intent is
manifest from the face of the agreement itself. Since these click
wrap agreements are presumptively enforceable, it is important to
advise your clients regarding the potential pitfalls accepting terms
of an online transaction without fully understanding what they are
agreeing to. Simply accepting these terms may interfere with your
client’s right to the judicial system for dispute resolution, as
click-on arbitration clauses are also generally enforceable. Your
clients will not be able to rely on the Statute of Frauds in order
to demonstrate that there was no intent to contract. With electronic
signatures, intent is an objective standard, generally determined
by the simple click of a mouse.
II. Digital Signatures
Unlike electronic signatures, digital signatures are more often
than not used as a means of demonstrating affirmative intent. The
problems with digital signatures do not stem from inadvertent agreement
to terms, but rather from the security and confidentiality of the
digital signatures. Generally speaking, digital signatures are encrypted
electronic signatures that a third party (often referred to as the
certification authority) authenticates as genuine. Unlike the more
general electronic signature, a digital signature must be unique
and strictly under the sole custody of the party using it. Unlike
electronic signatures, where a typed name, a company name or even
a logo can all bind the party to be charged by its mere presence,
digital signatures offer the agreeing party greater levels of security
and efficiency. The general types of signatures will not be enforceable
as a digital signature. Because of the authentication requirements
of a digital signature, it should be recommended that clients rely
on the use of digital signatures for any high-profile or high liability
electronic contract.
Digital signature use will only increase in use in the future, as
parties to all transactions will seek a heightened level of information
security without the fear of accidentally agreeing to unfavorable
terms. While there is an inherent fear of paperless transactions,
especially with more traditional attorneys and companies, the use
of digital signatures makes commerce faster, more secure and more
effective and should be recommended to clients when appropriate.
The use of digital signatures is even more effective when dealing
in international trade, making it no longer necessary to fly overseas
in order to demonstrate intent to sign a contract.
While understanding and zealously advising clients to the use of
various forms of signatures for electronic commerce is important,
it is also imperative to understand that we are still in the early
years of a technological revolution, and that part of being an effective
advocate is keeping up to date on advancements in the law. Electronic
and digital signatures are only the beginning. Advancements in technology
will soon allow for the widespread use of biometric identification
as a means of demonstrating intent to contract. Principles of contract
law will continue to evolve with technology and while the application
of contract principles and the Statute of Frauds will not substantially
change, their interpretation and use surely will.
Author:
Nicolas D: This article was written by Nicholas J. Deleault, Pierce
Law Center ‘07. Nicholas writes select legal articles for the Law
Firm of http://www.goldsteinandclegglaw.com/blog,
a http://www.goldsteinandclegglaw.com.
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