Sunday, January 7, 2007

Legal Significance Of Digital Signatures

Legal Significance Of Digital Signatures
by: Nicholas J. Deleault

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.

About The Author

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

2 comments:

Yozons said...

You would be advised to read the definitions of "digital signature" and "electronic signature" on Wikipedia, or visit Yozons' pages that discuss this topic more clearly:

http://www.yozons.com/pub/aboutUs/electronicSignatureFAQ.jsp

FAQ #15 has links to details on the difference between those two terms.

By law, few care about "digital signatures" except as a specific technology designed to secure electronically signed agreements.

Equating electronic signatures to "click-wrap" agreements misses the point of the law entirely. Click-wraps are the least enforceable because they suffer a poor process, no disclosures and no clear records are generated.

The "click-wrap" process is bad because users must agree before they even see the product (they typically occur before you can install something, and you can't even determine if the software works until it's installed and run a few times -- heck, it could even be a virus or other malware that is itself criminal). Second, there are no ESIGN Act disclosures provided before a user agrees, thus not making it clear that it is legally binding. Third, there is no way to know who installed the software, so there's no way to know who "agreed." Was it installed by you, your spouse, a child, tech support, a third-party technician who doesn't even work for you? Fourth, there's no record generated of the agreement, so the "signer" has no way to show what they agreed to should there be a dispute in terms.

Your description of digital signatures confuses many of the terms used in that technology. For example, a certificate authority certifies your public key, not your digital signatures, each of which is uniquely created when data is digitally signed.

At Yozons, we've offered electronic signature software and services using digital signature technologies since 2001 to nearly 30,000 customers worldwide. We hope that this clarification will help your readers.

Amelia said...

I enjoyed reading the information shared in this article about the significance of digital signatures. This article is nicely written and with the help of it I came to know about so many interesting facts related to the use of digital signature.
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