Introduction
The discussion surrounding the importance of electronic signatures has received both national and international attention. In each state legislative house across the nation, in the United States Congress and in the houses of commons and parliaments all over the world, the search for a consistent and reasonable standard for conducting business in the new electronic age has been a legislative priority. Our nation and the world are in the midst of a critical, large-scale transition into an information society that will require innovative legal and policy approaches in order to succeed.

It has been argued by some that there is a need for a uniform legal standard for electronic signatures, and that the absence of such a standard has created an undue burden on interstate commerce. Federal legislation is now pending, H.R. 1714 and S.761, in both the US House and Senate that will basically override any legislation enacted by state and local governments except in those instances whereby they have adopted the UETA (Uniform Electronic Transaction Act).

This information bulletin was written by the Privacy 2000 Task Force, as part of the charter of the National Electronic Commerce Coordinating Council (NECCC) (http://ec3.org) to disseminate information on legislation, case studies and innovation in the state and local government e-commerce arena. It is not the intent of this bulletin to endorse any particular school of thought, but rather to apprise decision-makers of pending electronic signature legislation. This is an extremely time sensitive issue for State and Local government officials. In some states assemblies meet for only a few months and not again for 1, 2 or more years. The federal government will act on these two bills this session.

Each of the 50 states, Puerto Rico, and the U.S. Virgin Islands are all distinct in character and in the way they address policy issues. Their approach to electronic signatures is a good example of the diversity in styles that each state, common wealth, and territory use. A brief scan of current legislation provides a good background as to where the concern over a uniform standard developed.

The following briefing of current legislation provides a good background primer to assist state and local government legislatures in their evaluation and formation of courses of action in this critical area during the 2000 legislative hearings.

The significance of these two bills is, if passed into law, that they will preempt current state electronic signature legislation. Every state law that is not consistent with the pending federal legislation could be preempted.

However, within these bills there is currently only one alternative for the states. That alternative is the Uniform Electronic Transaction Act (UETA) that was ratified by the National Conference of Commissioners on Uniform State Laws in July 1999.

This Bulletin will discuss the history of the UETA and the history of S. 761 and H.R. 1714. Additionally, the two bills will be compared to UETA and the differences will be outlined. In the end, you as a policy maker of your state will be able to determine which standard will work best for your constituents. The key point to be made is that the window of opportunity to make a decision is coming to an end.

History of UETA
In July of 1999 in Denver, Colorado the National Conference of Commissioners on Uniform State Laws ratified the Uniform Electronic Transaction Act. The road to ratification of UETA started in June 1996 when Commissioner Patricia Brumfield Fry submitted two memoranda to the Scope & Program Committee of the National Conference of Commissioners on Uniform State Laws (NCCUSL). The focus of these memoranda was to address issues surrounding electronic commerce. After review of these memoranda a drafting committee was approved "to draft an act consistent with but not duplicative of the Uniform Commercial Code, relating to the use of electronic communications and records in contractual transactions." The drafting committee was charged to report back in the January 1997 meeting with a detailed outline of the proposed Act.

On January 3, 1997 the Drafting Committee submitted its memorandum to the Scope & Program Committee of the NCCUSL. The Memorandum stated that the fundamental goal of the project was to draft "such revisions to general contract law as are necessary or desirable to support transaction processes utilizing existing and future electronic or computerized technologies." The concerns they would keep in mind while drafting the Act were the preservation of freedom of contract, technology-neutrality and technology-sensitivity, minimalism, and avoidance of regulation.

Based on the presentation of the Drafting Committee in January they received the go-ahead order by the Scope & Program Committee. During the process of drafting the Act the Drafting Committee met seven separate times. During the August meeting the name of the project was changed from the Uniform Electronic Records and Communications in Contractual Transactions Act to the more simple Uniform Electronic Transaction Act (UETA).

The first draft of UETA was prepared for the Drafting Committee's meeting held in September 1997 in Alexandria, Virginia. Revisions were made and suggestions were incorporated into the drafting process. In each of the two succeeding drafts, the Committee worked to clarify the scope, eliminate unnecessary provisions considered to have a substantive impact on the underlying transaction, and ultimately to remove any legal protection for so-called "secure" electronic signatures and records. This raised an issue relating to the fundamental purpose and effect of a signature.

Comments at the 1998 Annual Meeting confirmed that the scope of the Act would be the single biggest issue. Over the course of the past year, the committee addressed many issues of concern. The fruits of their labor is evident in the final document they presented to the National Conference of Commissioners on Uniform State Laws in July 1999.

To date two states have adopted UETA: California and Pennsylvania. Currently 27 states are contemplating UETA as the standard for legislation. Copies of the California and Pennsylvania's legislation incorporating the UETA and the modifications they made to the Act can be found at:

The actual UETA is included in this document and can found at:

Brief Description of the UETA
The heart of the Uniform Electronic Transactions Act (UETA) is Section 7, LEGAL RECOGNITION OF ELECTRONIC RECORDS, ELECTRONIC SIGNATURES, AND ELECTRONIC CONTRACTS. This section provides the following:

a) A record or signature may not be denied legal effect or enforceability solely because it is in electronic form.

b) A contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation.

c) If a law requires a record to be in writing, an electronic record satisfies the law.

d) If a law requires a signature, an electronic signature satisfies the law.

These four provisions get at the heart of the issue: that electronic documents and signatures can form legally binding contracts, and that physical paper documents are not to be the sole mechanism through which legally binding arrangements are made. UETA is clear (§ 6) that its application to electronic contracts should conform to other applicable law regarding transactions, be consistent with reasonable practices and promote expansion of those practices, and effect uniform law among the States that enact it.

The rest of UETA addresses the various issues that arise in the use of electronic documents and signatures in constructing electronic contracts, including the following:

• Electronic signatures must be verifiable and use effective security procedures in their creation. (§ 9)
• Notary requirements are met when such a procedure is used in the creation of the electronic signature. (§ 11)
• Electronic documents must be accurately retained and remain accessible. (§ 12)
• Electronic documents can be admitted as evidence. (§ 13)
• When required by law, electronic documents must conform to prescribed presentation and layout guidelines. (§ 8)
• Contracts may be formed through automated transactions between an individual and an electronic agent or between two electronic agents even if no individual has reviewed the resulting terms and agreements. (§ 14)

UETA also clarifies the following issues with respect to electronic documents:

• The status of electronic documents with which a change or error has occurred in transmission. (§ 10)
• What constitutes the transmission and receipt of an electronic document. (§ 15)
• The requirements for a "transferable record" that is analogous to a "bearer instrument" in the physical world: that an authoritative copy exist, that additional copies be identifiable as copies, that the transferable record indicate when it has been transferred from one individual to another, etc. (§ 16)

The UETA guidelines with respect to electronic documents are extensions of legal and common sense principles for physical documents.

UETA also carries restrictions on its application. Certain types of documents are excluded from the Act (§ 3), such as wills, codicils, or testamentary trusts. Additionally, UETA does not apply, except where specified, to the Uniform Commercial Code, the Uniform Computer Information Transactions Act, or to other specific types of documents as identified by the States. Moreover, it is clear that the Act preserves existing law and contract forms (§ 5) by specifically stating that the act does not require that contracts be electronic, that both parties must agree to conduct transactions electronically, that parties may refuse to conduct certain types of transactions electronically, and that the provisions may be varied by agreement.

UETA establishes a foundation for the recognition, regulation, and broad enforceability (uniformity) for electronic contracts across the States while leaving traditional law and rights intact.

History of S.761 & H.R. 1714
It is anticipated that when Congress reconvenes in late January and a conference on S.761 & H.R. 1714 is held, H.R. 1714 will be the focus of discussion. Even though the content of the two bills is similar, this Bulletin will focus primarily on S.761 to simplify the discussion. When it is appropriate to discuss variations in these two bills those differences will be outlined.

On March 25, 1999 Senator Spencer Abraham (R-MI) introduced legislation titled the "Millennium Digital Commerce Act." It was read twice and referred to the Senate Committee on Commerce. Hearings were held on S.761 in May. Subsequent amendments were made to the bill and in July, Senator McCain of Arizona presented S.761 to the Senate on behalf of the Committee on Commerce. The bill was placed on the Senate Legislative Calendar under General Orders, Calendar No. 243. On November 19, 1999, S.761 passed the Senate with an amendment by Unanimous Consent. S.761 now awaits Congress to reconvene so that a conference can be held to discuss the fate of it and its sister House legislation, H.R. 1714.

S.761 promotes the use of electronic signatures and provides a consistent and predictable national framework of rules governing the use of electronic signatures. The legislation preempts State law that is inconsistent with UETA. In Section 5(g) [Application in UETA States] of S.761 it reads: "This section does not apply in any State in which the Uniform Electronic Transaction Act is in effect." Unlike H.R. 1714, the Senate bill also defines UETA to include the form of that act as adopted by NCCUSL "or any substantially similar variation thereof." S.761 is very clear and concise in addressing the issue of UETA, where H.R. 1714 is less clear.

S.761 provides that the electronic records produced in the execution of a digital contract shall not be denied legal effect solely because they are electronic in nature. This legislation also assures that a party will be able to rely on an electronic contract and that another party will not be able to escape their contractual obligations simply because the contract was entered into over the Internet or any other computer network.

This Federal preemption of State law is designed to be an interim measure. It preempts State law until the State adopts UETA (defined quite broadly). Once States enact the UETA, the Federal law would no longer apply.

Another aspect of the Senate bill that differs markedly from the House version is the extents to which transactions are affected that involve state government as a party to a contract. The Senate bill would apply only to commercial "transactions," which, by definition, expressly exclude transactions involving the state or federal government. Thus, the Senate bill would allow States to determine whether and in what manner they should conduct transactions electronically. The House bill, on the other hand, appears to exempt State transactions, but a close reading suggests this exemption is illusory. HR 1714 indicates that it would not apply to contracts where a state agency is a party and the agency is "not acting as a market participant in or affecting interstate commerce." Such a standard depends on the facts of each case and is arguably much more restrictive than the approach taken in S.761, depending upon the Supreme Court’s then-current interpretation of the scope of the commerce clause of the Constitution (Article I, Section 8, clause 3).

The legislation also grants parties to a transaction the freedom to determine the technologies and business methods to be used in the execution of an electronic contract. Additionally, the legislation sets forth the principles for the international use of electronic signatures that stress that paper-based obstacles to electronic transactions must be eliminated and that a technology-neutral, market-based, nondiscriminatory approach to electronic authentication technology should be adopted.

Finally, the Bill directs the Department of Commerce and Office of Management and Budget to report on Federal laws and regulations that might pose barriers to electronic commerce and report back to Congress on the impact of such provisions and provide suggestions for reform.

Both bills are preemptive in nature. Many states have electronic signature legislation on their books that reflect the needs of their state and unique constituency. With the passing of S.761 or H.R. 1714 much of that work may be lost unless their legislation incorporates UETA standards.

Many of the UETA standards have been incorporated into S.761 & H.R. 1714. The inclusion of Section 5(g) [Application in UETA States] in S.761 reading "This section does not apply in any State in which the Uniform Electronic Transaction Act is in effect" is an acknowledgment that the Federal government recognizes UETA as a comprehensive alternative to preemptive federal legislation.

Both H.R. 1714 and S. 761 are broad in scope, though the Senate bill is somewhat less broad. Narrowing the scope of transactions the bills reach, it is believed, may alleviate many of the concerns raised about the bills. In particular, allowing states the flexibility to modify UETA according their particular needs, and permitting states to determine whether and to what extent they will engage in electronic transactions, could minimize the effects of preemption.

There is also a difference between the bills with respect to consumer protection provisions. This is where one sees the largest difference between S.761 and H.R. 1714. H.R. 1714 includes consumer protections where S.761 does not.

* * * *

Brandon W. Lenoir
Acting Director
NECCC
202.624.8461
nasactbl@sso.org

Additionally, members of the NECCC Board of Directors, its staff of experts and nationally recognized Privacy Issues authorities are available to assist you with additional information resources for any preparations you require to present this information to your State Legislature.

WORKGROUP MEMBERS

2. Global Legislation/Regulation, Technology-Neutral, Non-PKI, Minimalist E-Commerce

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