WASHINGTON (06/23/2000) - The headlines about the new "digital signatures" law have highlighted its effect on consumer transactions. But according to experts, it will have a bigger impact on business-to-business e-commerce, including online procurement and electronic marketplaces.
The legislation, which President Clinton was scheduled to sign into law last week, says contracts "signed" by electronic methods are just as legally valid in all 50 states as those signed by hand on paper. The law takes effect Oct. 1.
"The effects on B-to-B will be bigger, quicker," said Brent D. Israelsen, CEO of Orem, Utah-based iLumin Corp., one of several companies with software for creating legally binding e-commerce documents.
Currently, companies that buy supplies, submit bids or cut deals via the Internet have to follow up later by sending paper documents to be signed manually. "Until now, [electronic] procurement has generally revolved around plane flights and snail mail," said Jerry Jasinowski, president of the National Association of Manufacturers in Washington.
With digital signatures, companies can immediately execute the documents online, without having to send faxes or overnight letters. Software to make that happen comes from companies such as iLumin, which is announcing its Digital Handshake System today, and PureEdge Solutions Inc. in Victoria, British Columbia, which has a product called InternetForms that creates legally binding XML documents.
Out in Front
Government agencies are ahead of the private sector in this realm. The Securities and Exchange Commission, under its own regulatory authority, is using the PureEdge software to accept corporate 10K and other regulatory filings via the Web.
Under the law, an electronic signature could be a digital certificate based on public-key encryption, biometric authentication or an e-mail message with "/s/ John Hancock" at the bottom. The definition is deliberately broad and technology-neutral, letting the marketdecide how much security a particular e-commerce transaction needs, said Thomas E. Crocker, a lawyer at Alston & Bird LLP in Washington.
The law will affect online consumer transactions, too, especially as consumers start to buy big-ticket items online. "Today, consumers can buy airline tickets and groceries on the Internet, but they cannot sign a contract with their financial institution for a mortgage or a car loan," said Edward Yingling,director of government relations at the Washington-based American Bankers Association.
Herb Perone, a spokesman for the American Council of Life Insurers in Washington, said the law will let insurance companies offer their products online - something they haven't done before because of the contractual nature of insurance policies.
Michael Hogan, Jersey City, New Jersey-based DLJdirect Inc.'s general counsel, said the online stock brokerage is ready to take advantage of the new law, because brokerages won't have to keep written signatures on file if customers opt for purely electronic agreements.
Currently, when a customer opens an account, the brokerage sends a paper form for the customer to sign and return within a month, or else the account is frozen. "What we're doing now is eliminating that step," Hogan said.
Todd Weiss and Maria Trombly contributed to this report.