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Electronic and Digital Signatures and E-SIGN

As the Internet grew in popularity, many states quickly moved to enact legislation pertaining to electronic and digital signatures. When E-SIGN took effect in October 2000, the question that then arose was whether E-SIGN preempted such state laws on the subject. Preliminarily, it is clear that E-SIGN preempts state laws that conflict with or frustrate E-SIGN’s basic policy, as spelled out in Section 101(a)(1) and (2), that electronic signatures and records cannot be denied legal effect solely because they are in electronic form. However, E-SIGN clearly does not preclude other laws that do not conflict with the validation principles contained in Section 101 of E-SIGN.

In 1999, to combat problems that could arise when parties from two jurisdictions entered into an electronic transaction, the National Conference of Commissioners on Uniform State Laws recommended the Uniform Electronic Transactions Act (UETA) for enactment in all states. UETA recognized electronically-based transactions and records as the “functional equivalent” of paper transactions where the parties agreed to use electronics. In formulating E-SIGN, the drafters clearly took UETA into account. Indeed, Section 102 of E-SIGN specifically recognizes UETA and acknowledges that individual states, through the enactment of UETA, can modify, limit, or supersede the effect of the validation provisions in Section 101 of E-SIGN without federal preemption. However, the state must enact UETA in its “pure” form (without modification) and express its intention to supersede E-SIGN. Still, because UETA only applies when the parties agree to use electronics, E-SIGN would apply in cases where there was no mutual agreement. Thus, these “opt-out” provisions provide for uniformity of state law, even though the provisions in UETA may differ from E-SIGN. E-SIGN also provides that a state may modify, limit, or supercede the validation terms of Section 101 if the state law specifies the alternative procedures for use of electronic signatures or records and those procedures are consistent with E-SIGN and do not validate only a particular type of technology. Therefore, online businesses should note that, although E-SIGN must be followed, individual states could enact additional laws affecting electronic signatures.

Inside Electronic and Digital Signatures and E-SIGN