Without a doubt, the Internet has changed the face of business. E-business is here to stay, and it is booming. Online transactions among businesses, which amounted to $114 billion in 1999, are expected to soar to $1.7 trillion by 2004. Start-up web-based businesses are the darlings of Wall Street despite histories of little or no profitability and virtually no tangible assets. Traditional "brick-and-mortar" companies are scrambling to secure e-business capabilities in order to keep pace with their cyber rivals.
Notwithstanding the mad rush to jump on the e-business bandwagon, there is and has been a disturbing uncertainty as to the law (or lack thereof) governing on-line transactions. Is an agreement entered into through electronic media legally binding upon the parties? Are the rights and obligations created thereunder enforceable? Does an electronic "signature" satisfy requirements in existing laws that require certain types of agreements to be in writing and signed? How can parties engaging in e-business protect themselves from fraud, deception or mistake?
In the past, the legislative response to the legal uncertainties created by e-business has been varied. Most legislation has been either too narrow (limited to specified transactions, technologies, parties and issues) or too broad (attempting to create a whole new area of substantive law governing every kind of future on-line transaction). Generally, the laws have been widely criticized and ineffective.
Recently, however, the National Conference of Commissioners on Uniform State Laws ("NCCUSL") approved the Uniform Electronic Transactions Act ("UETA"). Importantly, UETA is a "technology-neutral" procedural statute designed primarily to ensure legal acceptance of documents and signatures that are generated, transmitted or stored electronically by mandating their legal equivalence to more customary tangible documents and manually- written signatures.
On December 16,1999, Pennsylvania Governor Tom Ridge signed into law "the last bill of the 20th Century"-the Electronic Transactions Act ("PaETA"). According to the Governor's press release, Pennsylvania is the first state in the nation to enact the recommended version of UETA, securing Pennsylvania's position as a global technology leader. PaETA can be broken down into four main chapters: Use of Electronic Records and Signatures; Government Agencies; Attribution of Records and Signatures; and Consumer Agreements. Each chapter is summarized below.
Use of Electronic Records and Signatures
The cornerstone of PaETA provides legal recognition of electronic records, signatures and contracts through the following four provisions:
Form - A record or signature may not be denied legal effect or enforceability solely because it is in electronic form.
Formation - A contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation.
Writing - If a law requires a record to be in writing, an electronic record satisfies the law.
Signatures - If a law requires a signature, an electronic signature satisfies the law.
Notably, the first two provisions were purposely drafted using double negatives. As a result, PaETA provides no guidance as to whether an electronic transaction constitutes a legally-enforceable contract; it provides only that a transaction is not a non-contract solely because an electronic record or signature was involved. Like UETA, PaETA's primary purpose is to bestow upon electronic records and signatures the same legal standing and significance as paper documents and written signatures. All other issues regarding the formation, validity and enforceability of an electronic "contract" are, like paper documents, governed by general Pennsylvania contract law, with the exception of Chapter 7 of PaETA which contains rules for attribution of electronic signatures.
Other provisions similarly promote the "equivalency" of electronic records and signatures to their paper counterparts. Thus:
If a law requires that a record be retained, the requirement is satisfied by properly retaining the record in electronic form
If a law requires a person to provide, send or deliver information in writing to another person, the requirement is satisfied if the information is in electronic form and the recipient is able to print and store the electronic record
If a law requires a record or signature to be notarized, acknowledged, verified or made under oath, the requirement is satisfied if the electronic signature, together with all other information required under other applicable law, is attached to or logically associated with it
If a law requires a record to be presented or retained in its original form, an electronic record that accurately reflects the information in the original is acceptable
If a law requires retention of a check, an electronic record that accurately reflects the information on the front and back of the check is acceptable
In a trial or other legal proceeding, evidence of a record or signature may not be excluded solely because it is in electronic form
If a transaction occurs entirely as the result of an automated "interaction of electronic agents of the parties," a contract may be formed even if no one was aware of or reviewed the electronic agents' actions or terms and agreements.
This legally sanctions purchases such as those involved in automated inventory replenishment transactions.
Again, each of these provisions promotes "equivalence" and gives electronic records and signatures the same legal standing as paper documents and manual signatures.
Governmental Agencies
PaETA requires each governmental agency within the Commonwealth to determine whether, and to what extent, it will send and accept electronic records and signatures or otherwise create, generate, communicate, store, process, use and rely upon electronic records and signatures. The Act encourages each agency to specify not only the manner and format in which electronic records must be created, transmitted and stored but also the systems established to do so. The Act also encourages each agency to identify any agency-specific items such as preferences or requirements regarding electronic signatures, control or security processes and procedures and any other required attributes for using electronic records.
PaETA encourages but does not require agencies to use or permit the use of electronic records and signatures; however, if the governmental agency chooses to use and permit the use of electronic records and signatures, it must expressly identify the terms under which it will do so. Companies that regularly conduct business with Pennsylvania agencies should watch for their respective regulations or publications.
Attribution of Records and Signatures
PaETA also governs security and control procedures in on-line transactions and prescribes procedures for determining liability in the event of a breach in security. In general, PaETA provides that when a party receives an electronic record or signature that is identified by a security procedure as being from a person who has agreed to use that procedure to verify electronic records and signatures, then the electronic record or signature is deemed as "attributable" to the person and the receiving party may rely on such attribution as long as it can establish that: (1) the security procedure was commercially reasonable; (2) it accepted or relied on the electronic message in good faith and in compliance with the security procedure; and (3) the security procedure indicated that the electronic message was from the attributed person. Nevertheless, the alleged sending party can avoid "attribution" by establishing that the person who sent the electronic message was not authorized to do so or that he or she improperly used confidential information or transmitting facilities. The attribution rules set forth in this chapter may be varied by agreement between the parties. These rules, however, do not apply to electronic transactions to which a consumer is a party.
Consumer Agreements
This chapter of PaETA provides express limitations for the protection of consumers in electronic transactions. Unlike purely commercial transactions, a contract or agreement with a consumer may not contain a provision authorizing transactions by electronic means unless the consumer agrees to such a provision by a separate and express acknowledgement. An agreement with a consumer must indicate which parts of a transaction may take place by electronic means and must specify the manner in which it shall be conducted. Also unlike a purely commercial transaction, an agreement to conduct an electronic consumer transaction may not be inferred solely from the fact that the consumer had previously done so.
Conclusion
Electronic commerce is the new reality. Businesses must embrace the e-business revolution, actively explore the vast and lucrative markets that it opens and conform their structures and procedures to accept and even encourage transactions via the Internet. Businesses also must modify their form agreements and documents to address e-business issues and scrutinize proposals, correspondence and agreements with their vendors, suppliers and clients to ensure legality and protection.
For more information, please contact pbarry@cohenlaw.com.
