Electronic Signatures-Esign Origins, Understanding Laws, and the Affects

The Birth of the Electronic Signature – Faxing

When the first contract was signed and faxed it created the basis for the discussion of electronic signature validity. After all it was the first time someone could sign something, place it in a machine, send it from one phone line to another and deliver a digitally reproduced signature. The path this signature took was not controllable or traceable, and in most cases it traversed miles of wire before reaching its destination, so how could it be considered a valid signature? The intentions of the signature were clear to everyone, but businesses wanted to know they could count on the validity of the signature, and if no one actually witnessed the action of one individual or of a corporation how could a business put any faith in it? This of course caused quite a stir and in rapid fashion the courts ruled this signature carried the same validity as if the parties were standing in the room together. With this, the fax became standard operating procedure world-wide.

The business logic behind this thinking was easily justifiable. Before the fax machine, the contract could have been signed verbally between the sales person and the client, and then somewhere down the road a paper copy would have been signed and mailed. Many sales before the fax machine were consummated with a simple “OK let’s do it” comment over the phone. This drive to get business and make the wheels turn demonstrates the most vital point in an electronic communications based world, or for that matter in a digital world with no physical or direct contact, is most businesses can operate on trust. They provide a service to a customer and the customer trusts they will provide that service in a satisfactory manner, while the service provider trusts that the customer will pay for services rendered.

Trust is not a new thing in business; it was often indicated by a hand-shake or “You have a deal”, and that was all you needed to get a deal done. Has that changed today? I believe the answer is no, but what about the courts, and their opinion on the validity of the electronic signature? After all the courts’ goal is not just to keep the wheels turning and generate revenue, so why did they trust this type of signature and what was the legal question this signature answered? This line of thinking brings us back to Electronic Signatures in Global and National Commerce Act or as it is more commonly known, the (“ESIGN”) Act.

 

Authentication

Authentication is the reasonable basis on which to believe that the entity electronically signing the file is who they say they are. This can be accomplished in many ways. In the traditional world it might be done by checking a driver’s license or other form of identification, but in the electronic world this is not always an option, so other methods must be used.

The most common and popular way of accomplishing this identity check is to use an e-mail based identifier. This is a process most people have experienced at some point while using the Internet. If you signup for a web based service you generally need to create a user name and password. When you create this account many systems will send a verification e-mail to the e-mail address you entered for your record, thus proving that you own this e-mail address. You then copy and paste this verification information into the confirmation system provided by the web site and you become a verified member. That process and most processes that use your e-mail address are known as e-mail based ID systems.

Another way to verify an identity is to use a known third party validation mechanism. In other words, use something that presumably has already verified the entity in question. There are several common methods for achieving this type of authentication. You may have experienced it with a web site requiring you enter in your home zip code, an account number or in some cases a credit card number. Many web sites will have you enter your credit card information into a form, allowing them to cross reference the information you provide them with a credit card merchant. Presumably if you told the credit card company the truth about you, then it will match with the information you provided the website.

The methods available and in use for identifying and authenticating individuals are countless, and presumably the higher the value of the transaction the more authentication methods should be implemented.

Integrity

Integrity simply means providing a reasonable belief that any file electronically signed on a system cannot and has not been tampered with by anyone or anything. The concept is easy to understand and the requirement for it is certainly justified. When you are dealing with paper it is easy to give everyone a copy, and any discrepancies are easily found, but with electronic records it can be difficult to manually or even visually tell if the file has been altered. To demonstrate integrity electronic signature capture services generally use an encryption algorithm to lock a file once it has been signed. Even better services will continually validate a file all the way through the signature process and then create a final version once all signatures are finalized. Most technology used today for identification purposes can be more accurate than human DNA.

 

How Electronic Signatures Can Help You

In order to fully understand how electronic signatures can help you and your business we need to take a look at why we want to use them in the first place. Electronic signatures offer a wide variety of benefits to everyone involved in a transaction. They reduce costs associated with signing files by cutting overhead. Electronic signatures allow us to cut hard costs like paper, ink, printer wear, staples, pens, shipping and handling, but they also allow us to cut soft costs like storage, copying, filing, retrieval, auditing and tracking. Overall electronic signatures can save hundreds of dollars on a single contract for small contracts and thousands or tens of thousands for large contracts.

Let’s demonstrate how the savings can be realized. A business sends out 100 proposals per year that are approximately 150 pages long. It is primarily black and white ink. The client prints the 150 page proposal on regular stock paper 1 and binds it 2. The proposal is then placed in an overnight delivery envelope and shipped next day air, with a return envelope provided, which is also next day air 3. Once the client receives the proposal, reads it and signs their acceptance, the proposal is then shipped back to the business 4 in the provided overnight envelope. Once the proposal arrives at the business, the sales team and managers need to be notified, so they can engage the client. The proposal then needs to be filed and stored in a safe place. The person working at receiving desk will make three copies of the proposal 5, and distribute them to the required personnel, and subsequently file the original proposal in a filing cabinet 6. So what are the costs?