Digital Signatures and Global E-Commerce: Part I -- U.S. Initiatives.

• Author: STEPHENS, DAVID O.

In December 1999, two paper-dependent Maryland businesses -- a law firm and an office equipment company -- executed the first lease agreement made official with a digitally signed "electronic original." Using a digital certificate system supported by public key infrastructure (PKI) technology, the law firm created the lease electronically, signed it with an electronic pen and pad, and sent it securely via the Internet to the office equipment company. There it was signed electronically again and stored in a repository as an "electronic original" document. Once stored, the digital document was protected from undetected change, although interested parties could view or print it.

In one sense, the Maryland e-contract seems paradoxical since its purpose was to lease eight office copy machines to create paper documents. Moreover, the parties also had to sign a paper lease agreement since Maryland state law did not recognize digital signatures as legally binding (though new legislation is pending). On the other hand, the ability to execute legally binding business transactions without paper or physical signatures is a milestone in the development of e-commerce. The event is an example of major new initiatives -- both legal and technological -- occurring in the United States concerning digital signatures in a broader e-commerce business environment.

Historically, commercial transactions have taken place by phone, fax, wire, and mail, with paper documents the end product of the transactions' official consummation. But when parties to business transactions migrate from paper to electronic recordkeeping, many questions surface.

For example, when basic e-mail is the primary means of communication and document transfer among parties to the transaction, it is difficult to know which document version is the latest or what revisions have been approved. Moreover, in Web transactions, customers visit a particular site, read a contract for purchasing goods or services, then click the "I agree" button. In HTML format, that indication of agreement goes to a database but with no record of the question's text. Thus, at a later time, it becomes very difficult to prove exactly what was agreed upon. Businesses need to address these new issues as they migrate their contractual agreements and transactions from paper to electronic formats.

There is no question that e-commerce is the wave of the future. Consider that the U.S. government reportedly consummates at least 75 percent of its transactions electronically. Moreover, the federal government has made it mandatory that all agencies make their public documents available electronically and enable the use of digital signatures by October 2003. The private sector, which is moving very aggressively to embrace e-commerce, reports similar figures.

E-commerce is among the most significant paradigm shifts in the history of commercial enterprises. Its benefits include opportunities to define and dominate new markets -- globally as well as nationally -- lower transaction costs, improve productivity, and gain greater market share. Today, businesses are reinventing themselves around e-commerce. For example, General Motors, the world's largest manufacturing company, aspires to be "the world's largest e-commerce company" by integrating information delivery into Web-connected cars and the many other aspects of its global businesses. Similar business initiatives abound throughout the world.

Digital Signatures

Digital signatures, a key component of e-commerce, are not new; they can exist in many different forms, including automated teller machines and other computer systems that rely on personal...