Digital signatures enable paperless contracts and can speed
up business transactions. The 2001 E-Sign Act was meant to ease the adoption of
electronic signatures, yet the mechanics of what makes up an e-signature were
left deliberately wide open. Eleven years later, there is still widespread
mistrust of e-signatures, even though they contain more evidence that a
particular person signed a document at a particular time than a traditional
pen-and-ink contract does. How can you be certain that your e-signed documents will hold up in a court of law? Which
best practices should you follow when using digital signatures in your
business?
For answers, I talked with Dallas copyright attorney Bhaveeni
Parmar, who uses e-signatures in her practice and in frequent applications with
the United States Patent and Trademark Office. I also spoke with Ken Moyle,
chief legal counsel of digital signature company DocuSign, as well as its
founder Tom Gonser.
Why This Matters
Like it or not, it's common for clients to dispute a contract by
questioning its original validity. Such a client could claim that a digital
signature fails to comply with the Federal E-Sign Act and run with it all the
way to court. The root of most potential legal problems with an electronically
signed document relate to the enforceability of that contract. This is one of
the reasons, when you're ordering goods or agreeing to services online, for so
many check-boxes acknowledging that you accept the terms of the agreement. A
user who checks those boxes will have a hard time arguing later that they
didn't understand what they were signing. The language of the contract can also
be a problem, which is why a lawyer should look over a contract before your
company releases it into the wild. Parmar, for one, hasn't been involved in
cases where digital signatures used by her clients have been questioned, and
she isn't convinced there will be many cases surrounding them in the future as
long as businesses use appropriate e-signing methods.
The Three Security Levels of
E-Signatures
According
to Parmar, there are three levels of electronic signatures. The first and least
bulletproof on the ladder is to use a picture of your signature on any
document, whether it's a PDF, DOC, DOCX, or other file type. Parmar would not
recommend using this for most commercial purposes, even though it would be
legal if the signing parties could prove their intent. A party could prove this
with supporting evidence, such as emails requesting the services referred to in
the contract, but Parmar says it is best not to chance it for a business
transaction. The second class of signatures, which Parmar uses all the time in
her practice, is signing one's name to a document electronically by typing your
name in one of the following formats:
For submissions to the Federal court system: /s/Angela West
For submissions to the Patent & Trademark Office: /Angela
West/
Both the // and the /s/ methods are considered to be
legitimate signatures under the Federal E-Sign act, and acceptable enough for
the legal industry. Parmar recommends using these on lower-priority
contracts--such as an agreement for low-value, non-recurring services--where
enforceability is unlikely to be called into question. To keep the consumer
disclosure portion of the Act in mind, a line should be added to the contract
clearly indicating that the signatories have the option to opt out and sign
with a paper signature instead. The third level, or the "Cadillac"
level, is comprised of services like DocuSign and Adobe EchoSign, which follow
the letter and intent of the E-Sign Act, even considering international laws in
the makeup of their services. These should be the choice for high-value
transactions, such as real estate contracts. Each service offers a free
membership level. Adobe
EchoSign gives you
five free signatures per month and stores the last five documents that you
signed. The $14.95 level gives one user unlimited e-signatures,and prices go up
from there. Using Adobe Reader, EchoSign now lets you sign with your finger on a smartphone or tablet. DocuSign offers a free trial and also starts at $14.99
per month for one user. It also offers a REALTOR Professional product.
Keeping Records
The
E-Sign Act states that if a business is required to keep a record of a
contract, it must also keep an electronic record. This requirement goes a step
further by requiring that all signatories have access to the signed file--and
residence on a company server is an unacceptable method of storage. Services
like Adobe EchoSign and DocuSign, however, let you keep a copy of the contract
online on their servers, which all signatories can access.
When Not to Use an E-Signature
Parmar suggests a few applications in which you would want an
original pen-and-ink signature rather than an electronic one. Where a deceased
person may be involved, such as with a health insurance policy or estate
documents, a paper signature is a must since the person isn't around to be
questioned about intent in signing the document. Eviction notices, court
orders, foreclosure notices and product recall notices should also contain a
signature, based on Parmar's broad reading of the E-Sign act and experience in
her practice.
Changing Your Habits
If you’re using copied and pasted signatures on digital
contracts, stop now. Parmar suggested that for my own business, I should at
least go with the double-slash electronic signature method. But because I
frequently do business across international borders, I'm going to go with a
"Cadillac" option for my next contract.
Nice
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