United States: E-Commerce: Doing Business In The 21st Century

Could we evolve into a paperless society in the 21st Century? Not entirely, but the amount of paper needed to document commercial transactions should be greatly reduced because of e-commerce. The use of the Internet by consumers for online purchases has exploded over the last two years, and companies are developing e-commerce systems to provide for commercial purchase and sales transactions over the Internet.

Businesses are now becoming comfortable with using the Internet for sensitive transactions because of two developments. First, total encryption of the data transmitted is now relatively inexpensively available. With this process, businesses are developing confidence that the data being transmitted over the Internet will remain confidential.

Second, many states are enacting legislation which recognizes the legality of a signature transmitted by electronic media. Utah was the first such state, which passed its Digital Signatures Act in 1995. Since then many other states have passed similar legislation, including Georgia, which passed its Electronic Signatures Act in 1997.

Introduced to promote the use of electronic government and electronic commerce, the Georgia Electronic Signatures Act expressly recognizes the legal effect of a signature transmitted over electronic media where a person has agreed to be bound by an electronic signature. Therefore, companies which plan to use electronic commerce should first have their customers manually sign a contract which states that the customer agrees to be bound by electronic signatures. From that point forward, business can be done through electronic media without the costs and delays which are associated with having to obtain a manual signature for each transaction.

Tennessee has not yet enacted the equivalent of an electronic or digital signatures act. In the 1999 legislative session, however, two bills were introduced which would have expressly recognized the legality and binding nature of a signature transmitted via electronic media. Although HB1394 was taken off the calendar in the Judiciary Committee, SB1655 currently rests in the Senate Judiciary Committee where it has been deferred until the next legislative session in January 2000. As drafted, the bill would generally grant electronic signatures the same force and legal effect as any manually written signature.

The advent of electronic signature legislation will undoubtedly encourage the use of e-commerce by unequivocally resolving some of the legal issues accompanying this new trend. However, even without electronic signature legislation, a well drafted contract whereby the parties agree to be bound by electronic signatures would probably be binding in most states under general principles of contract law. The initial contract should be manually signed, thus paving the road for the electronic exchange of orders.

With the growing presence of the Internet in our society, we expect more and more states to follow Utah’s lead in enacting legislation which facilitates e-commerce. As this occurs, companies must begin to position themselves to be able to take advantage of the tremendous efficiencies offered by electronic commerce. This includes the development of a business plan detailing the flow of information between a company, its suppliers, and its customers. This process should be designed to minimize costs and maximize efficiencies while fully complying with the laws of the states in which it does business.