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FTC and DOC on digital signatures legislation
These are copies of the letters the FTC sent Senator
Leahy and the Department of Commerce's Andrew Pincus sent
Representative Hyde regarding the Digital signatures
legislation. [Taken from the Congressional Record].
Jamie
Federal Trade Commission,
Washington, DC, September 3, 1999
Hon. Patrick Leahy,
U.S. Senate, Washington, DC.
Dear Senator Leahy: In response to your request, I am
pleased to submit the views of the Federal Trade Commission
on S. 761, the ``Third Millennium Digital Commerce Act,''
which was reported by the Commerce Committee on June 23,
1999. You have asked, in particular, whether the bill could
undermine consumer protections in state and federal law, and
how the bill might be improved.
We share the broad goals of S. 761, which are to promote
the development of electronic commerce through the expanded
use of electronic signatures and electronic agreements. As
with other aspects of electronic commerce, these technologies
hold possibility of reducing costs and expanding
opportunities for consumers. Although the bill appears
primarily focused on removing barriers to electronic commerce
in business-to-business transactions, we have begun analyzing
the possible impact of the bill on business-to-consumer
transactions.
The bill's potential application to consumer transactions
raises questions that should be addressed. For instance,
would the bill preempt numerous state consumer protection
laws? Would borrowers be bound by a contract requiring that
they receive delinquency or foreclosure notices by electronic
mail, even if they did not own a computer? Would consumers
who had agreed to receive electronic communications be
entitled to revert to paper communications if their computer
breaks or becomes obsolete? Would consumers disputing an
electronic signature have to hire an encryption expert to
rebut a claim that they had ``signed'' an agreement when, in
fact, they had not? What evidentiary value would an
electronic agreement have if it could be easily altered
electronically? It may be that with some clarification, these
questions can easily be addressed.
We would be pleased to work with the Congress, industry and
consumer representatives to craft provisions that would
provide protections for consumers while allowing business-to-
business commerce to proceed unimpeded.
By direction of the Commission.
C. Landis Plummer,
Acting Secretary.
General Counsel of the
U.S. Department of Commerce,
Washington, DC, October 12, 1999.
Hon. Henry J. Hyde,
Chairman, Committee on the Judiciary, House of
Representatives, Washington, DC.
Dear Mr. Chairman: This is to convey the views of the
Administration regarding Title I of H.R. 1714, the
``Electronic Signatures in Global and National Commerce
Act,'' as reported by your Subcommittee on Courts and
Intellectual Property (``Subcommittee'').
We support the overall goal of H.R. 1714 of promoting a
predictable, minimalist legal environment for electronic
commerce, including the encouragement of prompt state
adoption of uniform legislation assuring the legal
effectiveness of electronic transactions and signatures. We
also appreciate the desire and the work of the Subcommittee
on Courts and Intellectual Property to put forward a bill
that addresses the concerns of the Administration as
explained in Commerce and Justice Department testimony before
that Subcommittee.
In particular, we note that section 103 of the reported
bill, titled ``Interstate Contract Certainty,'' is directed
to ``any commercial transaction affecting interstate
commerce'' and that ``transaction'' is defined to exclude
activity involving federal or State governments as parties.
We endorse these features of the bill, which make the scope
of the legislation broad enough to encompass most day-to-day
commercial electronic transactions without interfering with
the orderly adoption by governments of electronic means for
transacting their public business.
[[Page S13549]]
We also are pleased that the reported bill omits any
provision for federal agency initiatives to enjoin state laws
not conforming to the requirements of this statute.
We continue to support strongly the principles for the use
of electronic signatures in international transactions set
out in section 102. These are fully consistent with the
principles we have been actively promoting internationally
since July, 1997, when President Clinton and Vice President
Gore issued the Framework for Global Electronic Commerce
charging our Department to ``work with the private sector,
state and local governments, and foreign governments to
support the development, both domestically and
internationally, of a uniform commercial legal framework that
recognizes, facilitates, and enforces electronic transactions
worldwide.''
We nevertheless believe that the bill, as reported, would
still preempt state law unnecessarily, both in degree and
duration; invalidate numerous state and federal laws and
regulations designed to protect consumers and the general
public; and otherwise create legal uncertainty where
predictability is the goal. We therefore must strongly oppose
the measure in its current form.
To begin with, we do not understand why it is necessary to
override existing federal laws governing commercial
transactions. The purpose of this legislation has always been
explained as the elimination of antiquated requirements for
physical contracts and pen-and-ink signatures. Because those
legal principles are embodied in state law, it is
understandable that some limited preemption of state law is
necessary to accomplish that goal pending the States'
adoption of the Uniform Electronic Transactions Act (UETA).
The federal rules applicable to these transactions are
grounded in regulatory obligations, not basic contract law
principles. We do not believe it is appropriate to sweep away
these requirements on an across-the-board basis. to the
extent that federal regulatory rules need updating to address
the new reality of electronic transactions, this should be
done on a case-by-case basis, to ensure that the public
policy concerns that underlie the existing measures are fully
addressed in the electronic world. Accordingly, we believe
only state law standards should be affected by federal
legislation in this area.
Section 103 of H.R. 1714 as reported to your Committee
continues to place significant, and we believe inappropriate,
limits upon the States' ability to alter or supersede the
federal rule of law that the bill would impose. As I
indicated in my testimony before the Courts and Intellectual
Property Subcommittee, this legislation should be limited to
a temporary federal rule to ensure the validity of electronic
agreements entered into before the States have a chance to
enact the UETA. Once the UETA is adopted by a State, the
federal rule is unnecessary, and it should ``sunset.'' The
reported bill would maintain a strong federal hand in the
commercial law of electronic signatures and records within a
State even after it adopts the UETA. This is true because the
bill would lift its preemptive effect only to the extent that
the UETA ``as in effect in such State,'' or any other law of
the State, is ``not inconsistent, in any significant manner''
with the provisions of this Act.
The pervasiveness and strength of this continuing federal
influence over States' laws is shown by the broad and
unqualified wording of some of the substantive provisions of
section 103. For example, subsection 103(a)(3) provides: ``If
a law requires a record to be in writing, or provides
consequences if it is not, an electronic record satisfies the
law.'' Similarly, subsection (a)(4) provides that wherever a
law ``requires a signature, or provides consequences in the
absence of a signature, the law is satisfied with respect to
an electronic record if the electronic record includes an
electronic signature,'' and subsection (a)(5) provides highly
specific requirements for ensuring that a legal record-
retention requirement will be satisfied by an electronic
record. With such provisions in section 103, the bill's
continuing preemption of all State laws which are ``not
inconsistent in any significant manner'' with the provisions
of this Act would perpetuate federal law as the core of the
commercial law of electronic signatures and records in every
state. As emphasized in our Department's testimony before the
Subcommittee, deference to state law in the area of
commercial transactions has been the hallmark of the legal
system in this country. The reported bill remains
inconsistent with this important tradition which has
produced a system of commercial law widely considered the
best in the world.
Subsections 103(a) (3), (4) and (5), which I have just
mentioned, coupled with the broad party autonomy language of
section 103(b), would also place excessive limits on
governmental authority. In particular, these provisions would
appear to preclude virtually any regulation of private
parties' authentication of recordkeeping practices in the
sphere of electronic commerce, as is common and recognized as
appropriate with respect to paper-based transactions.* But
these regulations, including consumer protection laws, laws
governing financial transactions, and others, are essential
to ensure that the public interest is protected.
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* These provisions are similar to some contained in S. 761,
as reported by the Senate Commerce Committee. I expressed
support for that measure because it ensured that contracts
could not be invalidated because they were in electronic form
or because they were signed electronically. At the time the
bill was reported, the spillover effect of these provisions
on existing consumer protection and regulatory standards had
not been identified. Now that this effect has become clear,
and it is equally clear that enactment of this measure is
desired by some precisely because of this spillover effect,
we must oppose these provisions as currently drafted.
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For example, raising concerns similar to those noted in
this Department's testimony on H.R. 1714, Banking Committee
Chairman Leach recently wrote to Commerce Committee Chairman
Bliley noting that the federal financial regulatory agencies
have raised a concern about the language of the section of
H.R. 1714 (section 103(b) of the version before your
Committee) relating to the autonomy of parties to a contract
to set their own requirements with respect to electronic
records and signatures. Specifically, he noted the need to
ensure that the bill's party autonomy provisions would not
limit government authority to engage in limited regulation of
authentication- or records-related matters in certain private
party transactions in the public interest. We agree; for
example, given the unqualified authorization provided by
subsection 103(b) to private parties to determine the
``methods'' as well as the ``terms and conditions'' under
which they will use and accept electronic signatures and
records, banks would be free to adopt methods that could
result in the absence of adequate records or sound
authentications of transactions when the bank examiner
arrives.
Chairman Leach also noted that the Federal Reserve Board
has raised concerns regarding the application of H.R. 1714 to
negotiable instruments, such as checks and notes. He pointed
out that the National Conference of Commissioners on Uniform
State Laws recognized some of these concerns and therefore
excluded transactions covered by the Uniform Commercial Code
from coverage under UETA. We agree with the concerns raised
by Chairman Leach and believe that amendments or
clarifications along the lines he has suggested continue to
be needed in the context of H.R. 1714 as reported to your
Committee.
Consumer protection is another important area where the
public interest has been found to require government
oversight. States, as well as the Federal government, must
not be shackled in their ability to provide safeguards in
this area. Yet this is precisely what this legislation would
do.
Section 104, ``Study of Legal and Regulatory Barriers to
Electronic Commerce,'' is consistent with the
Administration's commitment to ensure the careful review of
possible legal and regulatory barriers to electronic
commerce. Indeed, this provision in the bill as reported
focuses upon barriers to electronic commerce, as such, rather
than more narrowly upon commerce in electronic signature
products and services. We believe this focus is appropriate.
However, to avoid duplication of agency reporting, we would
recommend against inclusion of the Office of Management and
Budget as an agency to receive initial agency reports under
the provision.
In summary, we believe that the bill as reported by the
Subcommittee addresses some important concerns of the
Administration that were set out in our earlier testimony.
However, H.R. 1714 in the form reported to your Committee
retains significant flaws that would have to be addressed
before the Administration could support the bill. We would be
pleased to continue to work with your Committee on this
important legislation.
The Office of Management and Budget advises that there is
no objection to the submission of this report from the
standpoint of the Administration's program.
Sincerely,
Andrew J. Pincus.
--
James Love / Director, Consumer Project on Technology
http://www.cptech.org / love@cptech.org
P.O. Box 19367, Washington, DC 20036
voice 202.387.8030 / fax 202.234.5176