By permission of the author, Patricia Brumfield Fry. Permission to republish must be referred to Professor Patricia Brumfield Fry, University of Missouri School of Law, Missouri Avenue & Conley Avenue, Columbia, MO 65211, Ph 573 884 7761, Fax 573 882 4984, E-mail fryp@missouri.edu

A Preliminary Analysis of Federal and State Electronic Commerce Laws

by Patricia Brumfield Fry

Both houses of Congress have approved S. 761, titled the Electronic Signatures in Global and National Commerce Act or "E-Sign," and it was signed by the President on June 30, 2000. During the past year, 18 States have enacted the Uniform Electronic Transactions Act (UETA), and it is pending in at least another ten. The Uniform Electronic Transactions Act was approved by the National Conference of Commissioners on Uniform State Laws at its Annual Meeting in July 1999 as a body of legislation validating the use of electronic records and electronic signatures. The two pieces of legislation overlap significantly. In some cases the federal legislation uses the language of UETA without change. Nevertheless, these acts are not identical, in scope or in substance.

This memorandum contains a preliminary examination of the impact of the federal legislation on electronic commerce on existing and future state law. Questions have been raised concerning the impact of E-Sign on the Uniform Electronic Transactions Act. The first part of this memorandum will consider whether and to what extent E-Sign preempts UETA. The second part will discuss the extent to which state legislation continues to be needed to govern electronic commerce, i.e. the extent to which there is a role for UETA as state law. Finally, this memorandum will conclude with some thoughts concerning the impact of the federal legislation on other state law.

1. To what extent does E-Sign preempt UETA?

Section 102(a) of E-Sign specifies that State law may modify, limit or supersede the electronic contracting provisions of E-Sign under limited conditions. Under sub-part (1), if the State has enacted UETA as approved and recommended by NCCUSL in 1999, the State law will govern. This provision is subject to two important caveats. If a State has accepted the invitation in UETA §3(b)(4) to exclude bodies of State law other than those listed by the drafters, E-Sign §102(a)(1) specifies that those exclusions are preempted to the extent that they are inconsistent with Titles I and II of E-Sign, i.e. the electronic contracting and transferable records provisions of E-Sign. Nothing in E-Sign affects State uniform enactment of UETA §§1-16. Any non-uniform provisions approved by a State legislature, including any exclusions in addition to those found in the uniform version of UETA, must be evaluated separately.

E-Sign §102(a)(2) governs the determination of whether other State law, including non-uniform provisions inserted by the legislatures into UETA, survive the federal enactment. That provision states that State law may modify, limit or supersede the federal legislation only if it "specifies the alternative procedures or requirements for the use or acceptance of electronic records or electronic signatures, provided:

(a) any alternative procedures or requirements are consistent with Titles I and II and

(b) the alternative procedures do not require, or give greater legal status or effect to use or application of a specific technology or technological specification. [Note, however, that there is an exclusion from this provision for the procurement regulations or laws of the States.]

In addition, any such State law must, if enacted after enactment of E-Sign, specifically refer to the federal legislation.

Thus, it is fair to conclude that E-Sign does not preempt State enactment, and permits additional States to enact, the uniform version of UETA §§1-16, without fear of preemption. The effect of non-uniform enactment of UETA is more problematic. The best interpretation appears to be that any non-uniform provisions of such an enactment are to be evaluated under §102(a)(2). Under this approach, inconsistent non-uniform provisions of a specific State's enactments would be ineffective, but the balance of the enactment would survive. There are two other possible readings of the preemption language. Under one, if the State statute has any non-uniform provision, the entire enactment is ineffective and federal law governs. Such a reading would be consistent with the literal language of subsection (a)(1) and would force the entire packet of State legislation to be evaluated for consistency and in terms of medium neutrality under subsection (a)(2). Under the second, but least persuasive alternative reading, non-uniform provisions do not survive, whether or not they would be acceptable under subsection (a)(2).

The first of these three interpretations, that the enactment survives preemption with non-uniform amendments requiring evaluation under subsection (a)(2), seems the best. It is the most consistent with existing preemption doctrine, which would enforce State law to the extent not inconsistent with the federal statute except in cases where Congress clearly has indicated an intention to block all state legislation. Given the explicit reference to the uniform version of UETA in subsection (a)(1), it seems inappropriate to require judicial review of identical provisions because a State legislature has chosen to include some non-uniform language. In the 18 State enactments of UETA which have preceded the approval of E-Sign by Congress, non-uniform language ranges from changes made to conform to legislative drafting protocols to the addition of provisions designed to insure that consumers have assented knowingly to deal electronically. Certainly changes to conform to legislative drafting protocols should not result in the entire packet of legislation being preempted. On the other hand, provisions on consumer assent represent substantive additions to UETA which could be inconsistent with the consumer provisions of E-Sign. These should be evaluated under subsection (a)(2). In addition, there is nothing in §102 to suggest that an enactment of UETA which does not satisfy in full detail subsection (1) is ineligible for consideration under the second provision. Assuming that the intention of Congress was to defer to State enactments of UETA, rendering such enactments ineffective if even mechanical changes are made, such as those which conform UETA to state drafting protocols, does nothing to further the goals of the legislation.

Some additional caveats must be raised. In addition to the generalized preemption provisions found in §102(a), other provisions of E-Sign limit the authority of the State to override its provisions. UETA §8(b) provides that if a State law requires records to be posted or displayed, sent or communicated, or provides for specific formatting for stated information, the method provided in that State law must be followed. E-Sign §102(c) states explicitly that this provision may not be used by any State to "circumvent" the federal law by imposing "nonelectronic delivery methods" which would be enforced under UETA §8(b). Similarly, UETA §§12(f) and (g) permit States to impose requirements, in addition to the use of electronic media, for records retained for evidentiary, audit or like purposes or for records within the jurisdiction of a state agency. Yet the provisions of E-Sign §104 limit that power by stating it may not be exercised in a manner inconsistent with the federal Act. Indeed, E-Sign §104 further specifies that State regulations or orders may not impose requirements in addition to those found in E-Sign §101 and may not require, or accord greater legal status to implementation of specific technologies. Finally, the provision requires, as a condition to any such regulation or order, that the agency make findings that the regulations or orders are substantially justified, are substantially equivalent to requirements imposed on paper records, and will not impose unreasonable costs on the acceptance use of electronic records.

Several additional comments about the provisions of E-Sign §102 should be made. First of all, these provisions may be unique in terms of their drafting style. They do not follow the models found in other legislation, such as the Consumer Credit Protection Act, or in federal regulations, such as the Federal Reserve Board's Regulation CC. To the extent that State law is not an enactment of the noted provisions of UETA, it will not be possible to determine whether the effect of E-Sign has been avoided until there is either regulatory clarification or interpretation consistent with E-Sign §104 or there has been judicial review.

Finally, it is important to point out that the savings provisions of E-Sign §102 apply only to the electronic contracting provisions of the statute. They do not apply to the other titles of the statute, including the exclusions found in §103, the provisions governing the powers of State and Federal agencies in §104, the studies required by §105, the provisions on transferable records in Title II or the provisions on promotion of international electronic commerce in Title III. This fact does not automatically render other State law ineffective, but it does mean that to the extent the federal legislation overlaps such laws, the federal legislation will prevail. For example, E-Sign §201 governs electronic records which would be notes secured by real estate if on paper media. UETA §16 governs transferable records and covers electronic records which would be documents of title or notes, without regard to the nature of the collateral. There does not appear to be anything inconsistent in those provisions and, except for real property secured notes, UETA §16 should remain operative.

2. Should States enact UETA?

Both E-Sign and UETA contain provisions specifying that electronic contracts and electronic signatures shall not be denied legal effect or enforceability because they are electronic. Indeed, the federal legislation imports many of the provisions of UETA into the federal legislation. Nevertheless, the two statutes are not identical. UETA is more comprehensive than the federal legislation, dealing with some subjects not addressed by E-Sign. Other issues are addressed in a different fashion. This portion of this memorandum will attempt to identify the differences and in that fashion identify the reasons why States should enact UETA notwithstanding the existence of E-Sign.

(A) How is UETA more comprehensive than E-Sign?

In addition to the subjects dealt with in the federal legislation, UETA contains provisions dealing with the following issues:

A. Attribution. E-Sign contains no provisions dealing with the attribution of electronic records or signatures. Frequently the issue in a dispute is not whether or not a record, paper or electronic, has been signed, but instead the issue is whose signature appears. For example, whether or not the name Patricia B. Fry appears on a record, I cannot be bound to that record if the name was not placed by me, ratified by me, or inserted by someone acting on my authority. UETA §9 states explicitly that an electronic record or signature is to be attributed to a person if it was the act of the person. This fact can be established by any relevant evidence, including by showing that some sort of technology or password was used which helps to establish who attached the signature. Section 9 also clarifies that the effect of a record or signature on the person to whom it is attributed is to be determined from the context and surrounding circumstances at the time of the creation, execution or adoption of the record.

B. Effect of other State law. UETA defers to the provisions of other State law for most substantive determinations. While UETA specifies that an electronic record or signature is as effective, valid and enforceable as a piece of paper, questions of authority, agency, forgery, contract formation, etc., are determined by other State law. Indeed, UETA was drafted to displace as little existing law as possible and to further the idea that electronic media are on a legal par with paper. E-Sign states, in §101(b) that it does not affect any legal requirement beyond requirements for writings, signatures, and the like.

C. Effect of Party Agreement. The UETA contains numerous provisions recognizing that the parties are free to enter into agreements concerning their use of electronic media. Indeed UETA §5(b) specifies that the Act only applies when parties have agreed to deal electronically (cf. E-Sign §101(b) which states it does not require anyone to deal electronically and §101(c) which applies only to consent to receive legally required notices electronically). UETA §5(d) specifies that parties have the power to vary its provisions by contract, §9 refers to the parties' agreement as a factor in determining the effect of an electronic record, and §10 refers to the parties' agreement to use security procedures. E-Sign confines itself to the legal effect, validity and enforceability of electronic records and signatures. It contains no provisions on variation by agreement. Any mandatory provisions of E-Sign, such as the consumer notice provisions of §101(c), are not susceptible to variation by agreement, even in cases where State law might otherwise have permitted the parties to define or specify matters in their contracts.

D. Send and receive. E-Sign does not deal with the question of when an electronic record is sent or received. UETA §15 ties the determination of whether something has been sent or received to the communication systems used by the parties and specifies that, unless otherwise agreed, they are sent or received from the parties' principal place of business or residence.

E. Effect of Change or Error. E-Sign does not contain provisions dealing with mistakes or errors in electronic communications. UETA §10 contains specific provisions governing the effect of the failure to use an agreed security procedure, the impact of mistakes made by an individual while dealing with an electronic agent, and specifies that, except as specifically provided, the rules of mistake otherwise apply.

F. Admissibility. UETA §13 specifies that electronic records are not to be denied admissibility into evidence solely because the records are in electronic format. There is no parallel provision in E-Sign.

G. Transferable Records. E-Sign Title II provides for electronic analogs to paper negotiable notes in transactions secured by real property, and does so in language which is in material part directly imported from UETA §16. The provisions of the UETA are broader in scope, applying to all documents which would, if on paper, be either a promissory note under UCC Article 3 or a document of title under UCC Article 7. The provisions of both acts are designed to create the legal infrastructure necessary to justify private investment in systems which will permit the existence of markets in electronic analogs to commercially significant forms of commercial paper. In both cases, the conditions to the application of the statutory provisions are express consent by the issuer and the existence of a system which will permit accurate determination of the person in control of the electronic transferable record.

Thus E-Sign permits the real estate finance industry to take steps to establish an electronic market in debt instruments. UETA permits the transportation and storage industries, as well as finance industries not based on real property collateral, to experiment with the development of electronic markets for interests in property or claims embodied in electronic records. As noted above, the differing scope of these provisions should mean that they are not in conflict and UETA §16 will function outside the realm of real property secured notes.

There are several questions related to transferable records which cannot be answered until further developments occur. The first, of course, is whether industry will accept the invitation to establish systems to control the records and markets will result. The second is whether, by incorporating into federal law the provisions on transferable records related to real property collateral, flexibility has been lost. As is noted in the comments to UETA §16, it was designed as the initial effort to support private initiatives with the thought that further legislation probably would be required once some experience had accumulated. Future coordination of state and federal efforts to develop a more complete statement of the rights and obligations of participants in such potential markets may prove quite difficult.

(B) What does UETA do differently than E-Sign?

UETA deals with certain matters relevant to electronic commerce in a manner different from the treatment in §101 of E-Sign. To the extent a State has enacted the uniform version of UETA, the UETA treatment of these matters should prevail.

A. Consumer Protection. Perhaps the most significant difference in treatment is found in the manner in which the two statutes deal with consumer protection issues. The federal legislation focuses on regulating the manner of consumer assent to deal electronically, while UETA emphasizes how parties are to comply with State consumer protection rules. Furthermore, the federal provisions are subject to provisions calling for federal study of the extent to which the regulation benefits or burdens electronic commerce and call for recommendations from the Department of Commerce and Federal Trade Commission as to the extent to which they should be modified.

With respect to the manner of consumer assent, E-Sign specifies in §101(c) that if a statute, law or regulation requires that information be provided or made available in writing to a consumer, the use of electronic records is permitted upon compliance with detailed specifications and disclosures. It is important to note that these provisions do not require consumer consent before all electronic dealings; subsection (c) only applies where the law requires that information be provided or made available in writing to a consumer. The party required to furnish the information must:

(a) notify the consumer of any right or option to receive paper;

(b) notify the consumer of the right to withdraw consent to receive electronic notice and stating any consequences (including termination of the relationship) and fees upon termination;

(c) notify the consumer whether the consent is to the specific transaction or to notices during the course of the parties' relationship;

(d) inform the consumer how to obtain a paper copy of an electronic record and of any fee to be charged;

(e) furnish the consumer, prior to obtaining consent, with a statement of hardware and software needed for access to and retention of the records.

In addition, the consumer must consent electronically or confirm the assent electronically "in a manner that reasonably demonstrates that the consumer can access information in the electronic form that will be used . . .". Finally, if a system change raises a material risk that the consumer will not be able to access or retain an electronic record, the consumer must be provided with another statement of hardware and software requirements and be given the right to withdraw the consent without imposition of any fees or other conditions. In addition, the consumer must once again either consent electronically or confirm the assent electronically.

Notwithstanding these detailed provisions, E-Sign also provides in §101(c)(3) that the failure to obtain consent in compliance with its terms does not, of itself, affect the effectiveness, validity or enforceability of any contract entered into with the consumer. Furthermore, §105(b) requires the Secretary of Commerce and Federal Trade Commission to submit a report to Congress, within 12 months after enactment, evaluating any consumer benefits derived from the specified procedure and evaluating whether these benefits outweigh the burdens on commerce. They are required to evaluate and suggest any revisions deemed appropriate.

The impact of these provisions is to permit the use of electronic records for legally required information after the consumer consents to receive electronic notices and disclosures, obtained by following a very specific process. Section 101(c)(2)(A) states that the title does not affect the content or timing of disclosures of records required to be provided or made available. Section 101(f) specifies that the title does not affect requirements concerning the proximity of information to be posted, displayed or attached. Its impact on any other requirements of consumer protection laws, such as formatting or conspicuousness, cannot be determined. While §101(b) states it does not affect other law beyond writing, signing and medium rules, it is possible to argue that formatting or conspicuousness rules, particularly to the extent it is difficult to comply in an electronic environment, are inconsistent with E-Sign §101(a) or (c). UETA, on the other hand, specifies in §8 that such requirements must be satisfied before an electronic record may be used. E-Sign also specifies that the failure to obtain the consent in this manner described in §101(c) will not, of itself, vitiate the consumer's agreement to the underlying transaction.

The federal legislation permits regulatory agencies, to the extent of their rule-making authority, to interpret these provisions, provided they do so in a manner consistent with the federal statute and without according special status to any particular technology. It also conditions the rule-making authority by stating that the regulators may not add to the requirements of the section and by requiring the agency to find "substantial justification," that methods are substantially equivalent to burdens on paper records and that the regulation will not impose additional burdens. E-Sign §101(e) says that the legal effect, validity or enforceability of a record (not confined to consumer notices) required to be in writing may be denied if it is not in a form "capable of being retained and accurately reproduced for later reference by all parties or persons who are entitled to retain the contract or other record." UETA, on the other hand, provides that a consumer is not bound by the effect of a required notice if the sender or its information system does anything to hinder the consumer from printing or retaining the information.

The Uniform Electronic Transactions Act takes a different approach to consumer protection. Rather than regulating the manner of consenting to receive notices electronically, it does not apply to electronic records in the absence of agreement to deal electronically. The finding of agreement is dependent on the context and surrounding circumstances of the transaction [§5(b)]. In addition, UETA focuses on what the information provider must do to comply with State law requirements for notices, disclosures, and information. UETA specifies in §8 that legal requirements to provide, send or deliver information in writing may be satisfied with an electronic record capable of retention by the recipient at the time of receipt. Such a record is not capable of retention if the sender, or its information processing system, inhibits the ability of the addressee to print or store the record. Furthermore, in subsection (b), UETA preserves the requirements concerning the manner of sending, posting, displaying, formatting, etc. contained in other State law. If other State law requires information to be furnished in a conspicuous manner, UETA §8 states that you can furnish the information electronically, but must do so in a conspicuous manner. If other State law requires the information to appear in purple ink sprinkled with glitter, you can furnish the information electronically only if you can assure that it appear to the recipient in purple sprinkled with glitter.

B. Record-keeping. E-Sign §101(d) follows, in material part, the provisions of UETA §12(a), (b), (d) and (e). They vary in that the federal legislation requires that the record remain accessible "to all persons who are entitled to access by statute, regulation, or rule of law" for the time specified in such a rule. UETA merely requires accessibility for later reference. The differences raise some issues which may require judicial resolution. For example, if under E-Sign the information is accessible to some, but not all, persons entitled to access, does that affect the validity or enforceability of the electronic record? If a copy of an electronic record is provided to a party in writing, is the rule satisfied? Such a printed copy may be accessed and reviewed later, but not necessarily by all of the parties who might have a right to access them.

UETA includes some provisions without parallel in E-Sign. UETA §12(c) specifies that persons may satisfy their record-keeping obligations through the use of third parties. E-Sign is silent on this point. More significantly, UETA specifies that retained electronic records satisfy evidentiary, audit and similar requirements. There is no specific parallel to this provision in the federal legislation. On the other hand, UETA also permits the States to impose restrictions on the use of electronic records for audit or like purposes, or for records within an agency's jurisdiction. E-Sign, in provisions which would not be displaced in a State which enacted UETA [See §104] and thus in provisions which displace portions of UETA §12(f) and (g), provides that states may not impose paper requirements through their rule-making power.

C. Automated transactions. E-Sign §101(h) specifies that a contract or other record may not be denied effect, validity or enforceability solely because an electronic agent was involved in its formation, creation or delivery, provided that the action of the agent is attributable "to the person to be bound." Aside from the issues raised by the failure of E-Sign to deal with attribution, these provisions leave other questions relating to the use of electronic agents unanswered. The first of these issues is whether or not a contract has been formed.

UETA, on the other hand, makes it clear in §14 that the use of one or more electronic agents will not defeat the formation of contracts, even in cases where no individual is aware of or reviews the operations of the agents or resulting terms. It further specifies that a contract may be formed by the interaction of an individual and an agent, including by actions which the individual performs voluntarily, having knowledge or reason to know the action will cause the agent to complete the performance. This provision thus means that if you seek to order books through Amazon.com [you will do so using Amazon's electronic agent], an enforceable contract may be formed when you click on the I Agree button.

UETA also contains special provisions governing changes or errors during the transmission of electronic records. In §10, UETA provides special rules governing the effect of records when a party fails to use an available security procedure to detect the change or error and a special provision for unwinding mistakes made by individuals dealing with electronic agents. It also specifies that in all other cases, other State law governing mistake is applicable. There are no parallel provisions in E-Sign.

D. Powers of State governments. UETA contains bracketed provisions in §§17-19 which authorize State governments to migrate, in an orderly fashion, to electronic technologies. Some States are far along in the process of migration, others have much work to do. The provisions of UETA are permissive and authorizing; they contain no mandatory provisions. E-Sign, on the other hand, restrains the States by limiting their powers. Section 104 is discussed above in the materials on the effect of E-Sign on other State law.

3. What is the impact of E-Sign on other State law?

With respect to the impact on State law other than UETA, both statutes purport to affect only writing and signature requirements. E-Sign §101(b) states that nothing in the title affects any statute, regulation or rule except for requirements for non-electronic forms of writing or signatures. As to the latter, its provisions apply notwithstanding any other provision of statute, regulation or other rule of law. UETA, on the other hand, provides in §5(e) that the consequences of an electronic record or electronic signature are determined by other law. The impact of the differing formulations may prove to be nil, but note that the UETA formulation is broader and extends to rules governing interpretation and construction. While UETA confines itself to the use of electronic records and signatures and defers to other State law for all legal determinations about the effect of their use, UETA does affect a broad range of State laws. It specifies that electronic records and electronic signatures will satisfy the requirements of those laws in any case where there is a transaction between parties who have consented to deal electronically.

Some specific bodies of State law deserve attention whether one is analyzing UETA or E-Sign. Both statutes, in identical language, exclude Articles 3-9 of the Uniform Commercial Code, as enacted in any State. Thus, neither UETA nor E-Sign affects the checking system, paper-based negotiable instruments, or rules governing letters of credit or investment securities. Both statutes exclude statutes governing the creation and execution of wills and other testamentary instruments. UETA also excludes the Uniform Computer Information Transactions Act, which is not excluded from the federal legislation. Thus it is possible that some of the contract formation and attribution rules of UCITA may be preempted, a subject which is beyond the scope of this memorandum.

E-Sign contains additional exclusions not found in UETA. The first is statutes, regulations or other rules of law governing adoption, divorce or other matters of family law. UETA would apply, and permit electronic records and electronic signatures, on such items as property settlement agreements, antenuptial agreements, etc. E-Sign, on the other hand, would neither validate nor bar the use of electronic records or signatures. It simply does not apply and State law would govern the determination of the effectiveness of the electronic records and signatures.

Additional exclusions found in E-Sign are court orders, notices and items required to be executed in connection with judicial proceedings. The drafters of UETA believed such documents were not connected to transactions and thus were excluded from the scope of §§1-16 of the Act. To the extent that courts fall within the definition of governmental agency, §§17-19 of UETA authorize courts to establish rules governing all records subject to their authority. The exclusion in E-Sign has the effect of not mandating that courts accept electronic records or electronic signatures for their filings or records, leaving the courts free to establish their own rules and regulations governing electronic records and signatures. Thus the net effect of the exclusion in E-Sign and provisions of UETA are the same - courts have the authority to establish rules governing the use of electronic records and signatures.

A second group of items excluded from E-Sign do not have a parallel in UETA. The federal legislation excepts from the provisions validating electronic records and signatures a variety of cancellation notices. These include cancellation or termination of utility services, of health insurance or benefits or life insurance benefits. These also include notices of default, acceleration, repossession, foreclosure, eviction, or right to cure a credit agreement or a rental agreement relating to a primary residence and notice of recall or material failure of a product which might endanger health or safety. Finally, any document required to accompany the shipping or handling of hazardous or toxic materials is excluded.

The exclusions mentioned in the preceding paragraph were sought by consumer advocates who expressed concern that such notices might relate to a transaction, and thus be covered by a consent to deal electronically, but also might be given at a considerable remove in time from the giving of the consent. The concern was that consumers might never receive or learn of the notice because of a change in e-mail addresses, equipment or systems. On the other hand, others pointed out that requiring that merchants retain the ability to transmit these notices in paper form to physical postal addresses imposes a significant burden on merchants who deal exclusively electronically. E-Sign mandates that the Secretary of Commerce review the operation of all of the exceptions, over a period of three years, and report to Congress on whether the exceptions continue to be necessary for the protection of consumers. In addition, federal regulatory agencies are authorized to find, after notice and a hearing, that an exception is no longer necessary for the protection of consumers and will not materially increase the risk of harm. In that case, the agency has the authority to extend the application of E-Sign's provisions on electronic records and signatures by eliminating the relevant exclusion.

One body of developing State law is intended to be preempted entirely by the federal legislation. A primary motivation underlying the development of E-Sign was concern that State digital signature legislation was becoming a barrier to electronic commerce, differing State requirements creating a modern-day Tower of Babel. Statements that there were over fifty State enactments with no apparent consistency were highly persuasive. While true, such statements were somewhat misleading, since many of the enactments dealt with very narrow topics, such as motor vehicle registration or communication with public agencies. Nevertheless, three different models of legislation were emerging. The first was the digital signature statute found in Utah (UT Stat. Ann. 46-3-101, et seq.), providing particular legal effect if dual key encryption with third party certification was used. The second is embodied in the Illinois Electronic Commerce Security Act (5 Ill. Comp. Stat. 175/1-101 et seq.), which provides more generally for secure electronic records and signatures. The third model is that found in E-Sign and UETA, legislation validating generally electronic signatures and electronic records, without according any enhanced legal effect.

The first digital signature legislation was enacted by the State of Utah in 1996 and provides that if dual key encryption technology is employed, with the use of third parties to certify the issuance of encryption keys, records are attributed to the person to whom the key was issued and are binding on that person. Similar legislation has been enacted in other States, including Minnesota and Washington. The federal legislation provides in §102(a)(2)(A) that State law may modify, limit, or supercede the electronic commerce provisions by specifying alternative procedures or requirements for the use or acceptance of electronic records or signatures, but on condition that those alternatives "do not require, or accord greater legal status or effect" to the implementation or application of a specific technology or technical specification for, among other things, creating, generating, communicating, or authenticating electronic records or signatures. Digital signature statutes on the model of the Utah statute do precisely that, according greater legal status or effect to records or signatures to which dual key encryption has been applied. Thus it appears that such statutes are preempted.

The second model of State law may be found in the statute enacted in Illinois, which contains articles generally approving electronic signatures and others specifying that secure electronic signatures and records receive heightened legal effect. In the case of the Illinois statute, a secure electronic signature or electronic record is created by the application of a security procedure which is agreed upon by the parties or certified by the Secretary of State. This legislation does not require a specific technology or technical specification, but it does give enhanced legal effect in certain cases. Dual key encryption is not granted enhanced status automatically; for enhanced status it first must be certified by the Secretary of State applying the technology neutral criteria specified in the statute. The third instance in which secure electronic signatures or records are accorded heightened legal effect is when the parties have agreed to a commercially reasonable security procedure. To the extent that the State law purports to treat secure electronic signatures differently from other electronic signatures, it would seem that it, too, may be unable to stand under §102(a)(2).

One additional body of State law deserves specific mention. E-Sign significantly limits the authority of both State and federal agencies to regulate with respect to media and formats to be used for records falling within their authority. Both State and federal law impose a number of requirements on individuals, companies and organizations to file various documents which then become part of a publicly-accessible database. Examples of such filings may be found under the real property recording acts, personal property security interest filings, entity filings. Other laws require the retention of various documents, such as tax laws or bank examination regulations. E-Sign §104(a) preserves any requirement that records be filed with the agency or organization in specified standards or formats. This provision should protect recording systems and other filing systems from any obligation to immediately convert to electronic records. On the other hand, the savings provision appears to refer to existing requirements; other provisions of the section limit the rulemaking authority of the agencies with respect to interpretation of the application of §101 to statutes within their rulemaking jurisdiction. Among other things, §104(c) provides that the agencies lack authority to impose or reimpose requirements for printed or paper records. This suggests that the agencies must begin the process of planning for migration to electronic systems. Future rules and regulations well may be interpreted to be barred by the provisions of subsection (c).

Under E-Sign §104(b), the agencies retain their existing rulemaking authority, and may use that authority to interpret E-Sign §101 by regulation or by orders or guidance. Nevertheless, this interpretive power is limited under §104(b)(2) by a requirement that any regulation, order, or interpretive guidance be consistent with §101, not add to the requirements of §101, and that the agency finds substantial justification for the regulation, order or guidance, that the methods used to carry out its purpose are substantially equivalent to any burden on paper transactions, and will not impose unreasonable costs.

The power of the agencies to establish performance standards is subject to somewhat different standards. Indeed, there is authority under §104(b)(3) to require retention of information in paper or printed form, upon a finding of a compelling interest relating to law enforcement or national security and that paper is essential to attaining those interests. In the absence of such a compelling interest, no agency has the authority to impose any requirement that a record be in a tangible or printed form. The agencies are given the authority to interpret §101(d) on retention of records by specifying standards to assure accuracy, record integrity and accessibility. The interpretive regulations may require specific formats or give special legal status or effect to the use of particular technologies if the requirement serves an important governmental objective and is substantially related to the achievement of that objective. This is limited, however, by a provision that the agency may not require use of a particular type of software or hardware in order to satisfy record-retention rules. And, finally, with the exception of cases where a the needs of law enforcement or national security establish a compelling interest that can be satisfied only with paper, all rulemaking powers are restricted to bar imposition of new paper or printing requirements.

The federal legislation specifies that it applies to any transaction in or affecting interstate or foreign commerce "[n]otwithstanding any statute, regulation, or other rule of law". It defines the term "transaction" to refer to an action or set of actions relating to the conduct of business, consumer or commercial affairs between two or more persons. It explicitly includes the sale, lease, license, trade or barter of all personal property, including intangibles, services and real property. Subject to the exclusions specified in §103, each body of State law which is applicable to the formation, enforcement, interpretation or construction of any sort of agreement is thus impacted by the federal Act. While E-Sign is limited in effect to transactions in or affecting interstate or foreign commerce, very few transactions in commerce, or between merchants and customers, are excluded by this limitation.

The federal legislation does not preempt all State law applicable to interstate or foreign transactions. Instead, the use of electronic records and electronic signatures will be permitted, notwithstanding any other provisions of each such statute, regulation or other law.

In addition, however, to the effect of the electronic contracting provisions of §101, the federal legislation affects state law by restricting the power of State or local regulatory authorities in §104. It limits the ability of States to modify, limit or supersede its provisions through UETA by restricting the State enactments to the uniform act as approved by the Uniform Law Conference in 1999 and by limiting the effect of non-uniform exceptions to UETA. It limits State power beyond UETA by requiring compliance with medium and technology neutral requirements in §102(a)(2). Finally, it requires any statute designed to operate despite E-Sign to refer to it specifically if enacted or adopted subsequent to E-Sign.

In addition to these specific instances of State law, it is important to keep the scope of both E-Sign and UETA in mind when considering whether other bodies of State law are affected. The statute books in every jurisdiction are loaded with references to writings and signatures, and other words assume the existence of paper or printed records. Neither the federal nor the uniform legislation affect all of these requirements; both affect so many of them as fall within the scope of the respective bodies of legislation. It will be important as we go forward to examine each instance of a writing or signature requirement in light of the relevant electronic commerce legislation.