Electronic signatures (what in-house counsel need to know)
Welcome to day 987 of “Shelter-in-Place.” Brought to you by our good friends at COVID-19 – courtesy of unprepared governments everywhere! Okay, that’s a little snarky and it’s really only day 17 or so for me (but it sure feels like 987 days). Like most of you reading this, I have been working from home, practicing social distancing, binging television shows, and reading a lot. On that last one, more like devouring books and whatever other reading materials I can get my hands on. In fact, I just finished an amazing two-part series by Dan Jones on English kings: “The Plantagenets” and “The Wars of the Roses.” I highly recommend both to the history buffs out there. One thing that stuck in my mind as I was reading these books was the use of seals by kings to “sign” documents (well, parchments actually). For some reason, that got me thinking about how we sign documents today, especially contracts – the lifeblood of any company and the top priority of the in-house legal department. That, in turn, got me thinking about all the different ways I have managed contract signings over the course of my in-house career, including the use of electronic signatures (yes, that is how my mind works). Which made me start to wonder “how in the hell is an electronic signature valid… and have I been screwing this up for years?” Intuitively, I know they are valid, but I have to say I never spent a lot of time thinking about “how” or “why.” The current pandemic crisis with its discouraged human interaction is the perfect launching pad for thinking about “signing” documents remotely and e-signatures are the perfect solution for that. This edition of “Ten Things” walks you through what you need to know about electronic signatures:
1. A brief history of signatures.
Humans have been officially “signing” documents for a long time. At least as far back as the ancient Egyptian and Persian empires. Though manually signing one’s name really didn’t start until around the second century AD. Prior to that (and even for centuries thereafter), the most common expression of officially “signing” a document was in the form of a seal or stamp. More often than not it was a ring worn by someone pretty important who would stamp that ring into a wax seal to ensure the authenticity of a document (you may recall some pretty intense ring-signing in the movie “Ben Hur”). This relatively simple method of signing documents persisted well into the Middle Ages, where kings – and other members of the aristocracy – used signets (rings) to stamp documents to prove authenticity. The king also had an official seal of the office. This seal, in England for example, was lugged around by the Lord Keeper of the Privy Seal and when the king needed to sign a royal document the holder of the Privy Seal would walk up, hand the king the seal, and, presto, document signed and authenticated. Starting in the 1600s or so, signing one’s name by hand became acceptable throughout Europe (and its colonies). For example, think about the requirements of the 1677 Statute of Frauds whereby a written signature became necessary in order for certain contracts to be formed. Over time, what constitutes a signature got looser, anything from signing an “X” for your mark (which evolved from the practice of signing documents with the sign of the cross) to using a rubber stamp to the elaborate use of notaries (especially in civil law countries) to authenticate signatures on documents. For most of us, we simply sign with a blue-ink pen (a “wet signature”) and move on.
2. What is an e-signature?
Electronic signatures are any type of non-handwritten expression of a person’s intent to sign a document. This covers a wide variety of signatures, including:
- Typed, printed name.
- Email exchange.
- Text message exchange.
- Faxed signatures.
- Scanned signatures.
- Copy of signature pasted into a document.
- Clicking “I accept” on a website.
- Use of signing tool software, like DocuSign (more on this below).
- A thumbprint affixed via an authentication device.
In fact, the very first time a U.S. court upheld an electronic signature was in 1869(!) when the New Hampshire Supreme Court determined that a “signed” telegraph message was a valid contract:
“It makes no difference whether [the telegraph] operator writes a steel pen an inch long attached to an ordinary penholder, or whether his pen be a copper wire a thousand miles long. Nor does it make any difference that in one case common record ink is used, while in the other case a more subtle fluid, known as electricity, performs the same office.”
See Howley v. Whipple, 48 N.H. 487 (1869). The bottom line is you (and I) can generally rest assured that, thanks to Mr. Whipple, all of our telegraphed, faxed or scanned copies of signatures are valid – at least in the U.S.
3. What is a digital signature?
There is a second type of electronic signature that I will mention but will not really be part of the discussion in the rest of this post. Digital signatures are a subset of electronic signatures. They are a signature based on cryptographic technology called a PKI (Public Key Infrastructure). They are authenticated signatures that rely on encryption keys issued by a governing body (either as a digital certificate or a physical token) and a pin number to prove the identity of the signer. They are highly secure but probably more work and expense than most businesses want to take on, or would only take on for certain types of transactions vs. day-to-day commercial contracts. I also am ignoring blockchain contracts which, arguably, use electronic signatures as well. Mostly because I don’t know much about blockchain. But, if you want to suffer through it, here is a primer on blockchain contracting.
4. What laws do I need to be aware of?
Fortunately, no one has to walk around with a copy of Howley v. Whipple to prove up an electronic signature. States started to figure out the need to boost electronic commerce back in the 1990s, culminating in 1999 with the Uniform Electronic Transactions Act, designed to give effect to electronic contracts (e.g., website terms and conditions) and electronic signatures). Forty-seven states and Washington D.C. have adopted some version of the UETA, while New York, Illinois, and Washington State have their own versions, which pretty much do the same thing as the UETA. Congress got in on the act (pun intended) in 2000 with the E-SIGN Act, which provides, among other things, that a signature or contract may not be denied legal effect or validity or enforceability because it is in electronic form. (The EU has something similar to E-SIGN called eIDAS.) Moreover, E-SIGN preempts any state laws that are inconsistent with its provisions so there is, generally, uniformity throughout the U.S. Note, however, that certain agreements fall outside these laws including wills, trust documents, powers of attorney, and many real estate transactions. Similarly, certain regulatory agencies, as well as courts, have specific rules around what may be filed with an electronic signature. Outside of the U.S., approximately 50 or so countries have electronic signature laws of varying degrees. The ability to use e-signatures in common law countries is similar to E-SIGN and the UTEA. Of course, parties to commercial business agreements can simply contract that electronic signatures are acceptable. In the past, such clauses tended to simply state that facsimile or scanned signatures, agreements signed in parts, etc. were valid. More modern clauses deal with other types of electronic signatures as well (see below).
5. How does it work?
Under E-SIGN, valid electronic signatures are “[a] any sound, symbol or process, [b] attached to or logically associated with a contract or other record [c] and executed or adopted by a person [d] with the intent to sign the record.” Meaning, among other things, that the signature does not need to look like a handwritten signature to be valid. But, importantly, you must be able to authenticate in some manner the signature to the individual e-signing the document. E-SIGN also requires that the record of the contract be capable of being retained and reproduced. All of this is why (i) clicking “I Accept,” (ii) ticking a box, (iii) typing your name into a blank field, (iv) those crappy cursive signatures many e-signature tools spit out when you click on the blank, (v) thumbprints, (vi) signatures in PDFs, (vii)) faxed signatures, and (viii) signatures traced with your finger on a smartphone or tablet can constitute valid signatures (and, for you history buffs, satisfy the Statute of Frauds). Note also that E-SIGN provides some special provisions to protect consumers:
- Clear and conspicuous notice that the consumer may receive a written copy of the information on paper (which is why you sometimes get asked if you would like a copy of the terms of service emailed to you)
- The consumer must affirmatively consent to receive the information electronically.
- Consumers are provided with information about the software and hardware needed to access the information electronically. E-SIGN states that failure to meet the requirements does not make the electronic contract invalid which is probably why a number of companies fail to provide the notices.
Consumer protection issues aside, understand that while E-SIGN and the UTEA promote and protect the use of electronic contracts and signatures, they do not force anyone to use them or sign them if they prefer paper.
6. What are the benefits?
There are many benefits to your company adopting electronic signatures, including a) no need to track down people for physical signatures (and the delay this can cause); b) contracts can be signed literally anywhere on a smartphone, laptop, tablet, with no need to scan, fax, overnight, etc. – this means getting contracts done faster, a goal of every legal department; c) eliminating or reducing the need for physical storage of contracts, as well as saving the cost of mailing; d) the ability to set up the routing process so the signatures are obtained in the right order and a fully executed copy comes back to the legal department; e) the ability to monitor of the status of the execution of the contract in real time; f) most of the solutions are simple and intuitive to use; and g) it’s the perfect solution to getting contracts done during the current COVID-19 pandemic.
7. What are the downsides?
Of course, it’s not all birthday cake and ice cream.There are some downsides to using electronic signatures. First, not every country/jurisdiction accepts them (only 50 or so countries so far). Second, they cannot be used for every type of agreement. For example, when we did the Sabre IPO and the sale of Marketo to Adobe I had to sign my name (wet signatures) hundreds of times. Electronic signatures could not be used for these types of documents. All I can say is it stops being fun after around the 50th time you sign your name. Third, not everyone will agree to use/accept electronic signatures regardless of the legality (i.e., plenty of Fred Flintstones in our George Jetson world). Fourth, it is more difficult/more time consuming to notarize an electronic signature (but it can be and is done in many places). Fifth, it’s not foolproof.
8. Can it be challenged?
The last point above is important and I want to expand on it.Just like any signed contract, the other side can contest whether the e-signature is real or not. For example, scanned/pdf signatures are no more secure from forgery than a wet signature. In fact, some people use a pdf copy of their signature to apply to agreements – providing a signature that is easily copied and then set for use by anyone (So, if you do this please stop!). Even the use of electronic signature software (like that set out in Paragraph 9 below) can be challenged in court – which is why you should have an electronic signatures clause in your standard contacts and ensure that any electronic signature software can provide an audit trail and other documentation to prove that the person clicking and “signing” their name was, in fact, the right person. The use of digital signatures can reduce a lot of the risks, but the cost and hassle factor may not be worth it to most in-house legal departments.
9. Vendors.
There are dozens of electronic signature vendors out there. Who you choose probably depends on what you need. For some, faxed and scanned signatures are good enough and there is little reason to change. For others, they want a provable signature audit trail and/or password features that only allow a signature with the use of a password. Some want the full scope of protections offered by digital signature experience. Here is just a partial list of vendors to check out (in no particular order):
- DocuSign
- AdobeSign
- PandaDoc
- RightSignature
- SignNow
- EverSign
- SigFonts (allows you to create a “font” to imbed your actual signature into Word documents and then create a pdf).
These are just companies I am familiar with and, in many cases, have used in the past. But, I get nothing for listing them here. I just think they would all be worth checking if your department/company needs an electronic signature solution. For a more comprehensive list go to https://www.trustradius.com/electronic-signature.
Of course, there are many, many more companies out there providing similar services. As in-house counsel, you should find a company that has an impeccable reputation and that can scale with the needs of your company.
10. Electronic signature “to-do” list.
If you think your company is ready to adopt electronic signatures (or enhance an already existing program), here are some things for your to-do list:
- Know the applicable law for your jurisdiction(s).
- Go slow – if you are just starting out, don’t feel you have to do a knife-edge cutover to electronic signatures. Start small, work out the bugs, then scale the process.
- Get help. The legal department should not be the “Lone Ranger” when it comes to implementing an electronic signature program. To do things right, it will take a cross-functional team including IT, HR, Sales, Finance, and other impacted groups. Like any major tech project, you’ll need to do a lot of investigating your options on the front end and then create a project plan to implement and roll out the program.
- Create a company-wide electronic signature policy with rules and guidelines.
- Use a reputable electronic signature tool/vendor (and decide whether or not you need a digital signature tool as well).
- Build an electronically-signed contract repository and ensure that you keep and maintain the audit trail to prove the signatures for each contract should that ever become an issue.
- Add electronic signature language to your contacts. Here’s a sample clause I like because it pretty much covers everything:
“This Agreement and other documents to be delivered pursuant to this Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy and all of which, when taken together, will be deemed to constitute one and the same agreement or document, and will be effective when counterparts have been signed by each of the parties and delivered to the other parties. Each party agrees that the electronic signatures, whether digital or encrypted, of the parties included in this Agreement are intended to authenticate this writing and to have the same force and effect as manual signatures. Delivery of a copy of this Agreement or any other document contemplated hereby, bearing an original manual or electronic signature by facsimile transmission (including a facsimile delivered via the Internet), by electronic mail in “portable document format” (“.pdf”) or similar format intended to preserve the original graphic and pictorial appearance of a document, or through the use of electronic signature software will have the same effect as physical delivery of the paper document bearing an original signature.”
As we are all sitting at home (wherever we are in the world), now is the perfect time for in-house counsel to focus on how best to use electronic signatures at your company. If you are already using them, that’s even better, but just make sure you are truly up-to-speed on the laws in your jurisdiction and that you have the right systems and procedures in place. Helping get contracts done faster and with less friction is just the kind of achievement legal departments should be proud to brag on and use as a way to show value. If you want to go deeper on electronic signatures, most of the software providers have helpful white papers on their websites (e.g., AdobeSign, DocuSign, PandaDoc, JotForm). If you have Practical Law (and you should), there are lots of e-signature related materials there. Also, take a look at Rachel Stoermer’s highly informative article from the March 2015 edition of ACC Docket titled “Sign Here: Electronic Signatures and the In-House Counsel.” And with that, I proudly – and electronically – sign my name. Stay well my friends, better days ahead!
