At Issue: AB 811 regulates the use of digital signatures in Wisconsin

By Scott Jensen

The migration of many businesses to the Internet has caused an explosion of new marketing opportunities for banks, merchants, and consumers in our state. The electronic commerce revolution has spurred airlines to offer discount fare packages to customers registered through their home pages, encouraged banks to provide a variety of bank-at-home services for their customers, and produced a variety of Web sites where consumers can shop for everything from fishing rods to European trips.

While the law always develops behind new technologies, Wisconsin lawmakers are giving attention to a number of electronic commerce issues, including the expanded use of digital signatures. Digital signatures are strings of encrypted characters tacked onto electronic messages that identify and authenticate the sender and the document. Digital signatures serve the same legal function as written signatures.

Developing standards to facilitate the use of digital signatures is an essential element of our efforts to take the next step in the electronic commerce revolution in Wisconsin - to enter into binding contracts using the Internet and other computer media. Moving beyond email to allow consumers and businesses to electronically "sign" a document, either to prove its authenticity or render it useless if altered, will require the development of a truly secure online system using encryption to ensure that businesses, consumers, and governments can be confident that the transactions we engage in electronically are safe and secure.

While those familiar with electronic commerce may not be uncomfortable with technology that jumps from the use of the pen to digital signature, I don't know too many attorneys who would feel comfortable advising clients to actually move funds or transfer ownership online without having the confidence of an unbreakable encryption system to protect the parties to the transaction. It is hard to imagine who would advise clients in the current regulatory environment, for example, to dispense with the traditional signature requirement concerning an offer to purchase a home and send the proposal to the prospective seller via an unprotected email system.

As part of my efforts to promote greater electronic commerce in Wisconsin, I recently introduced Assembly Bill 811, authorizing the use and providing for the regulation of digital signatures. AB 811 would:

• grant digital signatures the legal status of written signatures under state law. Under this proposal, any documents that are required by law to be submitted in writing may be transformed through the use of digital signature so long as: 1) the recipient consents to the receipt of information in digital signature; and 2) the digital signature is verified by a certification authority (either the Department of Financial Institutions (DFI) or a provider licensed by DFI to verify digital signatures);
• create a committee called the Commission on the Use of Digital Signature to study the use and regulation of digital signatures. The commission is required to report its recommendations one year after the proposal is enacted into law;
• grant the DFI rulemaking authority to promulgate rules governing the licensure and regulation of certificate authorities and the use and verification of digital signatures. Requires DFI to promulgate rules six months after the commission issues its report to the Legislature; and
• delay the effective date for implementing the legislation for one year. The delay is necessary to allow the study committee to address the host of unresolved legal issues involving the use of digital signatures in electronic commerce. Many questions remain unanswered about how the financial risks of a failed electronic transaction will be allocated and how providers will be certified to verify digital signatures. Such risks involve the negligent, fraudulent, or innocent use of digital signatures in conducting electronic commerce. Moreover, this bill does not address the list of activities that regulators may want to prohibit in conducting commerce with the use of digital signatures.

This legislation is an important first step as Wisconsin moves forward in its efforts to address the growth of electronic commerce in our state. AB 811 does not attempt to answer the myriad of new issues that will emerge with the increased use of digital signatures to conduct electronic commerce. We cannot accurately predict all the issues that might need to be regulated until an extensive working model of the industry is in place. However, an industry cannot establish an extensive working model until our state authorizes digital signatures. AB 811 creates a framework from which private industry and regulators may begin developing the technology and infrastructure necessary for safe electronic digital authentication.

For more information, please contact me at (608) 266-2402 or by email.

Wisconsin Lawyer