InformationWeek
Defining The Business Value Of Technology
March 6, 2000
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Two companies ink an E-lease, but obstacles block full acceptance of paperless processes
By Candee Wilde
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hat is billed as the first lease based on a digitally signed "electronic original" document was executed shortly before Christmas by two Maryland companies. However, the breakthrough agreement is filled with ironies, and illustrates the problems that must be confronted as electronic commerce evolves.The paperless E-deal was signed by two businesses dependent on paper documents, a law firm and an office-equipment company. The agreement seems somewhat incongruous since it represents a lease for eight copy machines, which use paper. To top it off, the parties also had to sign a paper lease because Maryland doesn't recognize digital signatures.
Still, the ability to execute legally binding transactions without paper or physical signatures is an important step for E-commerce. Using a digital-certificate system created by public key infrastructure vendor EOriginals Inc., the lease was created electronically, signed with an electronic pen and pad at the law firm, sent securely via the Internet, signed with an electronic pen again at the office-equipment company, and stored as an "electronic original." Once stored, the digital document is protected from undetected change, although interested parties can view or print it.
This transaction marked the first all-electronic execution of a lease agreement, according to EOriginals, which claimed a similar first with mortgage agreements signed over the Internet earlier in 1999.
Despite this breakthrough in E-business, experts say, it's too soon to toss out your fountain pen. It will take a year or two before a digital signature in an electronic document replaces an ink signature on a dotted line on a piece of paper. Creating and implementing the necessary technology so business applications can use digital signatures is a costly and difficult endeavor, and there are many legal, technical, and psychological obstacles to eliminating ink-signed documents. Still, analysts say, public key infrastructure technology ultimately will overcome those problems and provide strong user authentication through the use of digital certificates, digital signatures, and encryption.
The three major components of a public key infrastructure system are a certificate authority, a repository, and a registration authority. The registration authority is responsible for establishing a user's identity before instructing the certificate authority to create a digital certificate. The certificate authority creates a certificate and a public encryption key that travels with a document and can be used by the recipient to ensure the document was actually sent by the signer and wasn't changed. The repository, usually a directory or database, stores digital certificates, certificate users, and revocation lists.
The biggest problem in adopting digitally signed E-documents is the con-fusing patchwork of laws and regulations, says Douglas Graham, partner in charge of commerce at KPMG in New York. He says companies need a global commercial code that addresses the many complicated issues raised by E-commerce, including taxation. "If companies have anonymous, secure transactions--you're almost down to an honor system," Graham says.
Recent action in state and federal legislatures supporting the use of digital signatures is likely to speed development of PKI-enabled applications and user adoption, analysts say. "Currently, there are 45 states that recognize some form of digital or electronic signatures, and the other five states have legislation pending," says Brent Israelsen, president and CEO of iLumin Corp. in Orem, Utah, which offers an Extensible Markup Language-based electronic-filing system that incorporates digital signature technology. "The problem is the legislation is not the same in the different states," he says.
In October 1999, the House of Representatives passed the Electronic Signatures in Global and National Commerce Act and the Senate is working on a similar measure, the Third Millennium Electronic Commerce Act. Both would give digital signatures the same legal value as conventional ones. Furthermore, the federal government has made it mandatory that all agencies by October 2003 make their public documents available electronically and enable the use of digital signatures. This should push businesses to follow suit.
"The question of how the legality of digital signatures will be embraced throughout the country is important. Some continuity must exist among the various laws that will be adopted governing these types of transactions," says Brian Burr, CFO of Advance Business Systems Corp., the Cockeysville, Md., office-equipment company that leased the copiers electronically.
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Photo of Elkin by Stan Barouh
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