Some courts have ruled that electronic signatures are valid, and several states have passed laws validating electronic signatures. These rulings and statutes differed in their requirements and application, resulting in continued uncertainty regarding the validity of electronic contracts. ESIGN addresses this problem. ESIGN provides a uniform federal law that validates electronic signatures, effectively allowing parties to enter into a contract on the Internet without wondering which state law applies. ESIGN also allows businesses to keep electronic records, and to send electronic records and documents to consumers.

ESIGN does contain exceptions that prevent the use of electronic signatures and records in some areas, including the use of official court documents, notice of cancellation of utility services, health insurance or life insurance, and recalling products.

ESIGN will take effect on October 1, 2000. The section covering electronic records kept by businesses does not take effect until March 1, 2001.

ESIGN defines an "electronic signature" as "an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record." See § 106(5). Thus, an "electronic signature" can come in many forms, including PIN numbers, passwords, or even clicking an icon.

The definition of "electronic signature" is vague, and could be a source of frustration for businesses and consumers. The definition may cause problems if businesses are not clear on what constitutes their form of electronic signature in the course of a transaction. For example, customers could be unintentionally bound to a contract merely because they clicked on an icon. Congress, however, established specific duties for businesses under ESIGN that should prevent confusion regarding electronic signatures.

ESIGN provides that specific disclosures must be made to consumers:

See § 101(c)(1)(A)-(D).

Businesses are not required to use any specific type of technology to verify the electronic signature or the consent.

ESIGN addresses business-to-consumer transactions. The legislation is silent on business-to-business transactions. Therefore, it appears that these transactions are still left up to the parties.

Before ESIGN, several states had their own electronic signature laws. These laws varied greatly from state to state, causing confusion when parties from different states were involved in business transactions. ESIGN effectively preempts state laws on electronic signatures, ensuring that states are under a uniform law and that parties have certainty when dealing within different jurisdictions.

ESIGN does not, however, completely preempt state electronic signature laws. States may modify, limit, or supersede ESIGN if they are consistent with the Uniform Electronic Transactions Act, which was approved by the National Conference of Commissioners on Uniform State Laws. See § 102(a)(1).

ESIGN has paved the way for businesses and consumers to do business online. The bill provides enough flexibility to allow technology to change and still be in step with the law. ESIGN also creates a more predictable e-commerce market because it relieves parties of choice of law dilemmas that were once prevalent with the advent of various state laws. The law also provides certainty that contracts formed over the Internet will be valid and enforceable, an issue that was once unclear.

ESIGN has also been touted as a way for businesses to save an enormous amount of money and time. The cost of paper correspondence and storage may be reduced. Businesses will no longer have to use the mail to send documents, a process that costs businesses time and money.

ESIGN is largely symbolic because electronic signatures have been used by many businesses in the past. The symbolic nature of ESIGN is important, however, because the bill will create greater confidence in businesses and consumers when doing transactions online.

ESIGN signifies the beginning of a new frontier in business. New frontiers invariably involve some uncertainty and unanswered questions. For example, the definition of "electronic signature" will most likely be an issue in the future. The status of electronic signatures in business-to-business transactions is also left in the hands of businesses.

The need for protection of consumers may force businesses to invest in expensive technology that will ensure that the party signing the contract is authorized. The cost and sophistication of this technology is still indefinite for businesses and consumers. Technology such as thumbscanners and eye sensors are viable options for big companies, but small to medium size businesses may not be able to afford such amenities.