Monday, September 24, 2018

Electronic and Digital Signatures - A New Area for Statutory Activity

This past Friday, Burr & Forman LLP and the Clayton Center for Entrepreneurial Law at the University of Tennessee College of Law (including its business law journal, Transactions: The Tennessee Journal of Business Law), cosponsored a conference entittled "Law and Business Tech: Cybersecurity, Blockchain and Electronic Transactions."  This was, as you may recognize, the second business law conference UT Law sponsored in a week's time (the first being the Business Law Prof Blog symposium, "Connecting the Threads II," the week before).  It has been a busy time for business law faculty and students at UT Law!

(Parenthetically, I will note here that one of the attendees at Friday's event, who also had been at the Business Law Prof blog symposium, came back to this past week's conference because he was so jazzed up about Marcia's presentation at the first event--which she mentions here and here.  Thanks, Marcia, for encouraging this interest in blockchain technology in our legal community!)

At Friday's conference, I moderated and participated in a panel on "The Coming Second Wave of Digital and other Electronic Signatures in Commerce."  The panelists included Ed Snow of Burr & Forman and Katy Blackwell from SIGNiX.  The panel walked through a history and course of conduct from handwritten signatures to electronic signatures to digital signatures, discussing the transitions from one to another (which are, as yet, incomplete).  Interesting questions emerged as among us as to, e.g., why banking/credit transactions and mergers/acquisitions tend to lag behind in the adoption of new signature technologies.  (Your thoughts are welcomed.)

At the end of the prepared program, my co-panelists asked me to speak about Tennessee's adoption of a digital signature statute back in the spring.  This was another of the legislative review projects that I have undertaken as a member of the Tennessee Bar Association Business Section Executive Council.  We were given 24-48 hours to comment on a digital signature bill that had been introduced in the Tennessee General Assembly based on an Arizona statute adopted in 2017 (information available here).  Although I personally thought the bill/statutory revision was likely unnecessary and would have preferred to spend more time studying it before commenting on it, two of us on the Executive Council pooled comments on the draft bill, which also received comments from other quarters.  

The ostensible legislative policy was to ensure the enforceability of legally valid and binding transactions occurring in a distributed ledger environment.  Tennessee proponents of the bill wanted to support business in this environment, as I noted in commentary quoted in this article.  With that in mind, two issues were, in the short time we had, important.

First, we were concerned that in referring only to blockchain technology the policy objectives of the proponents would not be achieved.  So, we undertook, with others, to broaden the operative definition to include all distributed ledger technically (for better or for worse).  The resulting language is not elegant, having been arrived at by committee.  The final language defines distributed ledger technology, for purposes of the statute, as "any distributed ledger protocol and supporting infrastructure, including blockchain, that uses a distributed, decentralized, shared, and replicated ledger, whether it be public or private, permissioned or permissionless, and which may include the use of electronic currencies or electronic tokens as a medium of electronic exchange."  Tenn. Code Ann. § 47-10-201(1).  We'll see how that holds up in practice when industry folks and courts have to wrestle with it.

Second, we were concerned that, by providing that "[a] cryptographic signature that is generated and stored through distributed ledger technology is considered to be in an electronic form and to be an electronic signature" and that "[a] record or contract that is secured through distributed ledger technology is considered to be in an electronic form and to be an electronic record," Tenn. Code Ann. § 47-10-202(a) & (b), we might be excluding other possibilities.  It seemed that the proponents of the bill wanted to clarify these things, rather than stake a claim that they were exclusive.  As a result, language was added to the original bill stating that "[n]o implication is made by, and no inference may be drawn from, the enactment of this part as to whether technologies not defined in § 47-10-201 that secure signatures, records, or contracts are considered to be in an electronic form or to be an electronic signature or electronic record, as applicable."  Tenn. Code Ann. § 47-10-202(e).

A summary of state legislation of this kind is available here.  It seems that many states are jumping on the blockchain bandwagon in one way or another.  The statutes differ in their emphasis and policy objectives.

I am interested to see what transpires as these statutes continue to be adopted and start to be tested.  Angela Walch, a blockchain law expert and colleague at St. Mary's Law with whom I worked when she was a legal assistant at Skadden (back in the day) has been somewhat critical of our statute and others like it.  I understand her critique and appreciate it.  

But I think it is safe to say that sometimes the legislative process moves forward quickly and without the benefit of comprehensive legal counsel.  Subgroups of lawyers may get called in, as we were, relatively late in the game to try to customize and smooth things over in bills copied from those introduced in other states or drafted by public interest groups.  Those lawyers then do what they can with what they have in the time they are given.  

Based on the Tennessee experience, that may be the way that these statutes are proceeding to be introduced and adopted elsewhere, and there may, therefore, be some messes to clean up later.  Moreover, while uniform or model legislation may seem like a good idea in this area, it may not be forthcoming fast enough to guide the first round of legislative action.  It's a brave new world.  We shall see what this all comes to . . . .

Conferences, Contracts, Joan Heminway, Marcia Narine Weldon, Technology | Permalink


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