Patrick Hochstein was used to late nights at the office. As the vice president of North American sales at Worldspan, an Atlanta-based technology distribution company for the travel industry, he was bogged down sending hundreds of 20-page subscriber agreements to clients.
“At the beginning we were FedEx monsters,” Hochstein says. “Then we were fax machine monsters. We had a managed process, but it was very labor intensive.”
Besides the extra hours, the company was spending thousands of dollars on paper, printing, mailing and related administrative costs. With nearly 800 clients, it was hard for the legal department to stay on top of everything.
“There was always an opportunity for a loss of documentation,” Hochstein says. “If a client didn’t sign all the documents in all the right places, the deals took even longer and cost even more.”
But in 2004, Hochstein received a phone call. It was a representative from DocuSign, a company that offers electronic signature services. Staring at the clock and the stack of unfinished work on his desk, Hochstein decided to give e-signing a chance.
Now Worldspan uses e-signing for all of its small-client contracts. In 2005 the company closed more than 1,200 deals using the technology. Besides saving on the costs of mailing and paper, the company has been able to pare down a section of its administrative staff from eight employees to four.
Although electronic signing has been around in some form for more than a decade, companies have been slow to integrate it into existing practices. But in the past two years, e-signing has made some advancements that are forcing in-house counsel to take a second look.
Most in-house counsel are probably familiar with the first wave of e-signing technology. It began in 2000 when the federal government enacted the Electronic Signatures in Global and National Commerce Act (ESIGN), which laid out the requirements of what constitutes a lawful electronically signed document. A barrage of entrepreneurial startups vied for a share of what they thought was a hot market.
It was huge mistake. Relying on what is known as PKI, an intricate process that uses digital certificates, document hashes and encryption technologies, e-signing only created more problems.
“Signing a document with the old model required one to understand the technology and one’s legal obligations when using it,” says Tom Smedinghoff, a partner at Baker & McKenzie. “Most people aren’t going to do that.”
The complexity, cost and legal uncertainty destroyed any hope for a mass acceptance of e-signing. Companies couldn’t understand it, and legal departments, feeling perfectly comfortable with pen and paper, feared it.
But over the past two years, a sea change has occurred in what some experts are calling the second wave of e-signing. Companies such as DocuSign and the U.K.-based SignASP have developed a new method of delivering e-signing solutions that take the complexities of the old method out of the hands of the end-user and place the burden on a third party.
“We use a repository strategy,” says Tom Gonser, vice president of product strategy at DocuSign. “So if I have a document that I want to send you to sign, I effectively print it to DocuSign, where it is encrypted and a hash, or fingerprint, of the document is made. Then I can tab where a client needs to initial and sign, select the authentication level and have it sent to all parties whose signature is required.”
This is e-signing version 2.0, and its potential uses stretch far beyond mere electronic signatures.
Unlike the old method, which put the burden of understanding and managing the e-signing process on the individual user, this new, repository method makes the third-party provider accountable for the e-signing process. Also, most service providers offer added benefits in addition to the speed and low cost that e-signatures afford. These features, which were not available when e-signing debuted, add a new layer of tracking, integrity and security.
One of the most important new features is the audit trail. For every document users place on the third-party provider’s server, an audit trail is automatically generated. This log keeps track of the time someone viewed a document, the number of times someone viewed it and the timestamp of when an individual signed each part of a document.
“We live in a very litigious world, and it is important for any organization to have a full audit trail of any process,” says Francois Roux, managing director of SignASP.
E-signing also preserves the integrity of the document. Because a third party stores and protects the original e-document on its server and assigns each document a unique fingerprint, it is virtually impossible for any party to tamper with the wording of a contract.
“E-signing provides a way to ensure that a document hasn’t been altered, or if it has been, to detect it,” Smedinghoff says. “This is going to be very important from an evidentiary point of view if you have to litigate over an issue down the road.”
Recent advances in authentication technology allow users to verify the identities of signers in ways previously unavailable through first wave e-signing solutions. Service providers offer varying levels of authentication, which the subscriber can set to ensure a signature isn’t forged.
“Digital signatures are far more secure and enforceable than contracts sent through the mail where there is no verification of the party,” says Michele Rennie, the head of IP and Internet law at Computalaw, a legal technology consultancy that uses SignASP’s services.
Although the new wave of e-signature technology offers many benefits, it’s not perfect.
First, although legal experts have conducted mock trials to test the admissibility of an electronically signed contract, no case law exists governing their admissibility.
“There’s really no direct case law interpreting the bonifiedness of a particular electronic signature under the federal or state law,” says Brian Casey, a partner at Lord Bissell & Brook in Atlanta.
Further, although the ESIGN Act authorizes the use of e-signatures for many document types–such as business contracts, agreements, applications, authorizations, loans, leases and employment documents–the law does stipulate several types of documents that, at the present time, cannot be signed electronically. Those include wills, codicils, testamentary trusts, notices of cancellation of utilities, foreclosures, cancellation of health or life insurance and product recalls. This may deter some in-house counsel from using e-signing.
“There’s always a fear someone may challenge the legality,” says Bill Maloney, a sales manager at Worldspan. “That’s why we still limit e-signing to our boiler plate contracts and smaller deals.”