[Congressional Record (Bound Edition), Volume 145 (1999), Part 19]
[Senate]
[Pages 27587-27589]
[From the U.S. Government Publishing Office, www.gpo.gov]



                    MILLENNIUM DIGITAL COMMERCE ACT

  Mr. LEAHY. Mr. President, about two months ago, Senator Abraham and I 
began holding a series of meetings involving industry and consumer 
representatives to work out a bill that would permit and encourage the 
continued expansion of electronic commerce, and promote public 
confidence in its integrity and reliability. Together, we solicited and 
received technical assistance from the Department of Commerce and the 
Federal Trade Commission. In late September, we put the finishing 
touches on a Leahy-Abraham substitute to S. 761.
  On Tuesday night, after most members had left for the day, Senator 
Abraham went to the floor and propounded a unanimous consent on a very 
different substitute to S. 761. Because I was not able to respond fully 
to his comments the other night, I would like to do so now.
  At the outset, let me say that I support the passage of federal 
legislation in this area. In particular, we need to ensure that 
contracts are not denied validity that they otherwise have simply 
because they are in electronic form or signed electronically.
  As I have said many times, however, we must tread cautiously when 
legislating in cyberspace. Senator Abraham's bill, S. 761, takes a 
sweeping approach, preempting countless laws and regulations, federal 
and state, that require contracts, records and signatures to be in 
traditional written form. My concern is that such a sweeping approach 
would radically undermine laws that are currently in place to protect 
consumers.
  We are told that S. 761 will have tremendous benefits for ``the 
public.'' Who exactly is ``the public'' that will benefit from this 
legislation? Not consumers. The bill is strongly opposed by consumer 
organizations across the country.
  Supporters of this bill say that consumers will benefit from S. 761 
because it will permit them to contract electronically for goods and 
services, and to obtain electronic records of their transactions. I 
agree that consumers should be able to contract online, but that is not 
the issue. Consumers already can contract for most things online, as 
anyone who has heard of such businesses as ``amazon.com'' and 
``ebay.com'' knows. The issue here is whether we are going to allow 
public interest protections now applicable to private paper 
transactions to be circumvented simply by conducting the same 
transaction electronically.
  Let me tell you about an incident that occurred in my office just 
this week. An industry lobbyist called to ask for a copy of my recent 
floor statement regarding this legislation. We sent him a copy as an 
attachment to an e-mail. An hour later, the same lobbyist called back 
to say that he had received the e-mail, but could not read the 
attachment. So we e-mailed it to him again, this time using a different 
word processing format. The lobbyist called back a third time to say 
that he still could not read the statement, and would we please fax a 
copy to his office, which we did. This sort of thing happens every day 
in offices and homes across the country.
  It was only after we sent the fax that it occurred to me that under 
this bill, the unfortunate caller would have been deemed to have 
received written notice of my floor statement, in duplicate no less, 
before it ever reached him in a form he could read. No great loss in 
the case of my floor statement, but swap a bank and a homeowner for the 
Senator and the lobbyist in this story, and a foreclosure notice for 
the floor statement, and you can begin to see the harm this legislation 
could cause to ordinary Americans on a regular basis.
  Many fine and responsible companies have called my office over the 
last few months, to express support for one or another version of S. 
761. I have no doubt that they and a great many other American 
businesses that respect and value their customers would benefit from 
federal e-commerce legislation and share the benefits with their 
consumers.
  We must not forget, however, that the purpose of consumer protection 
legislation is not so much to reinforce the good business practices of 
the best businesses in our society, but rather to protect consumers 
from the abusive and fraudulent minority of businesses that will take 
any opportunity to use new technologies to prey on consumers. That is 
why we must keep the interests of consumers in mind. While I do not 
question in any way the good intentions of the industry representatives 
who support this bill, they do not have the duty that we in Congress do 
to represent the broader public interest.
  In urging speedy passage of S. 761, Senator Abraham pointed to ``the 
fact'' that it passed the Commerce Committee unanimously, and ``the 
fact'' that the President endorsed it. The fact is, the bill that 
Senator Abraham asked us to pass earlier this week is not the same bill 
that the Commerce Committee reported in June.
  For one thing, it includes a new and complex provision regarding what 
it calls ``transferable records,'' that has never been considered by 
any Committee of the House or Senate. The bill also contains a host of 
other new provisions and amendments, including provisions and 
amendments relating to agreements, admissibility of evidence, record 
retention, and checks.
  Furthermore, this bill is far less respectful of the states than the 
Commerce-passed bill, which was itself unprecedentedly preemptive. This 
legislation should be an interim measure to ensure the validity of 
electronic agreements entered into before the states have a chance to 
enact the Uniform Electronic Transactions Act. Once the UETA is adopted 
by a state, the federal rule is unnecessary and should ``sunset.''
  Unlike the Commerce-passed bill, the new S. 761 would maintain a 
strong federal hand in the commercial law of electronic signatures and 
electronic records within a state even after it adopts the UETA. This 
is true because the bill would lift its preemptive effect only to the 
extent that a state's UETA is consistent with the provisions of S. 761. 
The reformulation can have only one possible objective, which is to 
prevent states like Vermont or California

[[Page 27588]]

or even Michigan from passing e-commerce legislation that is more 
protective of consumers than federal law.
  That is why the bill is so strongly opposed by the States. The 
National Conference of State Legislatures writes that the latest 
version of S. 761 ``would eviscerate consumer protections which 
consumers now enjoy off-line and mandate how states are to transact 
business.'' The New Jersey Law Revision Commission, an agency of the 
New Jersey Legislature, writes that it ``vigorously opposes'' S. 761, 
calling it ``an unwarranted imposition on State law'' that ``would 
create more problems than it would solve.'' Other representatives of 
the States have expressed similar concerns.
  To summarize, the Commerce Committee did not unanimously report this 
bill, nor did the Administration endorse it. Indeed, I doubt that 
anyone in the Administration set eyes on this bill before Monday, when 
it was filed as a substitute to S. 761.
  Moreover, the Administration does not currently endorse even the more 
modest bill reported by the Commerce Committee. In a recent letter to 
the House Judiciary Committee regarding title I of H.R. 1714, which 
substantially resembles S. 761, the General Counsel of the Commerce 
Department noted that, at the time S. 761 was reported, the spillover 
effect of its provisions on electronic contracts on existing consumer 
protection and regulatory standards had not been identified. He 
concluded:

       Now that this effect has become clear, and it is equally 
     clear that enactment of this measure is desired by some 
     precisely because of this spillover effect, we [i.e., the 
     Administration] must oppose these provisions as currently 
     drafted.

  The same letter states:

       Consumer protection is [an] important area where the public 
     interest has been found to require government oversight. 
     States, as well as the Federal government, must not be 
     shackled in their ability to provide safeguards in this area. 
     Yet this is precisely what this legislation would do.

  The recently-filed substitute version of S. 761 would do the same.
  I was surprised to hear Senator Abraham say that his efforts to 
negotiate with those of us who had concerns about the bill had been 
``unsuccessful.'' As I have already discussed, those negotiations were 
very successful. They produced a truly bipartisan bill that promoted e-
commerce for the benefit of all Americans and not just special 
interests. It took many weeks of hard work to achieve that result.
  I urge my colleagues to oppose the substitute for S. 761.
  I also ask unanimous consent to have printed in the Record a letter 
from Federal Trade Commission to my office dated September 3, 1999, and 
a letter from the Commerce Department to Representative Hyde dated 
October 12, 1999.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                     Federal Trade Commission,

                                Washington, DC, September 3, 1999.
     Hon. Patrick Leahy,
     U.S. Senate,
     Washington, DC.
       Dear Senator Leahy: In response to your request, I am 
     pleased to submit the views of the Federal Trade Commission 
     on S. 761, the ``Third Millennium Digital Commerce Act,'' 
     which was reported by the Commerce Committee on June 23, 
     1999. You have asked, in particular, whether the bill could 
     undermine consumer protections in state and federal law, and 
     how the bill might be improved.
       We share the broad goals of S. 761, which are to promote 
     the development of electronic commerce through the expanded 
     use of electronic signatures and electronic agreements. As 
     with other aspects of electronic commerce, these technologies 
     hold possibility of reducing costs and expanding 
     opportunities for consumers. Although the bill appears 
     primarily focused on removing barriers to electronic commerce 
     in business-to-business transactions, we have begun analyzing 
     the possible impact of the bill on business-to-consumer 
     transactions.
       The bill's potential application to consumer transactions 
     raises questions that should be addressed. For instance, 
     would the bill preempt numerous state consumer protection 
     laws? Would borrowers be bound by a contract requiring that 
     they receive delinquency or foreclosure notices by electronic 
     mail, even if they did not own a computer? Would consumers 
     who had agreed to receive electronic communications be 
     entitled to revert to paper communications if their computer 
     breaks or becomes obsolete? Would consumers disputing an 
     electronic signature have to hire an encryption expert to 
     rebut a claim that they had ``signed'' an agreement when, in 
     fact, they had not? What evidentiary value would an 
     electronic agreement have if it could be easily altered 
     electronically? It may be that with some clarification, these 
     questions can easily be addressed.
       We would be pleased to work with the Congress, industry and 
     consumer representatives to craft provisions that would 
     provide protections for consumers while allowing business-to-
     business commerce to proceed unimpeded.
       By direction of the Commission.
                                                C. Landis Plummer,
     Acting Secretary.
                                  ____

                                            General Counsel of the


                                       Department of Commerce,

                                 Washington, DC, October 12, 1999.
     Hon. Henry J. Hyde,
     Chairman, Committee on the Judiciary, House of 
         Representatives, Washington, DC.
       Dear Mr. Chairman: This is to convey the views of the 
     Administration regarding Title I of H.R. 1714, the 
     ``Electronic Signatures in Global and National Commerce 
     Act,'' as reported by your Subcommittee on Courts and 
     Intellectual Property (``Subcommittee'').
       We support the overall goal of H.R. 1714 of promoting a 
     predictable, minimalist legal environment for electronic 
     commerce, including the encouragement of prompt state 
     adoption of uniform legislation assuring the legal 
     effectiveness of electronic transactions and signatures. We 
     also appreciate the desire and the work of the Subcommittee 
     on Courts and Intellectual Property to put forward a bill 
     that addresses the concerns of the Administration as 
     explained in Commerce and Justice Department testimony before 
     that Subcommittee.
       In particular, we note that section 103 of the reported 
     bill, titled ``Interstate Contract Certainty,'' is directed 
     to ``any commercial transaction affecting interstate 
     commerce'' and that ``transaction'' is defined to exclude 
     activity involving federal or State governments as parties. 
     We endorse these features of the bill, which make the scope 
     of the legislation broad enough to encompass most day-to-day 
     commercial electronic transactions without interfering with 
     the orderly adoption by governments of electronic means for 
     transacting their public business. We also are pleased that 
     the reported bill omits any provision for federal agency 
     initiatives to enjoin state laws not conforming to the 
     requirements of this statute.
       We continue to support strongly the principles for the use 
     of electronic signatures in international transactions set 
     out in section 102. These are fully consistent with the 
     principles we have been actively promoting internationally 
     since July, 1997, when President Clinton and Vice President 
     Gore issued the Framework for Global Electronic Commerce 
     charging our Department to ``work with the private sector, 
     state and local governments, and foreign governments to 
     support the development, both domestically and 
     internationally, of a uniform commercial legal framework that 
     recognizes, facilitates, and enforces electronic transactions 
     worldwide.''
       We nevertheless believe that the bill, as reported, would 
     still preempt state law unnecessarily, both in degree and 
     duration; invalidate numerous state and federal laws and 
     regulations designed to protect consumers and the general 
     public; and otherwise create legal uncertainty where 
     predictability is the goal. We therefore must strongly oppose 
     the measure in its current form.
       To begin with, we do not understand why it is necessary to 
     override existing federal laws governing commercial 
     transactions. The purpose of this legislation has always been 
     explained as the elimination of antiquated requirements for 
     physical contracts and pen-and-ink signatures. Because those 
     legal principles are embodied in state law, it is 
     understandable that some limited preemption of state law is 
     necessary to accomplish that goal pending the States' 
     adoption of the Uniform Electronic Transactions Act (UETA). 
     The federal rules applicable to these transactions are 
     grounded in regulatory obligations, not basic contract law 
     principles. We do not believe it is appropriate to sweep away 
     these requirements on an across-the-board basis. to the 
     extent that federal regulatory rules need updating to address 
     the new reality of electronic transactions, this should be 
     done on a case-by-case basis, to ensure that the public 
     policy concerns that underlie the existing measures are fully 
     addressed in the electronic world. Accordingly, we believe 
     only state law standards should be affected by federal 
     legislation in this area.
       Section 103 of H.R. 1714 as reported to your Committee 
     continues to place significant, and we believe inappropriate, 
     limits upon the States' ability to alter or supersede the 
     federal rule of law that the bill would impose. As I 
     indicated in my testimony before the Courts and Intellectual 
     Property Subcommittee, this legislation should be limited to 
     a temporary federal rule to ensure the validity of electronic 
     agreements entered into before the States have a chance to 
     enact the UETA. Once the UETA is adopted by a State, the 
     federal rule is unnecessary, and it should

[[Page 27589]]

     ``sunset.'' The reported bill would maintain a strong federal 
     hand in the commercial law of electronic signatures and 
     records within a State even after it adopts the UETA. This is 
     true because the bill would lift its preemptive effect only 
     to the extent that the UETA ``as in effect in such State,'' 
     or any other law of the State, is ``not inconsistent, in any 
     significant manner'' with the provisions of this Act.
       The pervasiveness and strength of this continuing federal 
     influence over States' laws is shown by the broad and 
     unqualified wording of some of the substantive provisions of 
     section 103. For example, subsection 103(a)(3) provides: ``If 
     a law requires a record to be in writing, or provides 
     consequences if it is not, an electronic record satisfies the 
     law.'' Similarly, subsection (a)(4) provides that wherever a 
     law ``requires a signature, or provides consequences in the 
     absence of a signature, the law is satisfied with respect to 
     an electronic record if the electronic record includes an 
     electronic signature,'' and subsection (a)(5) provides highly 
     specific requirements for ensuring that a legal record-
     retention requirement will be satisfied by an electronic 
     record. With such provisions in section 103, the bill's 
     continuing preemption of all State laws which are ``not 
     inconsistent in any significant manner'' with the provisions 
     of this Act would perpetuate federal law as the core of the 
     commercial law of electronic signatures and records in every 
     state. As emphasized in our Department's testimony before the 
     Subcommittee, deference to state law in the area of 
     commercial transactions has been the hallmark of the legal 
     system in this country. The reported bill remains 
     inconsistent with this important tradition which has produced 
     a system of commercial law widely considered the best in the 
     world.
       Subsections 103(a) (3), (4) and (5), which I have just 
     mentioned, coupled with the broad party autonomy language of 
     section 103(b), would also place excessive limits on 
     governmental authority. In particular, these provisions would 
     appear to preclude virtually any regulation of private 
     parties' authentication of recordkeeping practices in the 
     sphere of electronic commerce, as is common and recognized as 
     appropriate with respect to paper-based transactions.* But 
     these regulations, including consumer protection laws, laws 
     governing financial transactions, and others, are essential 
     to ensure that the public interest is protected.
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     * These provisions are similar to some contained in S. 761, 
     as reported by the Senate Commerce Committee. I expressed 
     support for that measure because it ensured that contracts 
     could not be invalidated because they were in electronic form 
     or because they were signed electronically. At the time the 
     bill was reported, the spillover effect of these provisions 
     on existing consumer protection and regulatory standards had 
     not been identified. Now that this effect has become clear, 
     and it is equally clear that enactment of this measure is 
     desired by some precisely because of this spillover effect, 
     we must oppose these provisions as currently drafted.
---------------------------------------------------------------------------
       For example, raising concerns similar to those noted in 
     this Department's testimony on H.R. 1714, Banking Committee 
     Chairman Leach recently wrote to Commerce Committee Chairman 
     Bliley noting that the federal financial regulatory agencies 
     have raised a concern about the language of the section of 
     H.R. 1714 (section 103(b) of the version before your 
     Committee) relating to the autonomy of parties to a contract 
     to set their own requirements with respect to electronic 
     records and signatures. Specifically, he noted the need to 
     ensure that the bill's party autonomy provisions would not 
     limit government authority to engage in limited regulation of 
     authentication- or records-related matters in certain private 
     party transactions in the public interest. We agree; for 
     example, given the unqualified authorization provided by 
     subsection 103(b) to private parties to determine the 
     ``methods'' as well as the ``terms and conditions'' under 
     which they will use and accept electronic signatures and 
     records, banks would be free to adopt methods that could 
     result in the absence of adequate records or sound 
     authentications of transactions when the bank examiner 
     arrives.
       Chairman Leach also noted that the Federal Reserve Board 
     has raised concerns regarding the application of H.R. 1714 to 
     negotiable instruments, such as checks and notes. He pointed 
     out that the National Conference of Commissioners on Uniform 
     State Laws recognized some of these concerns and therefore 
     excluded transactions covered by the Uniform Commercial Code 
     from coverage under UETA. We agree with the concerns raised 
     by Chairman Leach and believe that amendments or 
     clarifications along the lines he has suggested continue to 
     be needed in the context of H.R. 1714 as reported to your 
     Committee.
       Consumer protection is another important area where the 
     public interest has been found to require government 
     oversight. States, as well as the Federal government, must 
     not be shackled in their ability to provide safeguards in 
     this area. Yet this is precisely what this legislation would 
     do.
       Section 104, ``Study of Legal and Regulatory Barriers to 
     Electronic Commerce,'' is consistent with the 
     Administration's commitment to ensure the careful review of 
     possible legal and regulatory barriers to electronic 
     commerce. Indeed, this provision in the bill as reported 
     focuses upon barriers to electronic commerce, as such, rather 
     than more narrowly upon commerce in electronic signature 
     products and services. We believe this focus is appropriate. 
     However, to avoid duplication of agency reporting, we would 
     recommend against inclusion of the Office of Management and 
     Budget as an agency to receive initial agency reports under 
     the provision.
       In summary, we believe that the bill as reported by the 
     Subcommittee addresses some important concerns of the 
     Administration that were set out in our earlier testimony. 
     However, H.R. 1714 in the form reported to your Committee 
     retains significant flaws that would have to be addressed 
     before the Administration could support the bill. We would be 
     pleased to continue to work with your Committee on this 
     important legislation.
       The Office of Management and Budget advises that there is 
     no objection to the submission of this report from the 
     standpoint of the Administration's program.
           Sincerely,
     Andrew J. Pincus.

                          ____________________