Congress is poised to enact legislation governing digital signatures, a technology that is critical to the Internet's future. The high-tech industry's support of this legislation, which is unnecessary and dangerous, demonstrates how the industry is becoming trapped in establishment politics. Technology companies must reverse this trend or find themselves crippled by regulation.
The electronic equivalent of handwritten signatures, digital signatures promote secure electronic commerce. They enable businesses and consumers to confirm each other's identity and to sign contracts online. Despite these benefits, digital signatures are not yet widely used.
The likely cause for this situation, which online businesses find frustrating, is limited consumer demand. But industry representatives instead blame a lack of federal action. They note that federal law does not officially recognize digital signatures, and that states are enacting contradictory policies. Signatures valid in some states are invalid in others, spawning fears that online businesses will face compliance problems.
A consortium of companies, including Sun Microsystems and Intel, is calling for two-part legislation that addresses these issues. First, the law would recognize the legality of digital signatures. Second, it would nullify all state laws in this area.
The high-tech industry's support of this law represents a dramatic departure from its traditionally anti-regulation stance. Led by Senator Spencer Abraham (R-MI), legislators are scrambling to capitalize on this change of heart.
Abraham's Millennium Digital Commerce Act, approved by the Senate Commerce Committee on June 23, mirrors industry demands. Abraham claims his bill would "alleviate the uncertainty of numerous inconsistent state laws." But federal laws are the least effective solution.
A better approach would harness the technology sector's demonstrated ability to implement innovative, non-government solutions. For example, businesses are already devising ways to ensure that customers use trustworthy signature technology. Visa and Microsoft have developed a system called SET (secure electronic transactions).
Under SET, Visa requires customers to use a specific type of signature. Banks issue and verify these signatures, and their legality is guaranteed under contract law. Visa therefore knows that customers who produce the appropriate SET-compliant signatures are reliable.
New technologies could also hurdle the compliance barriers erected by conflicting laws. A consumer could acquire several different types of signature and encode them in a secure, computerized wallet, the technology for which already exists. During a transaction, the wallet could automatically employ the appropriate signature in response to the requirements and/or location of an online business.
Because electronic commerce is global and many international laws conflict, such technology will be necessary regardless of whether Congress adopts uniform signature laws. In addition to being unnecessary, federal signature legislation would set a dangerous precedent.
Traditionally, state governments have overseen contracts and signatures. Federal laws would steal away and centralize this authority. This contradicts the Internet's decentralized nature.
High-tech's tremendous growth has been built upon rapid innovation and flexible standards. Decentralized governance, driven by the private sector and state and local governments, matches this model. Top-down federal measures, on the other hand, are inflexible and unresponsive to industry changes. They could spell disaster as technology moves forward and renders existing laws obsolete.
Technology companies know this and have traditionally avoided regulations, relying instead on their own creativity and independence. So why, then, are they demanding federal signature laws?
The answer may be found in the industry's attempts to gain influence inside the beltway. Congress's crusade to regulate technology has forced companies to open Washington offices, employ lobbyists, and hire an arsenal of government-affairs officers more experienced on Capitol Hill than in Silicon Valley. While these efforts do help prevent new regulations, they also backfire.
Hired political advocates are exactly that. In their efforts to deliver what, in Washington terms, companies "need," they advocate legislation that contradicts the industry's self-reliant nature. Legislators quickly respond in an effort to ingratiate themselves with the industry's deep pockets. And technology executives, rightfully more preoccupied with profits than politics, are letting this process run free.
By doing so, they are empowering the corporate welfare cycle that traps industries in Washington's web. Money is spent. Bills are passed. Establishment politics reign, replacing industry innovation with government regulation.
For the technology industry, digital signature legislation represents the first chapter in this tragic tale. If high-tech companies want to avoid the familiar ending, they must renew their skepticism of government and reign in their political advocates. A Washington presence is necessary in today's pro-regulation climate. But it must be used to keep regulators out, not to invite them in.
*Justin Matlick is a Senior Fellow in Information Studies at the Pacific Research Institute. To learn more about PRI and the Center for Freedom and Technology, see www.pacificresearch.org.
