Forty-seven states have enacted forms of the Uniform Electronic Transactions Act (UETA). Section 7 of the uniform act provides that “If a law requires a signature, an electronic signature satisfies the law.” The law was primarily targeted at erasing barriers to e-commerce. However, the law may reach into unexpected realms, as demonstrated by a decision of the Utah Supreme Court handed down this summer.

The case is Anderson v. Bell, 2010 UT 47, 234 P.3d 1147. The case originated when Farley Anderson sought to stand as a non-party affiliated candidate for governor of Utah. In order to be on the ballot for governor in Utah, a candidate is required to submit a petition signed by at least 1,000 registered voters residing in the state.  Anderson submitted a mixture of handwritten signatures and electronic signatures collected on a web site in favor of his candidacy. The Utah Attorney General struck the electronic signatures and rejected the petition because the number of signers was no longer sufficient. Anderson petitioned for an extraordinary writ from the Utah Supreme Court.

In addition to looking at Section 7 of the Utah UETA, the court considered Utah’s general definitions statute, which explicitly includes electronic signatures within the definition of a “signature” to be used in the entire Utah code. In light of this as well as UETA’s unambiguous language that any law requiring a signature is satisfied by an electronic signature, the court held that a signature for the purposes of a petition to run for office includes an electronic signature. The court pointed out that the crucial question for a signature is intent to authenticate, which is demonstrated just as well by an electronic as a paper signature.

The Utah court rejected an argument of the Lt. Governor based on a Utah law granting agencies the authority to make rules about when  that agency will and will not be accept electronic submissions on the ground that the Lt. Governor had not actually promulgated any such rules. The Lt. Governor also pointed to UETA Section 5(b), which states that the act applies only to transactions between parties each of which has agreed to conduct transactions by electronic means. The court rejected this argument on the basis that the parties to the transaction are the persons signing the petition, not the Lt. Governor, whose only interest is the duty to verify the signatures.

Although the Anderson case turned on certain details of statutory interpretation, including those based on Utah administrative law that apply differently in different jurisdictions, the case raises broader policy questions. That electronic signatures should be allowed to create contractual relations in order to facilitate online commerce is reasonably well accepted.  The question Anderson hints at is whether this acceptance merely represents acquiescence to practical realities, or a more fundamental belief that a mouse click is just as appropriate a way for a person to indicate agreement as a physical signature.

Less philosophically, Anderson and cases like it may force states to re-examine their petition system. This raises interesting policy questions, not so much in the Anderson setting of candidacy but in the context of voter initiatives. (The Anderson court refused to reach the question of whether electronic signatures are valid for voter initiative purposes.) Wide acceptance of electronic petitioning could greatly modify the landscape for voter initiatives. Presently, placing a voter initiative on the ballot in states that allow such initiatives demands either a very large amount of grass roots support in the form of volunteer petition gatherers, or, perhaps more likely, large amounts of funds for paid petition gatherers. The possibility of online petitions in this setting could greatly shift the balance of power, decreasing the emphasis on petition circulators and placing more emphasis on the ability of groups promoting a voter initiative to draw attention to a web site.

The question of whether to allow online signatures for voter initiatives online as a policy matter turns somewhat on the question of why signatures are required at all. The most straightforward answer is to determine whether there are enough citizens willing to endorse the initiative to suggest that it has some reasonable chance of passing. If this is the sole reason for collecting signatures, then it is difficult to come up with a compelling reason not to accept online petition signatures. As the Anderson court noted, a digital signature demonstrates intent to endorse just as a physical signature does. Although such an adjustment may cause short-term administrative difficulties as secretaries of state adjust to new procedures, it seems most likely that online signatures, coming in a machine-readable form, would be much easier to evaluate in the long run.

If, however, the signature gathering component of the voter initiative process is intended as a barrier to entry, ensuring that initiative proponents are serious enough to take on the logistical tasks and expense of collecting signatures, petition signatures may not fulfill this task. The proliferation of online “petitions” certainly does suggest that electronic signature collection might invite arguably frivolous voter initiatives. On the other hand, the current system favors initiative proponents with substantial funds to hire petition circulators. Allowing online petitions would not eliminate such parties, but might balance the playing field in favor of parties with less economic power.

Regardless of how these questions are ultimately resolved, the Anderson case signals that the electronic signature may refuse to be contained within the narrow bounds of e-commerce.

Susuk Lim

Pennsylvania–As social networking sites like Facebook and MySpace rise in prominence and become integrated into the daily lives of more and more people, serious questions of confidentiality arise.  Much has been made of the loose lips syndrome afflicting social network users, and in many cases, courts have been unwilling to protect inculpatory posts from discovery.  In the latest case to tackle these issues, McMillen v. Hummingbird Speedway, Inc., No. 113-2010 CD (Pa. Ct. of Common Pleas), a Pennsylvania court not only concluded that information posted on one’s profile lacked protection, but that login credentials to the profiles themselves are not confidential.

McMillen is, at its core, a personal injury case.  Plaintiff, a stock car racer, was apparently injured during the cooldown lap of a race held on property owned by Defendant.  After the injury, Plaintiff posted information about his recreational activities on Facebook, including his attendance of the Daytona 500 and a fishing trip.  During the course of Plaintiff’s suit, Defendant requested full discovery of Plaintiff’s social networking profiles, including usernames and passwords required to fully access them.  Plaintiff objected.

The court proceeded from a presumption, under Pennsylvania law, of discovery’s generally broad scope and the limited application of evidentiary privilege.  Given the social nature of sites like Facebook and Myspace, wherein users intentionally share information in an effort to connect with new and existing friends (and, as the court noted, those friends were free to disseminate any potentially confidential information to other parties), the court first reasoned that “[w]hen a user communicates through Facebook or MySpace … he or she understands and tacitly submits to the possibility that a third-party recipient, i.e., one or more site operators, will also be receiving his or her messages and may further disclose them if the operator deems disclosure to be appropriate.” It concluded that there was no element of confidentiality that protected Plaintiff’s Facebook and MySpace accounts from discovery.

The court reached the same conclusion upon applying Wigmore’s four-part test for new evidentiary privilege.  Under Wigmore’s test, the party seeking creation of the privilege has the burden of satisfying all of the conditions; (1) that the communications must originate in confidentiality, (2) that the element of confidentiality must be essential to the maintenance of relation between the parties, (3) that relation is one that is sedulously fostered by the community, and (4) the injury arising from disclosure is greater than the benefit derived from the correct disposal of litigation.  Here, upon considering MySpace and Facebook’s use policies, the court concluded that confidentiality was neither expected nor essential to maintain the relationships between social network users.  It posited that “[t]he relationships to be fostered through those media are basic friendships, not attorney-client, physician-patient, or psychologist-patient types of relationships, and while one may expect that his or her friend will hold certain information in confidence, the maintenance of one’s friendships typically does not depend on confidentiality.”

In handling social networks as monoliths with a singular purpose to share information, the court evinced a lack of appreciation of social networking’s modern complexities.  First, the scope of discovery here was not limited to inculpatory posts – it requested, and the court granted, read and write access to the account itself. It treated Plaintiff’s username and password combination no differently than the information contained within the account, even though the basis for protecting confidentiality should have been completely different.

Second, both Facebook and MySpace have integrated, e-mail-like private messaging capability.  By painting “social networking” in broad strokes, the court effectively sweeps capabilities intended to provide a measure of confidentiality into the “unprivileged” bucket.

Third, social networking sites – especially Facebook – have responded to widespread criticism from its own users to improve control of the confidentiality of posts and features at a granular level.  Users may now lock down practically every aspect of their profile from public, semi-private, or even fully private dissemination, and may also control the sharing of information between the first generation.  The court practically ignores a user’s clear intent to preserve confidentiality if they create these posts after mindfully setting these privacy options – and the broad wording of the decision sweeps practically every social networking user, however mindful of his or her privacy, into the same unprotected classification.

Finally, since the granted discovery request in this case includes everything in Plaintiff’s social networking profile, Defendant will be given every bit of a very large portfolio of information.  Unlike the court’s view, social networking profiles have become very complex and hold more than just posts.  In being granted such a broad request, Defendant will be assailed with pictures of puppies, a long history of Farmville scores, Youtube videos, and other similarly disparate and irrelevant nuggets of information – and not just from Plaintiff himself.  Rather than limit the discovery to the portion of Plaintiff’s profile relevant to the litigation, the court chose to ignore the relevance analysis altogether, possibly from not understanding the scope and implications of its actions.

McMillen provides us with two main takeaways.  First and most obviously, nothing posted in a social networking site is safe from discovery – not even posts made by third parties.  As in McMillen, a court may look to the underlying purpose of social networking itself and conclude that it is simply not important enough to protect anything on a social networking site against what it views as the “correct” dispatch of litigation.  Simply state, be mindful of what you post, because it could very well be used against you.

Second, McMillen demonstrates the importance of clear advocacy, especially when involved in litigation the court is unlikely to fully understand. The McMillen court will unfortunately not be the last in not fully understanding emerging technology before passing judgment on its legal status.  Given the complex nature and perhaps previously unimaginable scope of something like social networking, it is understandable – after all, courts were never meant to be independent experts on the subject matter of every case they are assigned.

While the court may not be responsible for independent research, the advocate surely is.  Had the court fully appreciated the complexity of social networking as an entity, it may not have decided as broadly against evidentiary privilege as it did.  Instead, it appears that Plaintiff pursued a broad, unsubstantiated argument – namely, the creation of a “social network site privilege” in the absence of case law either for or against it – and the court responded with a broad denial.

Parker A. Howell

While mobile payments – exchanges of money using cell phones – may not be commonplace in the United States yet, the technology has arrived.  One need look no further than Starbucks’ recent rollout of an iPhone application that displays a barcode that can be scanned as payment, or to banks that allow clients to upload pictures of checks for electronic processing.

However, various outstanding business, legal, and technological issues must be resolved before consumers ditch their cash and credit cards for their Blackberrys, according to panelists at today’s conference on mobile payments, hosted at the University of Washington School of Law.

The basic question is one for businesspeople, not necessarily lawyers: There must be a “value proposition” for these services in a credit-card dominated market, as put by Adam Levitin, associate professor at the Georgetown University Law Center.

“If all it is is just another set of pipes, it doesn’t really change anything,” Levitin said.  “It may need some little tweaks here and there in the law to make sure that … there’s proper statutory coverage. … If that’s all it does, I don’t think we’re going to see widespread mobile taking off really in a big way because our current system is working pretty well.”

The most “readily apparent” business model is “the possibility of integration with nonpayment services,” such as advertising and coupons, Levitin said.  For example, a customer at a store might receive a text message offering a discount if the person pays using a phone; this would allow merchants earlier influence over payment modes (remember that credit card companies charge those pesky percentage fees).

Speaking of fees, Levitin points out that more players – telecomm companies, hardware manufacturers, software providers – means more revenue may be needed to split among those parties to support mobile payments.  And will incumbent banks be willing to give up a piece of their business?

Mobile payments also raise concerns for consumer advocates, such as Georgia State University College of Law Professor Mark Budnitz.

“There’s a lot of gaps in the law,” he said.

Telecommunications companies are not regulated like banks, he said. (In developing countries, this could be a good thing, according to researcher and conference keynote speaker Ignacio Mas.)  The more consumers bypass banks by having charges tacked directly onto their phone bills, the less likely someone will clearly be on the hook if something goes wrong.  For example, if a consumer wants to complain that a telemarketer tacked on a charge without authorization, who eats the loss?  The wireless provider? If there is a problem with a handset, the UCC applies.  But the law is more complicated for software, he said.

Budnitz also questions whether phone-based payment systems would be secure in the case of loss or theft.  Thus, he suggests that laws should clearly allocate the loss to companies that provide mobile payment services, offering them incentives to provide security.

These worries merely underscore one of the biggest unknowns in this emerging area: what form will mobile payments take?  They may use Near-Field Communication (NFC), the next big thing slated to roll out soon in the UK.  They may involve on-screen bar codes, like Starbucks’ system.  Or, they could be more like PayPal, only accessed via a mobile phone.  Payments could be tied to existing bank accounts or credit cards, or exist independently.

The rationale for promoting mobile payments in the developing world is quite compelling, as Mas aptly described.  But Americans (and Europeans) already have a bevy of payment choices, ranging from cash taken from the local ATM to the airline-rewards credit card.  As the business case for domestic mobile payments becomes more apparent (or not), the law will need to evolve to fill in the gaps Budnitz and others describe.  To learn more about how companies are looking to advance this technology, and the regulatory response, check out the presentation slides from today’s conference (they are slated to be posted in coming days).

Parker A. Howell

Smartphone users in New York City now can purchase their morning Starbucks lattes with mobile devices under a program the Seattle-based coffee chain recently rolled out.  Whether the lure of this cashless service in the gift- and credit-card saturated U.S. market wins over consumers remains to be seen.

But for poor people in developing countries, real-time mobile payments may be a financial lifeline where access to banks is rare.  That is the message researcher Ignacio Mas gave practicing lawyers and scholars Friday afternoon during a conference on mobile banking at the University of Washington School of Law.

Mas, deputy director of the Bill and Melinda Gates Foundation’s program for Financial Services for the Poor, sees mobile payments as a means to foster saving among people without easy access to banks.  In these systems, retailers accept electronic payments via mobile applications provided by financial services institutions; transactions happen in real-time and are drawn against retailers’ accounts.

As other presenters at the day-long conference made clear, the challenges facing developing countries differ from those in the U.S. market, where numerous technological and regulatory questions remain.

Yet in the developing world, fostering adoption of these systems simply is a matter of economics, Mas said.  Individuals must see the service as a “compelling value proposition” offering benefits, such as an easy ability to send money long distances and to develop a financial history.

“What people want is immediacy,” he said. “If there’s no savings point between where I live and work, forget it.”

Mobile phones make sense as a platform because of their ubiquity, Mas said.  In many regions, phones vastly outnumber bank accounts.

Merchants, who would receive a cut of transaction fees, must be incentivized to carry more cash in their facilities and make frequent trips to banks.

Financial institutions will develop credit programs for mobile platforms, Mas said.  His program focuses on savings instead of credit – although he noted both are future propositions.

“It’s bridges to cash.  That for me is what financial services is,” he said. “Build these bridges and I have no doubt that financial services providers will contribute.”

Kenyans have widely adopted one such system, M-PESA, which has 13 million users and accounts for 70 percent of e-payments in Kenya.

“This is not just theory,” Mas said. “This is happening.”

For regulatory purposes, Mas argues, micropayment-service providers should not be treated like banks.  Rather, he recommends posters making disclosures at merchant shops.

“It’s very important to get this into regulatory thinking because there’s no one-size fits all solution,” Mas said.

Mas also stressed the need to sign up users at merchant locations, rather than forcing customers to sign up for new accounts at banks – what Mas called “like original sin.”

While “errors will be made” and “people will send money to the wrong account number,” Mas said, he argues against automatic reversals of payments, saying they would undermine consumer trust.  (Contrast this with recent European e-money regulations, which require automatic reversal and require banks to prove a user actually made a transaction, according to Thaer Sabri of the Electronic Money Association in Surbiton, UK.)

Mas’ talk may have domestic implications as well.  UW Law Professor Jane Winn said commentators have discussed innovative banking models flowing into developed countries rather than those countries exporting their banking models; those new models could be a real threat to banks, she said.

“Ignacio’s presentation was the best example I’ve seen of that,” Winn said.

[Interestingly, the conference was funded as the result of a settlement against a large bank caught selling information improperly, according to conference organizers.]

Tomorrow the University of Washington School of Law will host an international conference on how cellular phones can boost access to banking in developing countries and increase revenue for domestic mobile-phone operators. More than two-thirds of the world’s population has a cell phone, creating tremendous new opportunities for innovation in the way consumers buy and sell goods and services around the world.

The University of Washington School of Law conference, “Mobile Payments: Global Markets, Empowered Consumers and New Rules,” will also explore how to protect consumers and generate competition in the cutting-edge market for mobile payments. More than 100 participants are expected to join a dozen expert from the around the world at William H. Gates Hall in Seattle for the one-day mobile payments conference.

The event’s keynote speaker, Ignacio Mas, is the Deputy Director of Financial Services for the Poor program at the Bill and Melinda Gates Foundation in Seattle. Mas is an internationally renowned expert on cell-phone banking and mobile payments. The conference chairs are Anita Ramasastry, D. Wayne & Anne Gittinger Professor of Law and Chris Jay Hoofnagle, Senior Fellow, Samuelson Law, Technology & Public Policy Clinic, UC Berkeley Law.

During the conference, participants will tackle key issues emerging in cell phone banking and payments markets including:

• What Will it Take to Make Mobile Payments Mainstream in North America?
• A User Centric Model for Mobile Payments
• Mobile Payments in Other Markets – Emerging Regulatory Frameworks

Distinguished panelists and moderators addressing these topics will include: Professor Adam Levitin, Georgetown University Law Center, Washington, D.C.;  Professor Benjamin Geva, Osgoode Hall Law School York University, Toronto; Carol Coye Benson, Founding Partner, Glenbrook Partners, Menlo Park; Thomas Brown, Partner, O’Melveny & Myers LLP, San Francisco; Professor Jane K. Winn, University of Washington Law School, Seattle; Professor Mark Budnitz, Georgia State University College of Law, Atlanta; Gail Hillebrand, Financial Services Campaign Manager and a Senior Attorney, West Coast Office of Consumers Union, San Francisco; Chris Hoofnagle, Director, Information Privacy Programs, University of California Berkeley School of Law, Berkeley; Professor Bill Maurer, Director, Institute for Money, Technology and Financial Inclusion, University of California, Irvine; Maria Stephens, U.S. Agency for International Development, Washington, D.C.; Andrew Bennett, International Trade Administration, U.S. Department of Commerce; and Professor Joel Ngugi, University of Washington Law School, Seattle.

Cell phone banking and mobile payments have tremendous potential to revolutionize markets in developing countries. In Kenya, for example, fewer than 4 million people have bank accounts, yet Safaricom’s M-PESA mobile banking service attracted one million users in the first 10 months of operation. By July 2008 there were 3.6 million M-PESA subscribers moving approximately 21 billion Kenyan shillings ($USD 288 million) through the Kenyan economy.

Kenya does not have comprehensive national payment system legislation to regulate branchless banking. The Central Bank of Kenya set very minimal requirements for fear that excessive early regulation would choke innovation. Under Kenyan law, M-PESA is not regulated as a bank because the money is “in transit.” In South Africa, by contrast, any business accepting deposits qualifies as a bank subject to banking regulations. Ignacio Mas has explored these issues in his research on branchless banking in developing countries.

The UW conference was made possible by cy pres funds in litigation led by Reed R. Kathrein, Managing Partner of the Hagens Berman Sobol Shapiro LLP Berkeley office. For more information on the international conference visit the University of Washington School of Law Web site.