MEMORANDUM

TO: Members of the Committee to Implement the UN E-Commerce Convention (the “E-Commerce Committee”), Advisors to the E-Commerce Committee, and Observers

FROM: Henry D. Gabriel, Chair

D. Benjamin Beard, Reporter

DATE: October 10, 2008

RE: Initial Meeting of the E-Commerce Committee, October 31-November 1, 2008, Arlington, VA - Background Information and Project Definition.

BACKGROUND DOCUMENTS

Accompanying this Memorandum are the following documents and reports:

1. 2005 United Nations Convention on the Use of Electronic Communications in International Contracts (New York, 23 November, 2005), Official English Text and Explanatory Notes (the “Convention”)

2. Uniform Electronic Transactions Act (1999), with Prefatory Note and Comments (the “UETA”)

3. Electronic Signatures in Global and National Commerce Act, 15 U.S.C.A. §§7001, et seq (2000) (“E-Sign”)

4. June 25, 2008 Memorandum from Harriet Lansing, Vice-President of the Uniform Law Conference (ULC) and John Sebert, Executive Director of the ULC to Scope and Program Committee of the ULC, regarding Proposal for Establishing the E-Commerce Committee together with Resolution of the Executive Committee approving the Proposal and creating the E-Commerce Committee. (“Committee Proposal Memo”)

5. 2005 Report by Henry Gabriel Comparing the Convention with the UETA, prepared for the ULC Executive Committee (the “Gabriel Report”).

6. Gabriel, United Nations Convention on the Use of Electronic Communications in International Contracts and Compatibility with the American Domestic Law of Electronic Commerce, 7 Loy. L. & Tech. Ann 1 (2006-2007) (“Gabriel Article”)

7. 2007 Report by Kathleen Patchel regarding State Law Implementation of Private International Law Treaties, prepared for the ULC Executive Committee (the “Patchel Report”)

8. September 28, 2007 Memorandum from Kathleen Patchel to Participants in Informational Meeting Regarding Treaty Implementation regarding Implementation of Private Law Treaties (the “Patchel Memo”)

9. April 25, 2008 Memorandum from Kathleen Patchell to Walters, Lansing, Smith, and Sebert regarding Medellin v. Texas (the “Medellin Memo”)

10. American Bar Association Resolution 100 adopted by the House of Delegates August 11-12, 2008 urging the U.S. Government to ratify the Convention (the “ABA Resolution”)

11. Informal Memorandum and Proposal from Interested Parties as a result of discussions occurring among members of the American Bar Association’s Cyberspace Committee regarding amendment of E-Sign as one possible method to implement the Convention consistently with E-Sign and UETA (“Informal Cyberspace Proposal”).

12. October 6, 2008 Memorandum from Curtis R. Reitz regarding Article 19 of the Convention as one possible source for resolution of implementation issues. (the “Reitz Memo”)

BACKGROUND INFORMATION

In 2005, the United Nations adopted the Convention. In the course of the preparation and negotiation of the Convention by the United Nations Commission for International Trade Law (“UNCITRAL”), the United States representatives and observers actively participated and worked to achieve a convention that would be consistent with United States domestic law, in particular E-Sign and UETA. Their efforts were largely successful. See Gabriel Report and Gabriel Article. There do remain some issues regarding how ratification of the Convention by the United States would affect both federal law under E-Sign and state law, principally under the UETA as adopted by 46 of the 50 states. In resolving potential inconsistencies it is important to keep firmly in mind that the Convention is a final, effectively unchangeable product of UNCITRAL and the United Nations. Therefore any problems related to implementation must be addressed either through the means available under the existing Convention itself, in particular the possibility of understandings and declarations, or by means of amendments to domestic legislation, whether of E-Sign or possibly the UETA.

Currently, E-Sign accords an exemption from preemption to state law adoptions of the Official 1999 UETA as promulgated by the National Conference of Commissioners of Uniform State Laws/Uniform Law Conference. 15 U.S.C.A §7002. This exemption to preemption is limited to state enactments of the Official 1999 version of UETA as adopted by the ULC. Though there are questions regarding the extent to which non-uniform amendments to the 1999 UETA affect this exemption to preemption, it is accepted that the more “pristine” the enactment of the 1999 UETA the less likely it would be that the state law would be found to be preempted by E-Sign. 1 Accordingly, should any implementation strategy include amendment of the 1999 Official text of UETA, consideration must also be given to amendments to E-Sign to assure that the preemption provisions in Section 7002 are not triggered.

Notwithstanding the essential consistency between the provisions of the Convention and the UETA, some possible inconsistencies have been identified. For example, it has been suggested that the mandatory rules found in Section 8 and Section 10 of the UETA conflict with the broad party autonomy preserved in Article 3 of the Convention. There are also technical differences in the requirements for dispatch under Article 10 (1) of the Convention (“leaves” an information system under the sender’s control) compared to the requirement of sending under Section 15(a) of the UETA (“enters” an information system outside the control of the sender). While these distinctions may be more apparent than real, they are subjects for consideration by the E-Commerce Committee in determining the best mechanism for implementing the Convention in a manner consistent with domestic law. In addition, the Convention applies to transactions within its Scope unless the parties choose to “opt-out” of the Convention, while the UETA only applies to transactions within its scope if the parties choose to “opt-in” to its provisions. 2 A final example might be the existence in Article 11 of the Convention of a rule that, while consistent with the general rule regarding invitations to offer under U.S. common law, is not present or covered by either UETA or E-Sign. 3

PROJECT DEFINITION

Possible Implementation Strategies.

As the Patchel Memo and Patchel Report set forth in greater detail, there are several methods by which implementation of the Convention may be accomplished to minimize inconsistencies with domestic law (whether federal or state) and to maximize the federal-state balance in this area of commercial law. It may also be possible to employ implementing legislation at the federal or state level to address possible inconsistencies. One example of this approach is reflected in the Informal Cyberspace Proposal which proposes a modest amendment to E-Sign. Another possibility would be to formulate amendments to uniform legislation such as the UETA or the Uniform Commercial Code, to address potential inconsistencies at the state level. This of course runs into the logistical difficulties of obtaining uniform enactment of such amendments on a nationwide basis.

Another possible approach would be to declare that the Convention is not self-executing, and reference the UETA and E-Sign as existing legislation that is sufficiently consistent to satisfy the requirement of implementing legislation. Given the substantial substantive consistency between the provisions of the Convention and domestic law in the form of E-Sign and UETA, this approach may be worth considering. Such a pre-implementation strategy may run the risk that the U.S. will be out of compliance with its obligation of good faith implementation because of the lack of UETA enactment in New York, Washington, Georgia, and Illinois. To address this concern it might be possible to combine such a pre-implementation strategy with an amendment to E-Sign that 1) expressly preempts in their entirety any statute that is not a substantial enactment of the 1999 UETA, and 2) clarifies that non-uniform enactments of 1999 UETA are preempted solely to the extent of any inconsistency. In such a case E-Sign would apply in those four states and would serve as the pre-implementation legislation fulfilling the U.S. obligation of good faith.

Employment of Reservations, Understandings, and Declarations.

The possibility of taking exceptions to the Convention by way of a reservation is prevented by Article 22 of the Convention that provides that “No reservations may be made under this Convention.” The U.S. could of course take a reservation, but that would require acceptance by other parties to the Convention before the exception would be binding on those Parties. Use of a reservation also would affect negatively the credibility and prestige of the United States since such reservations may be viewed as a back-door way to renegotiate the provisions of the Convention.

As Professor Reitz notes 4 , a declaration under Article 19 of the Convention could resolve some inconsistencies between the scope of the Convention and the scope of E-Sign and UETA. Adding to the exclusions under the Convention those matters excluded by E-Sign and UETA brings the Convention into line with the breadth of applicability under domestic law. Taking a declaration that the Convention only applies in those cases where the parties agree that it applies resolves the opt-in/opt-out conflict between the Convention as drafted and the UETA. By making the Scope of the Convention parallel to E-Sign and UETA, much of the concern over inconsistencies can be resolved.

Finally, the E-Commerce Committee could prepare a draft letter of transmittal or draft Senate Report that would accompany the Convention upon Senate advice and consent. Such a draft might be similar to the draft Letter of Submittal prepared by the ULC to accompany the UN Convention on the Assignment of Receivables in International Trade. The draft letter would include any appropriate declarations, and would also reflect express understandings with regard to the scope, applicability, and construction of the Convention with domestic law. In this regard, the E-Commerce Committee may wish to consider understandings setting forth the preemptive effect that the Convention is to have vis a vis domestic law. Specifically, the draft letter could include an express recognition that the Senate does not intend the Convention to occupy the field of electronic commerce, and that the Convention will preempt domestic law only to the extent that there is a direct conflict between the Convention and applicable domestic law. This understanding could be coupled with a statement that the Convention is to be construed, where ever possible, as consistent with domestic law.

CONCLUSION

While it appears that there is little significant divergence between the Convention and U.S. domestic law, whether the UETA or E-Sign, there are implementation strategies and other mechanisms that can be employed to clarify the operation of the Convention and other domestic law. It is the goal for this first meeting that the E-Commerce Committee determine the best approach to be followed for implementation of the Convention upon accession to the Convention by the United States.