Clinton bill would protect vendors from Y2K lawsuits

Recent measures by the US federal government to encourage full disclosure of year-2000 compliance may deny end-user companies legal recourse against their computer vendors. Sent to Congress for introduction this week, President Clinton's 'Good Samaritan Law' shields vendors from year-2000-related lawsuits on the basis of their disclosure statements, provided the statements were made in good faith.

Recent measures by the US federal government to encourage full disclosure of year-2000 compliance may deny end-user companies legal recourse against their computer vendors.

Sent to Congress for introduction this week, President Clinton's "Good Samaritan Law" shields vendors from year-2000-related lawsuits on the basis of their disclosure statements, provided the statements were made in good faith.

Analysts note that the law will likely be significant for owners of computer equipment because the computer industry has not been not very proactive -- compared to say, automobile or appliance manufacturers -- in notifying consumers of potential year-2000 problems or recalling products.

However, lifting liability in an effort to share information may benefit vendors more than users, some analysts said.

"[The proposed law] is letting vendors say something that may not be true without having to take responsibility for it," said Kazim Isfahani, an industry analyst at Giga Information Group, in Cambridge, Mass.

Chip manufacturers, in particular, are skittish about sharing information because of the difficulty in discerning problems in embedded systems.

"My guess is the chip makers are terrified," says Peter de Jager, a year-2000 consultant in Brampton, Ontario. "If you force a major chip manufacturer to replace every broken chip, they'll go bankrupt."

Although the proposed legislation could take the legal heat off some vendors, the pending bill offers no remedy for vendors already facing litigation -- and as many as eight cases have already been filed, Isfahani noted.

BIOS vendors, attorneys, and law makers are closely watching a potential landmark case, Produce Palace Int'l vs. TEC-America. In the lawsuit, a Michigan-based grocer is suing its point-of-sale system provider for selling it an allegedly non-year-2000-compliant solution in 1995.

According to the plaintiff's attorney, Brian Parker, of Bingham Farms, Mich., the parties in the suit agreed on July 29 to enter state-sponsored mediation, averting a September trial date set the same day by the Circuit Court for the County of Macomb, Mich. The move comes after the plaintiff rejected an earlier $260,000 mediated settlement.

Attorneys and analysts say the Produce Palace case underscores the vulnerability of embedded chip manufacturers to year-2000 lawsuits and highlights the potentially huge amounts of money at stake. The Gartner Group, in Stamford, Conn., estimates that year-2000 litigation costs could reach $1 trillion.

"The lawsuits over the year-2000 problem may dwarf the problem itself," says Jim Pooley, principal at Fish & Richardson, a law firm in Menlo Park, Calif.

Not surprisingly, embedded systems manufacturers -- makers of the chips and software that run applications such as security systems as well as PCs -- welcome the potential for legal protection.

"The whole point of the Clinton legislation is to mitigate the risk of Y2K lawsuits. It's a step in the right direction," says John Ambrose, vice president of corporate marketing at SystemSoft, a BIOS software vendor in Natick, Mass.

Analysts attribute the legal risk of embedded systems manufacturers to incomplete or nonexistent assessment tools for their wares.

"Assessment tools can only detect 95% of the problems," de Jager said.

Many companies are turning to vendors of those systems that can not be easily tested for information and coming up empty.

"There's certainly people playing it close to the vest because of [legal] concerns," says Richard Heiman, research manager at International Data.

Hewlett-Packard, like other hardware and software vendors, is largely depending on public awareness, its Web site, and diagnostic tools to inform end-users of compliance information.

"We're not going to be sending out direct mail," says Ken Bosley, product manager for personal computer products at HP, in Palo Alto, Calif.

Users are mixed in their reactions to the proposed Good Samaritan Law, welcoming more openness from vendors but at the same time remaining skeptical.

"We're checking all the BIOSes ourselves. We're not going to rely on vendor statements," says Craig Lowenthal, vice president of information systems at Reliance Insurance, in New York.

Separately, the Securities and Exchange Commission (SEC) clarified year-2000 disclosure guidelines that provide for "safe harbors," shielding public companies from class-action lawsuits in federal court, according to an SEC representative. The guidelines will be released next week.

Information on current year-2000-related lawsuits can be found at the following links, provided by Giga Information Group.

Atlaz International, Limited v. Software Business Technologies Inc., No. 172539 (California Superior Court, Marin County, filed Dec. 2, 1997), http://www.ljx.com/nylj/links/y2katlaz.html

Produce Palace Int'l vs. Tec-America Corp., et al. (Michigan Circuit Court, Macomb County, filed June 12, 1997), http://www.ljx.com/nylj/links/y2kprod.html

Capellan vs. Symantec Corp., No. CV772147 (California Superior Court, Santa Clara County, filed Feb. 19, 1998), http://204.74.105.14/pdf/symantec.pdf

Cameron vs. Symantec Corp., No. 772482 (California Superior Court, Santa Clara County, filed March 4, 1998), http://204.74.105.14/pdf/symantec2.pdf

Paragon Networks International vs. Macola Inc., No. 98CV0119 (Ohio Court of Common Pleas, Marion County, filed April 1, 1998), http://204.74.105.14/pdf/paragon.pdf

Issokson vs. Intuit Inc., No. CV773646 (California Superior Court, Santa Clara County, filed April 29, 1998), http://204.74.105.14/pdf/issokson.pdf

Chilelli vs. Intuit Inc., (New York Superior Court, Nassau County, filed May 13, 1998), http://www.ljx.com/LJXfiles/millenium/quicken.html

Peerless vs. Synchronics, http://204.74.105.14/pdf/peerless.pdf

First year-2000 class action filed, http://www.comlinks.com/legal/dmm3.htm

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