Battle Lines Drawn over Controversial Y2K Bill

Many vendors and industry observers are predicting a wave of litigation following Year 2000 issues, which could double and triple the worldwide cost of managing the Y2K crisis. In response, the U.S. Congress has been considering legislation that would delay the filing of Y2K-related lawsuits during a 90-day cooling-off period, and put a cap on punitive damages.

Many vendors and industry observers are predicting a wave of litigation following Year 2000 issues, which could double and triple the worldwide cost of managing the Y2K crisis. In response, the U.S. Congress has been considering legislation that would delay the filing of Y2K-related lawsuits during a 90-day cooling-off period, and put a cap on punitive damages. Congressional votes were expected this month [[May]]. The Clinton administration opposes the bill, on the grounds that it may strip consumers of their rights.

However, forces within and outside the industry equate date-deficient software to shoddy products, and feel their manufacturers should not be let off the hook so easily. The Association of Trial Lawyers of America and various consumer groups have lined up against the legislation. Leon Kappelman, Ph.D., IS professor at the University of North Texas and co-chair for the Society for Information Management's Year 2000 Working Group, contends that the proposed bill shifts the cost of Y2K remediation to customer companies. "[The bill] is excessively harsh on small businesses who cannot afford to sit around while their vendors utter the right words to comply with the law, and thereby get more time to stall," Kappelman argues.

Many vendors are still having difficulty in getting all their code up to date, reports Infoliant Corp. (www.infoliant.com), which tracks leading trackers of Y2K readiness information more than 500 manufacturers with more than 30,000 products. Nearly 600 changes in Y2K compliance were reported in March alone, which is a record rate, Infoliant reports. More than one-third of these were "negative changes," that is, a shift from compliant status to "not compliant," "action required," "pending evaluation" or "vendor will not test."

"We've seen the pace of status changes increasing as we move toward year-end," observes Kevin Weaver, executive vice president at Infoliant. "For users of these products this means that they may need to review compliance of products they use, including those once considered to be compliant."

About six percent of off-the-shelf software packages that were considered Y2K-ready have been updated by upgrades that are not ready, a recent study by GartnerGroup (www.gartner.com) found. This may trip up efforts of companies that assume that upgrades to a Y2K ready product is Y2K ready as well, says Lou Marcoccio, research director with GartnerGroup.

As a result of these ongoing Y2K issues, software and hardware companies may be subjected to a huge volume of lawsuits over the next two years, Marcoccio warns. GartnerGroup estimates that worldwide legal damages could run as high as $2 trillion, a figure supported by other industry research groups.

One vendor has already felt the sting of Y2K litigation and has begun to pay. RealWorld Corp. (www.realworld.com), which makes Windows and Unix accounting software, recently settled a $50-million class action suit, where it agreed to provide free upgrades and other discounts for Y2K-compliant versions of its RealWorld Classic accounting and financial packages. Users have to claim their benefit by Sept. 30, 1999. Users also gain the right to purchase additional upgrade modules of RealWorld's current software at a discount of 15 percent off the last list price, and obtain free software subscription maintenance through the rest of the year.

"All of us in the business world understand our obligations to our clients to provide effective and safe products and services, and we understand our contractual liability for failing to exercise due care in performing these obligations," says Janet C. Wylie, president and CEO of HCL James Martin (www.hcl-jmi.com). "But our clients are being bombarded with messages from attorneys, who have started entire practices centered around Year 2000 litigation, saying they can sue anybody and everybody who has touched their systems in the past several years." Wylie stated her concern that some firms refuse to do Year 2000 work because of the threat of costly litigation.

More than 80 organizations are backing the bill, including the Software & Information Industry Association (www.siia.net), National Association of Manufacturers and U.S. Chamber of Commerce. Along with the cooling-off period, liability would be capped at $250,000 or, for vendor companies with more than 25 employees, three times the amount of compensatory damages awarded, if that amount exceeds $250,000.

"This legislation, if passed, will prove extraordinarily helpful in preventing Y2K problems from triggering chaos in the legal system and throughout the entire economy," maintains David LeDuc, SIIA spokesperson on Year 2000 issues. "People that deal with large systems know Y2K is a very complex issue. Most of our member companies are taking steps to fix the problems, and have made honest and extensive attempts to fix their products and reach out to their users, and make sure that everything goes smoothly.

Kappelman agrees that mediation is preferable to litigation, but the option needs to be there for companies that suffer losses to their business as a result of Y2K. "Negotiation and mediation keep decision making in the hands of the parties having the dispute," he says. "Arbitration and courts turn decision-making control over to arbitrators, judges, or juries. Costs tend to go up as control goes down too. I tell my clients to try to keep control, try to work things out."

The Association of Trial Lawyers of America says an example of the right approach would be for the government to provide a loan guarantee program to help small companies address Y2K issues, or allow a tax deduction that covers Y2K conversion costs.

SIIA's LeDuc notes that "the legislation isn't aimed specifically at people that are code-makers or software makers. It's supported by a broad industry coalition, comprised of potential plaintiffs, and potential defendants. Our intent isn't to put big business ahead of consumers or small business, nor to get bad actors out of trouble," says SIIA's LeDuc. "We're supporting this bill on behalf of our companies that have been good actors, that have made good faith efforts to remediate or fix their systems."