The Year 2000 Bug Is Likely to Infest Courtrooms Now

Sixteen months before the year 2000 actually arrives, an army of attorneys has begun to mobilize over what may be the most calamitous aspect of the year 2000 problem: the spillage of a messy technical issue into the even messier realm of the courtroom.

At least 16 lawsuits already have been filed around the country in connection with year 2000 problems, including six against Intuit Inc. concerning older versions of its Quicken personal finance program.

The New York law firm of Milberg Weiss Bershad Hynes & Lerach, one of the most prolific and aggressive filers of shareholder class-action suits in the country, has swiftly moved into the year 2000 arena, setting up a special in-house group of experts that already has filed four year 2000, or Y2K, lawsuits.

In the overall scheme of things, these early suits are over minor issues, typically the failure of some companies to offer free fixes for older programs.

But at a time when most possible failures are still months away, they give a sense of the legal swarming that could occur when 2000 actually arrives. On the horizon are potential suits involving fraud, breach of warranty, liability, personal injury, and a variety of shareholder actions against company directors for failing to prepare for the year 2000. The possibilities are endless.

What lawyers have awakened to is the same sense of ubiquity, unpredictability and entanglement that engineers have long seen as the core of the Y2K problem. It has created a liability equation that sets a potentially unlimited pool of plaintiffs against a universe of potential blame.

Although the ultimate effect of the year 2000 bug is uncertain--ranging from a global shrug to a temporary meltdown of highly computerized societies--the threat of widespread lawsuits has cast the issue into a different dimension. What was once largely seen as a conflict between the imprecision of humans and the exactitude of machines has now become a conflict between humans and themselves.

“Lawyers, of course, are going to come out of this beautifully,” said Brian P. Parker, a Michigan attorney who filed the first Y2K lawsuit in June 1997. “There will be hundreds of thousands of these cases. The scope is so broad that it’s going to be paralyzing.”

The estimated size of the legal battles to come has already pushed the issue into an unreal dimension.

Capers Jones, president of Software Productivity Research, a well-known software consulting firm in Massachusetts, has put the global cost of the Y2K problem over a 10-year period, including damage and repair, at $3.6 trillion--about on par with the Chinese gross domestic product, give or take a few hundred billion.

Jones estimates that compensatory and punitive damage awards could amount to $300 billion of the total. He would go as high as $1 trillion but said he thought the government would step in before that point to stop the blood bath.

GartnerGroup, a business and information technology consulting firm in Stamford, Conn., has put the total cost of fixing only software problems at $300 billion to $600 billion spread over a few years surrounding 2000. At one point it let out an estimate for punitive and compensatory damage awards of $1 trillion but has readily conceded that the number is sheer guesswork based on the assumption that every dollar in actual damage will generate some multiple in punitive and compensatory damages.

“Nobody really knows,” said Lou Marcoccio, year 2000 research director for GartnerGroup, adding that he has seen estimates as high as $3 trillion.

What is significant about the estimates is not their precise amounts but rather the portrait they paint of the general confusion over a dust-like problem in which two-digit dates have been blown into every nook and cranny of technological societies.

No one piece by itself is particularly large, but there are so many little pieces--billions of programs and microprocessors--that even small adjustments in defect rates, average repair costs and numerous other variables can have a huge impact. The point is that with enough dust, even a little problem can be shoveled into a stratospheric heap.

Origins of the Year 2000 Bug

The source of the Y2K problem is a relatively minor programming issue in which four-digit years were shortened to two digits to save memory and disk space. For example, 1949 was simply stored as “49.” The abbreviation of dates posed no problems at first, since every two-digit date was assumed to have a “19” in front of it.

But as early as the 1980s, programmers began to realize that two-digit dates beginning with 2000 would become ambiguous, since they could be interpreted as being in either the 20th or the 21st century. The problem seems ridiculously petty, but in the uncompromising world of computers, it can lead to a host of calculation errors and equipment crashes.

During the last few years, awareness of the so-called millennium bug has spread from computer rooms to microprocessor-filled factory floors and now to corporate legal departments. In this last realm, where software, hardware and that slippery human element known as wetware, all intersect, much of the problem is just sorting out exactly who or what is to blame.

The first Y2K case in the United States was filed in June 1997 by a Michigan company, Produce Palace, that had purchased a computerized cash register system in 1995.

According to the lawsuit, the registers never worked very well, shutting down at odd times and refusing to process credit cards with expiration dates past 1999. The blame, according to the suit, lay with the system’s defective software and hardware. The suit was filed against the manufacturer of the cash registers, TEC America, and the installer of the system, All American Cash Register.

TEC America has denied that its devices were defective and filed its own suit against All American Cash Register, claiming human error in the form of improper maintenance and installation.

The attorneys for All American Cash Register and TEC America did not return several phone calls for comment.

In many ways, blame has become an almost random issue with the year 2000 problem since there are so many potential targets. Out of the thousands of flawed products, the lawsuits so far have landed on just a select group of companies.

Intuit Accused of Selling Faulty Product

Intuit alone has been hit with six class-action suits, although the problems with older versions of its popular Quicken software are relatively minor and will cause few problems until Jan. 1, 2000. The defect involves the inability of Quicken’s online banking feature to accept dates past Dec. 31, 1999.

The suits claim that Intuit knowingly sold a defective product and was forcing users to buy the latest Quicken version because there was no fix available for the older programs. But soon after the first suit was filed in April, Intuit announced that it would fix the programs free by the first quarter of 1999 at the latest.

Despite the announcement, five more similar suits were filed in the ensuing weeks, creating an air of frenzy over a problem that will not even appear until 2000.

The first case filed by Milberg Weiss was dismissed last month. Intuit has either filed or plans to file motions to dismiss the remaining cases.

“Once the first case came out, everyone jumped on the bandwagon,” said Allison Hubbard Colgin, senior corporate counsel for Intuit.

At least three suits have been filed against software maker Symantec Corp. on essentially the same grounds. Symantec has taken a harder line by refusing to provide a free upgrade to users of Norton AntiVirus with a version older than 4.0.

The program will actually continue to find computer viruses after 2000, but its automatic scheduler and activity log will not work, according to the company. After 2001, the scheduler and log will work properly again.

The problems with AntiVirus seem picayune in comparison to the scenarios of power failures, stock market chaos and widespread data loss that have been forecast by some Y2K pundits.

Big Cases Have Yet to Be Filed

Jeffrey Klafter, of the New York law firm of Bernstein Litowitz Berger & Grossman, said these early cases are just the beginning. They were filed as much for marketing reasons as they were for legal ones, said Klafter, whose firm has filed three Y2K lawsuits so far.

“We want Bernstein Litowitz associated with this issue,” he said. “For our firm, this is going to be a significant area of litigation.”

Klafter and other attorneys said the big cases will come only after the effect of the Y2K problem is apparent.

Companies whose stock falls because of year 2000 problems will almost certainly face large-scale shareholder suits, which are the specialty of firms such as Milberg Weiss and Bernstein Litowitz. Directors and officers could be the targets for class-action suits as well if they fail to prepare their companies for the year 2000.

Injuries from malfunctioning equipment, failures to deliver contracted supplies because of Y2K failures and business losses from defective equipment and software are all likely to spark a raft of civil lawsuits.

Reflecting a pessimistic view of the corporate world’s preparedness, Jones, of Software Productivity Research, predicted that the careers of half the senior executives in the United States will be damaged or ended by the Y2K problem.

The prospect of a litigation wildfire has prompted a few legislative efforts to limit the scope of liability suits.

The Clinton administration has taken a genteel approach to the problem with a bill to protect companies from being sued if they disclose year 2000 information about their products that later turns out to be inaccurate.

So far, at least five states--Florida, Georgia, Hawaii, Nevada and Virginia--have passed laws immunizing themselves from liability suits related to the Y2K bug.

But dealing with the broader issue of how to prevent the year 2000 from becoming a trillion-dollar industry has proved to be more elusive, particularly in states like California that have a high number of both lawyers and high-tech firms.

California Assemblyman Brooks Firestone (R-Los Olivos) introduced a bill at the beginning of the year to limit year 2000 suits by restricting them to personal injury and contract cases, such as breach of contract and breach of warranty.

The proposal would have prohibited all tort actions--a broad category of law encompassing negligence, fraud, product liability and unfair business practices, all of which carry the possibility of astronomic punitive damages.

“This is potentially an area of very large litigation,” said Barbara Wheeler, legislative advocate for the Assn. for California Tort Reform, a lobbying group that supports industry efforts to restrict punitive damage awards. “It’s going to come down to putting some parameters on the situation.”

Firestone’s proposal never made it out of committee, although Wheeler said the idea may become more palatable as 2000 draws closer.

There is still a fundamental problem with trying to restrict liability, since tort law exists in the first place to provide consumers and businesses a way to claim damages in the case of negligence, fraud or other causes.

“The important thing is to protect people who suffer economic injury,” said Rick Simons, president of Consumer Attorneys of California, a lobbying group for consumer lawyers. “Our laws say that you are responsible for what you put in the marketplace.”

Simons said the problem should be allowed to sort itself out in the legal system through traditional means--even if the costs reach the grisly level of $1 trillion.

“The more damage they cause, the more the need for them to bear some responsibility. It’s their fire. It’s their responsibility to put it out.”