Don’t Get Suit-Happy Over Y2K

The Y2K problem is a great example of the theory of liability of innovations that greatly advance technology but don’t perfect it.

We created the technology that has transformed the world, and the way we correct the Y2K glitch will confirm rather than undermine our success.

But wait! Someone blew it, right? Someone was so enraptured by the ecstasy of invention that they didn’t stop and ask themselves, “What if we are so successful that the whole world becomes dependent on this technology by the end of the century when the numbering of the calendar changes?” So someone made a mistake, and we all know what that means: lawsuits. Someone has to be blamed and made to pay, and the deeper the pockets the better.

Did the people who invented gas lighting and persuaded society to invest in that technology get sued when Edison came along with electric lights? Or, maybe they sued Edison because his inventions entered the marketplace with flaws that were fixed as each new generation of technology emerged. Has there always been a theory of liability for innovators who merely advanced human civilization but failed to perfect it?

These questions are relevant because it now appears the biggest threat associated with Y2K will not be computer-based but an avalanche of frivolous Y2K lawsuits, which could total more than $1.5 trillion in litigation costs.

Congress and the White House must implement a bipartisan solution that will help encourage voluntary resolution of Y2K disputes, curb lawsuits, require potential litigants to give potential defendants a modest grace period to try to fix problems, and limit punitive damages that are intended to prevent future abuses. This legislation would only affect Y2K litigation; it is not “tort reform” and it would not limit Y2K personal injury lawsuits in any way. It would also not prevent those who have suffered real hardship at the hands of an irresponsible entity from recovering their losses. But public policy must recognize that there is a public interest in precluding remedies that are more damaging to society than the original problem.

American businesses have already spent almost $1 trillion in Y2K compliance and we should see little if any Y2K problems. Hundreds of companies are working to address this challenge, but already more than 80 companies have been hit with lawsuits--even though there has been no actual damage caused by Y2K.

The Y2K challenge stems from a decades-old practice of sorting and processing dates in a two-digit format, a practice that emerged when conserving computer memory was considered essential because of its high cost. What this means from a practical viewpoint is that electronic products that process dates in this way may not know whether “00” means the year 1900 or the year 2000.

The vast majority of semiconductors are incapable of generating, comparing or sorting date information. These semiconductors are unaffected by the Y2K issue. A small percentage of semiconductors can generate date information when software is added to the chip; the software is typically specified and owned by the customer, not the chipmaker. An even smaller number of chips have circuitry that is designed to generate or process dates, and even in this category the chipmaker may be manufacturing to customer specifications.

Of course customers should review the software that they have specified in addition to the chip.

The increase in computing power has allowed the spread of PCs to homes, schools and small businesses and it has enabled the explosion of the Internet and e-commerce. The report to President Clinton issued by the Council of Economic Advisors last year said that without the faster-than-average recent rate of decline in computer prices, overall inflation would have risen steadily since early 1994. Instead, inflation has actually decreased.

Our goal is not to offer protection to those in the business community who have been slow to act on Y2K or to limit actions involving personal injury. Rather, we are focused on ensuring that the legal system is not exploited to extract settlements from responsible companies or to cause harm to the U.S. economy by diverting resources from productive uses such as research.

Responsible legislation must be passed to create incentives to fix Y2K problems before they develop and screen out insubstantial lawsuits while preserving the rights of parties who suffer real injuries. And, yes, we only have 207 days left.