Y2K claims lead to courtroom dramas in US

Millennium bug lawsuits prove a thriving industry, writes BRUCE McCLINTOCK.

Late last year, the New York Times satirised a law school curriculum which advised law students to enrol in a course entitled "Exploiting the Year 2000 Problem" - to "learn how to pin practically everything, from aborted stock trades to stalled elevators, on negligent programming."

For the United States, this speaks a kernel of truth. There, lawsuits on Y2K failures have proven to be a sunrise industry. Gartner Group research shows filings of US lawsuits related to Y2K have gone from three in January 1998 to more than 80 today, with as many as 800 demand letters notified.

Like the Y2K life cycle itself, US litigation started out of the testing and fixing phase. Most of the suits so far relate to efforts to fix the perceived problem and not to actual Y2K failures. These are claims which seek to have the technology provider fix the problem by software upgrades.

The Y2K cycle is now moving quickly past testing and fixing. The Y2K Readiness Commission's recent report on national readiness noted that businesses must now focus on supply chain issues (on both sides - suppliers and customers) and business continuity planning.

This part of the cycle involves first and foremost open communications between suppliers and customers. Businesses will find some assistance - but only from 1 June - in the new Year 2000 Information Disclosure Act, which, if passed, will protect good faith disclosures from legal action.

In reality, however, open disclosure is a business imperative if the intention is to maintain goodwill moving forward. This part of the cycle may also see the odd glitch, or even more significant disruptions, particularly around the important trigger dates.

Not surprisingly, there are already a number of lawsuits in the US about disclosure, but so far these are restricted to actions by regulators. For example, the Securities and Exchange Commission is pursuing a number of suits against brokers who have not yet come clean on their compliance.

There are also a few claims which look forward to an anticipated loss in shareholder value due to non-compliance. In those cases, US shareholders who have enjoyed the bull run are looking through class actions to preserve their upgains by suing directors who have failed to ensure Y2K problems don't arise.

New Zealand has seen, and will likely see, very little of this American-style litigation. Fortunately, our Y2K efforts are typically co-operative rather than adversarial. Local disasters do not prompt wide-scale litigation.

If the Year 2000 bug bites hard, our first instinct should be to fix it and address losses sensibly, rather than to phone our local "plaintiff's attorney."

* Bruce McClintock is a technology partner with Russell McVeagh.