|THE CLOCK IS TICKING...|
June 1, 1999
JIM LEHRER: And speaking of computers, finally tonight, the Y2K blame game and to Margaret Warner.
|Winding down to midnight.|
MARGARET WARNER: With just six months to go until the world's clocks turn to the year 2000, computer programmers are scrambling to correct what's called the Y2K problem or the millennium bug. The problem? Computer software and chips that may misidentify dates ending in 00 to mean the year 1900. That could cause glitches or outright breakdowns in everything from financial record-keeping to medical equipment.
Now Congress is wrestling with a related issue: Whether companies that don't fix the problem should be held liable for selling products or providing services compromised by the faulty software. Businesses are urging Congress to protect them from such lawsuits or at least severely limit their liability.
Consumer groups and the nation's trial lawyers are insisting that individual and business customers retain their right to seek damages in court. The House took up the issue in mid-may and the debate was fierce.
REP. RICHARD ARMEY, Majority Leader: We should protect the problem solvers, not those that are sitting on the sidelines now licking their chops, hoping the problem won't be solved so they can move in like a bunch of buzzards and vultures and feed off the carcasses.
REP. JOE MOAKLEY, (D) Massachusetts: What they're really doing is swatting a fly with a sledgehammer. This tort reform bill discourages corporate responsibility; it robs consumers of their ability to seek relief; it poses a disadvantage to small businesses; and it's hiding the skirts of the Y2K fears because it couldn't pass on its own.
MARGARET WARNER: On May 12, on a vote of 236-190, the House approved the measure, imposing broad limits on the liability of companies and software makers. Among other things, the bill would impose a 90-day waiting period before lawsuits could be filed; limit class-action suits by requiring them to be filed first in federal, not state courts; and cap punitive damages for most businesses at $250,000. President Clinton has threatened to veto the House bill, saying it's too restrictive. Aides have said he would support a more modest bill.
The Senate is considering a measure, sponsored by Arizona Republican John McCain and Connecticut Democrat Chris Dodd, that is more limited. For example, only smaller companies would be protected by the $250,000 damage cap. So far the bill has been bottled up by a filibuster threat, but supporters hope to overcome that when Congress returns later this month.
|The liability question.|
MARGARET WARNER: To debate this issue, we turn to Harris Miller, president of the Information Technology Association of America, which represents software makers and Internet and telecommunication companies; Howard Nations, a Houston trial attorney and former vice president of the Association of Trial Lawyers of America -- he's testified frequently before Congress on the Y2K liability issue; Bruce Chapman, president of the Discovery Institute, a Seattle-based think tank that specializes in public policy issues involving science and technology; and Paul Strassmann, former chief information officer at Kraft and Xerox and the Defense Department -- he now teaches at the US Military Academy at West Point, and contributes occasional columns to Computerworld Magazine. Welcome, gentlemen. Harris Miller, explain in the simplest term why companies such as some of your members, why Congress should step in to protect them against liability if Y2K computer glitches occur?
HARRIS MILLER: The broad bipartisan support in Congress is for a bill to head off what the trial lawyers are promising will be a fireball litigation. They're talking about a trillion dollars' worth of litigation, which dwarfs the amount of money that will be spent on fixing the Y2K problem. The bill in Congress doesn't say that you can't sue. What it does is it tries to sort out the frivolous lawsuits from the real lawsuits by putting certain limits on it. Of course, the trial lawyers doesn't like that because they want to be able to file frivolous lawsuits which will clog the courts and not focus on the real problem. We want a bill that will encourage people to fix the problem, not encourage people to litigate.
MARGARET WARNER: And, briefly, just give us a definition here. What kinds of companies are vulnerable to lawsuits?
HARRIS MILLER: Everybody is potentially liable. That's why we have such a broad base of support. The National Federation of Independent Businesses, National Retail Federation, American Chamber of Commerce. There could be a trucking company that can't make a delivery because they have a Y2K problem. Should they be involved in a lawsuit? Of course not. But if they get sued, then they're going to turn around and sue somebody else and sue somebody else and set off this fireball litigation. We're trying to reduce the likelihood of that by passing this bill which has broad bipartisan support.
MARGARET WARNER: All right. Howard Nations, is that what we're looking at a potential fireball of litigation?
HOWARD NATIONS: There's certainly no indication of that so far. At this time in the United States; there are 55 lawsuits on file on Y2K. And several of those are rolled into class action. So, the actual number of separate suits is around 32. There's no indication of a fireball of frivolous lawsuits. What you're hearing tort reform rhetoric applied to Y2K.
MARGARET WARNER: Well, what is your estimate of the sort of scope and volume of the problem and, therefore, the lawsuits that may be filed?
HOWARD NATIONS: There's absolutely no way to empirically establish the number of lawsuits that will be filed because right now there are 40 billion microprocessor chips and 1.2 trillion lines of code that need to be remediated. We have no idea how many of those will fail; we have - of those that fail we have no idea how many of those will actually cause losses, economic loss, or losses that will cause a business to bring a lawsuit to protect themselves. There's just no way. And the trillion dollar statement about the trillion dollar litigation certainly does not come from the trial lawyers. That is totally without empirical basis. There's absolutely no way to establish in any empirical fashion what the amount of litigation will be. And the trillion dollar figure is significant only in that it shows the basically frivolous foundation of the arguments that are being made to support this legislation, which is designed to row ticket the people who cause the problem.
MARGARET WARNER: Bruce Chapman from the Discovery Institute, what's your view of this?
BRUCE CHAPMAN: Well, I think we have to put aside both the interests of corporations as such and the interest certainly of the trial lawyers and look at what the public interest is, because I think the public's interest is in getting these issues solved, getting the Y2K problem behind us. If we have a huge spate of litigation and huge assessments put on businesses come this time next year, the economy could be damaged and that will hurt everybody. That's why we need this legislation. I strongly support it.
MARGARET WARNER: And Paul Strassmann, your view. Could this litigation damage the economy?
PAUL STRASSMANN: I think relieving the purveyors of computer software and managers of our networks of the accountability is a fundamentally dangerous thing for America as we enter the information age. We have known about year 2000 for at least a thousand years. And since 1960's there has been absolutely no reason why somebody could not have added two digits to ample storage capability available. What we have here is a clear-cut example of negligence and management malfeasance. And to look for legislative relief of responsibility will damage us for years to come as we enter into the information age.
MARGARET WARNER: Mr. Miller, what about that point that really no company has an excuse for not being aware of the Y2K problem and not having taken steps to make sure that they wouldn't sell products or services infected by it?
HARRIS MILLER: This bill is not an "Ollie, Ollie in free" bill. It doesn't say if you sat back and done nothing and things go wrong that somehow you have no liability. That's an impression that the opponents of the bill are trying to create. The bill clearly creates incentives for people to be as pro active as possible to try to solve the problem, to be good Samaritans to go the extra mile. The problem is in our litigation-prone society where the trial lawyers have created this atmosphere of fear among small and large businesses, many of them are afraid to take those extra steps. What we want to do is to remove from the system -
MARGARET WARNER: I'm sorry, explain why are they afraid to take those extra steps.
HARRIS MILLER: Because the fear of everything you do is going to lead to a bigger problem. The same reason you go to an outdoor swimming pool and you can't go off the diving board because if you add that activity out there, maybe one of your swimmers will get hurt. The trial lawyers have created an atmosphere now where people are afraid to take the extra step. We want to create the incentive to say you actually get more incentive to do better because should the case later go to court, what the bill says, is should there be a problem, the judge and jury can take into account that you have done a little bit extra; you have gone that extra mile, rather than the current situation where people are saying don't go the extra mile, don't take the extra step because if it doesn't work out perfectly, you're going to be held heavily liable for what happened.
MARGARET WARNER: Paul Strassmann, you have experienced, I mean, both at Kraft and at Xerox running information systems. Is it possible that that's what's happening, that actually companies who are afraid to be sued are looking over their shoulder and not doing things they might otherwise do, not communicating with their customers and so on?
PAUL STRASSMANN: I doubt very much that that could be substantiated by any evidence. I have sufficiently experience to conclude that it is in the self interest of each corporation to fix their information systems. After all, that's how they run their businesses. You don't need legislative assurances to do that. It's in their self-interest. We have relied on self-interest for corporations to act responsibly and we don't need government protection to suddenly start legislating accountability.
BRUCE CHAPMAN: It's in everybody's self-interest in a corporation to fix these situations, but they don't always do it if they feel they're going to be sued by the person they're sharing information with. That becomes a handicap to them. And that's what the public interest -- why the public interest is served by this legislation because it encourages corporations to share information with people both who are their customers and who are their suppliers. And that's why we need it. As to the idea that there are no excuses for businesses, all I'd have to do is appeal to your audience to think how many excuses they have or how many businesses don't even know this is coming or to look at the government itself. Has the government taken care of all of its problem that it's in such a wonderful position to blame the businesses of this country for Y2K?
MARGARET WARNER: Paul Strassmann, do you want to respond to that from your former DOD experience? It is the case - is it not -- that even the federal government isn't completely compliant yet?
PAUL STRASSMANN: Well, nobody one can prove that one way or another. We have always had computer failures throughout my experience as a chief information officer. We have always acted how to recover from failures. I have every reason to believe with proper contingency planning the government and particularly the Department of Defense will do whatever it takes to maintain its forces operational.
|Ready... set... sue?|
MARGARET WARNER: Okay. Howard Nations I want to go back to you and have you address something that Mr. Miller raised, which was that the trial lawyers are using scare fact tactics to talk about this bill. Give us an example of a company that you think should be fair game, should be held liable if they didn't fix their glitches, that you think would be unfairly protected by this legislation.
HOWARD NATIONS: Well, a good example is a case that's already been filed which is the Medical Manager Corporation. They sold databases to 17,000 doctors in the United States at the cost of about $13,000 each. A year later -- they told them they would last for ten to fifteen years, well into the next millennium. A year or two later they have came back and said this product is not Y2K compliant we forgot to mention but the good news is we have a new wonderful product for you that for a mere $25,000 you can upgrade to this new product. And when a lawsuit was filed and a class action was certified, then they came to the bargaining table and it turns out that it wasn't necessary at all to file the -- to buy the $25,000 unit. All of a sudden they came up with a patch, magical patch that, could fix the old unit. That's the type of action that needs to be addressed in the courts. And that's the type of action that has already been addressed successfully in the medical management case.
MARGARET WARNER: Mr. Miller, should that kind of supplier be protected from a lawsuit?
HARRIS MILLER: I'm not going to comment on a specific case. But, clearly, If a company engages in a fraudulent statement, says that something is Y2K compliant, or says that it will operate for a long period of time - and even puts that in any kind of representation material or contract -- they're not protected by this bill at all. That's fraud, that's misrepresentation or a violation of the contract. If the contract says this is going to keep working and your studio systems are going to keep running and they don't and they've mislead you, clearly, this bill in no way protects them. But what we've seen are trial lawyers going outside filing class action lawsuits already, well before the year 2000 against firms even when that firm had announced they were providing free upgrades and free patches just because they thought that they could blackmail the company into paying some kind of legal fees rather than fighting through court. Those kind of frivolous lawsuits not central, do not involve any fraud, those are the ones that this bill tries to eliminate.
HOWARD NATIONS: I'm familiar with all the lawsuits on file in the United States and I'm not familiar with anything that even remotely meets the description of a frivolous lawsuit. May I address the issue as to how-
HARRIS MILLER: Check the Intuit case and the Semantic case.
HOWARD NATIONS: The issue you get to on this bill, and they didn't mean it this way, but this is how it works out, if in the Medical Manager Case the product had been manufactured say in Taiwan and the defective product had been made there and shipped FOB Taipei, under this bill, without the joint and several liability, those 17,000 doctors could have been left holding the bag and have no recovery against anyone because they wouldn't have the jurisdiction over the Taipei managers.
MARGARET WARNER: All right. Let me give Mr. Chapman a brief final comment. What's your view on the prospect of frivolous lawsuits versus legitimate ones?
BRUCE CHAPMAN: Well, I think real losses will be covered under this bill. It's a little bit like the blackout in New York a few years ago. There were lawsuits, people who ran restaurants lost all their food that was in the refrigerator and so forth. And people were able to sue for damages that they could actually see -- but not for damages that were invented -- not for these mass class actions suits that touch on everything.
MARGARET WARNER: Okay. Mr. Chapman --
BRUCE CHAPMANE: If there's a massive transfer of wealth, we'll be very sorry as a result of Y2K litigation.
MARGARET WARNER: I'm sorry we have to leave it there. Thank you all four very much.