Sorting Out Y2K Responsibility

December 8, 1998

8 December 1998

Sorting Out Y2K Responsibility

by Jeffrey A. Klafter

The following article is excerpted from "The Journal of Commerce" issue of 8 December 1998.

The pressure is on. Become Year 2000 compliant or risk a cataclysmic failure of the systems on which you depend for the success of your business, the medical devices on which you depend for the well-being of your patients or the computers on which you depend for your everyday life.

Depending on your profession, you could also face the wrath of the Securities Exchange Commission, the Health Care Financing Authority, your vendors or your customers.

So you purchase upgrades and replacement products from manufacturers and vendors all too willing to sell you a solution, at considerable cost, to the so-called Y2K bug.

The Gartner Group, a leading Y2K research firm based in Stamford, Conn., has estimated the cost of compliance worldwide at $300 billion to $600 billion.

New York-based Citigroup Inc. has reported it expects to spend about $600 million to become Year 2000 compliant, while Connecticut-based General Electric Co. has said it will cost $550 million to free itself of the Year 2000 bug.

Must these and other businesses, as well as hospitals and individuals incurring these monumental costs, bear sole responsibility? Not necessarily.

Many of the noncompliant software and hardware products were sold by software and electronics manufacturers in the last few years. Yet these manufactures have been aware of the looming Year 2000 problem for some time.

Having sold noncompliant products with the knowledge that they will fail on Jan. 1, 2000, the producers of these products -- not the purchasers -- ought to bear responsibility for the cost of repair or replacement. Many manufacturers have recognized this responsibility and offered free "patch" kits and upgrades.

But other manufacturers have sought to force purchasers of their products to turn around and purchase Year 2000 "patches" or new versions -- and often at considerable cost.

Since the spring of this year, a number of lawsuits have challenged this practice. Among the targets are software manufacturers such as Medical Manager Corp. of Tampa, Fla.; Quarterdeck Corp. of Marina del Rey, Calif.; Macola Inc. of Marion, Ohio; Symantec Corp. of Cupertino, Calif.; Synchronics Inc. of Germantown, Tenn.; Active Voice Corp. of Seattle and Intuit Inc. of Mountain View, Calif. At issue in these cases is the well-entrenched industry practice of forcing customers to purchase upgrade after upgrade by adding new features to products and by discontinuing support for all prior versions.

For a variety of reasons -- including cost and a lack of a demonstrable need for new features -- users may have no interest in purchasing the latest upgrade. Indeed, we are all aware of businesses and individuals using software versions and hardware products the manufacturer is no longer selling.

With the imminent arrival of the year 2000, the ability to decide whether to purchase the latest upgrade has been taken away. Irrespective of a need for the latest version, businesses and individuals are being asked to incur costs, sometimes approaching the cost of their initial investment, to become Y2K compliant.

A unique profit opportunity has therefore taken root and is now flourishing at the expense of users of products that are not Year 2000 compliant.

These users, however, are not powerless. As noted, a number of lawsuits are challenging this practice.

In these actions, the plaintiffs have claimed that the noncompliant product was defective when sold and that sale of the defective product -- or a failure to provide a free Y2K solution -- violated the express or implied warranties made at the time of sale. (Many express warranties specifically obligate the manufacturer to repair or replace a defective product.)

Manufacturers have also been accused of deceptive or unfair trade practices for selling compliant products without disclosure to the purchaser. Claims for fraud have been asserted in some


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Canadian Economy & Politics
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