Infotech and the Law

Y2K Disclosure Law Starts Info Exchange

David Nadler

By David Nadler

Now that President Clinton has signed into law the Year 2000 Information Disclosure Act, companies can begin openly sharing information on fixing the Y2K software problem. However, it is important to understand first what is and is not covered by the law.

Enacted Oct. 19, the law is designed to promote the exchange of year 2000 information among companies, their customers, vendors and even competitors by reducing the risk of lawsuits arising from inaccurate Y2K information. The law also creates an exemption from antitrust laws for year 2000 information sharing activities.

The act provides limited protection against using year 2000 statements in litigation, but it will not reduce the underlying liability that may arise from actual year 2000-related failures.

The legislation also will not reduce liability for violation of disclosure requirements imposed by federal and state securities laws.

A Web site, managed by the General Services Administration, has been created to function as a national clearinghouse for federal year 2000 information serving small businesses, consumers and local governments.

The year 2000 problem dates back to the early days of computing, when memory and data storage were expensive. To conserve these limited resources, programmers used just two digits in date fields to identify calendar years. In 2000, many computer programs will recognize the year "00" as 1900 rather than 2000. This error may cause systems to process incorrect data or simply shut down.

In the highly interdependent and interconnected world of modern commerce, there is a pressing need for companies to exchange year 2000 information regarding products, services and solutions. Companies need this information to assess their Y2K readiness, as well as that of key business partners, and to renovate systems efficiently. The act facilitates this goal by reducing the risk of a lawsuit against the maker of a year 2000 statement.

The act prohibits using written Y2K readiness disclosure as evidence against the maker of the disclosure to prove the accuracy or truth of the information. However, this evidentiary exclusion does contain exceptions. For instance, a year 2000 readiness disclosure can be used to support a claim for anticipatory breach or repudiation of a contract, where the maker's use of the disclosure constitutes bad faith or fraud.

The act also precludes oral or written year 2000 statements that later prove to be inaccurate from forming the sole basis for liability, unless a plaintiff introduces clear and convincing evidence that the statement was material and was made with actual knowledge that it was false, inaccurate or misleading; or was made with intent to mislead or deceive or with a reckless disregard to accuracy.

The act provides that an action against the maker of a year 2000 statement for trade disparagement, defamation or similar claims will not lie unless it is proven by evidence that the maker issued the statement with knowledge of its falsity or reckless disregard. These provisions promote year 2000 information exchanges between companies by precluding actions based upon inadvertent inaccuracies or omissions.

The act excludes from protection year 2000 statements made in the course of marketing consumer products to consumers. A consumer product is defined as "any personal property or service which is normally used for personal, family or household purposes."

The act also provides that a year 2000 statement generally shall not be construed to create express warranties or amend contracts unless the statement is made in conjunction with the formation of a contract or warranty or under other limited circumstances.

Potential lawsuits aren't the only reason corporations have hesitated to exchange year 2000 information. Antitrust concerns are another.

The Justice Department sought to allay these fears July 1 by issuing a business review letter to the Securities Industry Association. The letter was intended to reassure corporations that merely sharing year 2000 information will not be construed as a violation of federal antitrust laws.

The Year 2000 Information Disclosure Act provides substantially broader antitrust protection than the letter. The act has general applicability and provides an exemption from all federal antitrust laws. More importantly, the act also provides an exemption from all analogous state antitrust laws.

The act is a significant step forward that should encourage corporations and trade groups to disclose information concerning test results, remediation plans and the year 2000 compliance of products and services. The disclosure of Y2K information will assist companies in solving year 2000 problems before time runs out.

David Nadler is a partner in the Washington law firm of Dickstein Shapiro Morin & Oshinsky LLP. He may be contacted at Edward Kirsch, an associate with the firm, contributed to this article.

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