Written Testimony Submitted by

ROBERT W. HOLLEYMAN, II
PRESIDENT AND CEO
BUSINESS SOFTWARE ALLIANCE

A HEARING ON Y2K LIABILITY

Before the
COMMITTEE ON COMMERCE, SCIENCE AND
TRANSPORTATION
UNITED STATES SENATE

Washington, D.C.

My name is Robert Holleyman. I am the President and CEO of the Business Software Alliance (BSA) and I appreciate this opportunity to submit written testimony on behalf of America's leading software and computer companies regarding the making of sound public policy that promotes solutions to potential problems created by any Year 2000 date-related failures. Chairman McCain and distinguished Senators, you are to be highly commended for this hearing, for your work to craft policy that will truly help promote remediation and responsibility, and for your greater efforts to focus the public's attention on this challenge.

The pending Y2K challenge poses real questions and real consequences if left unaddressed. The attention this issue has received has correctly focused the energies of both private companies and government agencies on solutions. We. are well underway in identifying potential problems and addressing them.

Mr. Chairman and distinguished Members of the Committee, the U.S. information technology industry is committed to doing its part to meet the Y2K challenge head on [begin page 3] energetically working to develop and make available Year 2000 ready products, and communicating ways to address issues which may arise with our customers and the public at large. Congress took a good first step last year with passage of the "Year 2000 Information Disclosure Act" - and we thank you for your efforts in this regard. That bill helps encourage businesses to voluntarily share information on the extent of their Year 2000 readiness, strategies, solutions and products with contract partners, customers and the public at large, by limiting liability for statements made in good faith.

Businesses, however, are looking to you to finish the job. Class action suits are already being filed against software developers and other businesses at an alarming rate. These suits drain resources away from the true task at hand: identifying potential Y2K date-related issues, and developing and disseminating effective solutions. Most of the suits filed thus far have been dismissed by the courts for one simple reason: Y2K associated "harm" has not occurred. Yet suits are being filed, and companies are spending literally millions of dollars just to have them dismissed.

American companies look to you to stem this waste of resources -- resources much needed to fix problems as they arise. The BSA has participated in discussions with companies representing a large cross-section of American industry -- from insurance to electric power -- to develop fair and meaningful legislation in an attempt to reign in frivolous lawsuits. Our primary goal is to help our customers transition to the Year 2000. Our goal is to achieve an environment where all parties affected by Y2K issues can work collaboratively on developing technology based solutions. Our goal is also to avoid senseless litigation which will benefit neither consumers nor the businesses that provide goods and services to them.

Unfortunately, as I noted above, current and threatened litigation, based on claims that are being routinely dismissed by the courts, drains valuable resources that could otherwise be used for testing of products and for the remediation of potential problems. Also, the very real threat of staggeringly expensive litigation serves as a significant disincentive to sharing and disseminating information. As you know, sharing this information openly and with haste is the key to finding solutions.

It is in the industry's best interest to find these solutions. Why? Because customers and their perception of the quality of our industry's output are of paramount and constant concern, and reputation and good name are radical absolutes in making a successful business. Businesses that sell defective products don't stay in business very long -- the consumer doesn't want goods that don't work, whether the problem is Y2K related or not.

BSA members, as well as American businesses across the board, are engaged in remediating, upgrading or replacing their products, undertaking extensive testing of their products, and disseminating information to consumers, to ensure that date-related Y2K problems are addressed.

BSA encourages the Senate, the Congress and the President to enact legislation that promotes responsible action over inaction, information sharing (over silence driven by frivolous lawsuits), and commitment of resources to finding solutions (rather than diverting such resources to defend premature baseless litigation).

Aided by new technologies, America's productivity is at an all-time high, Americans have access to more information than ever before, and are reaping a new world of opportunities unfathomable just a few short years ago. From the smallest town in rural America, to inner-city urban centers of our nation's great metropolises, information technologies are leading the way in bringing more, better and faster information, healthcare, education, safety and entertainment to our nation's citizens.

Technology fuels the engines that have renewed our nation. Technology industries, such as the U.S. software industry, have brought the world a new way of doing business, new ways to enjoy our leisure and better ways to protect our health and safety. While developing the new technologies that have benefited consumers and business so well, IT industries have also benefited tremendously - giving industries like software our nation's highest job growth rates, and the ability to offer high wages and excellent benefits to our workers.

The software industry creates among the most highly paid and highly skilled jobs in the U.S. economy, with industry wages averaging nearly $60,000 annually per employee. In 1996, the U.S. software industry directly employed 619,400 people, with another 2,065,000 indirect jobs created by the industry's "ripple effect" throughout the economy. By the year 2005, total direct and indirect employment will reach 3,345,000 accounting for nearly 3 percent of all U.S. employment.

The foundation of the growth and success of technology industries is research. The technological gains reached through vigorous research and development are driving the economic advancement described above. By nature, research is an organic process -- old is incorporated into the new. The creators of today's technology build upon, share and pass on the hard work and innovation of the many who created before.

At the root of the Y2K issue is a convention that was adopted some twenty years ago, when computer programs began playing a more central role in daily economic life. To perform the functions for which many of these programs were designed, they had to respond to specific calendar dates. Constraints on the processing capabilities of early computers, required that no more than two places be allocated to any one-date field. Thus, the convention that was adopted across many software platforms was three "two digit fields." In plain English this meant that two "spaces" were allocated for the day of the month, two places for month of the year, and two places for the year.

It is the two-space allocation for the year that has generated the date-related Y2K challenge. When all years begin with "19__", specifying this fact becomes unnecessary. Now computers will have to distinguish between information for years which begin with "19__" and "20__", for correct processing of the information. The most dire fear is that certain computers, when encountering an "illogical" data field, i.e., "00", will be unable to decide whether the assumed first two digits should be "19" or "20". The consequences [begin page 7] can potentially result in a simple error message, or misallocated date, or machines not functioning properly.

These developments are a direct result of rules that were created, and standards developed by the private and public sectors and followed across high tech industries. As a convention, the two-digit date field became self-perpetuating - its use was perpetuated precisely because it was an industry, and in fact, a government standard. When the development of consumer and business software arose later in the maturation process of the computer industry (even after the original, technical constraints that initially prompted the use of a two-digit date field had expired) the need to ensure that installed computers could work seamlessly with newly installed computers, often required its continuation.

The reality is that the Year 2000 issue is fundamentally a collective policy matter - one that can only be effectively addressed collectively - consumers, businesses and governments taking steps to become informed and to act on that knowledge. The Year 2000 issue is an issue to be solved by all of us for the benefit of all of us. Software publishers and computer manufacturers are doing their part - disclosing needed information and responding to consumers' concerns over Y2K date-related issues. All BSA member companies have Y2K web sites on the Internet that provide a description of [begin page 8] the Y2K challenge, list the compliance status of their products and discuss their strategy for addressing any Y2K issues pending with older product lines.

Each software publisher faces unique challenges. Software comes in many varieties, and performs a tremendously diverse universe of functions. Among the tasks software enables are: the operation of semiconductor chips; word processing; managing dental records; gas and electric billing; heating and air-conditioning; and racking our banking transactions. The Y2K issues associated with each of these functions are different, requiring tailored solutions. Depending on the type of software, its dependence on date-related data, the accepted shelf life of the products, and dates of the first and last publication of these products, may or may not create a potential Y2K date-related problem for its customers. Because these situations are unique among all publishers, each will address its own user base accordingly.

Work to mitigate and resolve potential Y2K issues is well underway. Comprehensive solutions require efforts by all affected parties: those who make computers and software, as well consumers and business who rely on it. Confrontation through costly and resource wasting litigation is not the answer.

Although the Y2K Disclosure Liability Act provided some legal protection for posting information regarding Y2K readiness, it did not address the reality of large, million dollar class-action lawsuits that still threaten to hinder solutions and to divert valuable resources from remediation to attorney fees.

The software industry and American businesses at large intend to honor their contractual relationships and warranted responsibility to customers. However, Congress can help encourage progress by passing legislation that will help industry direct resources toward resolving Y2K date-related issues by limiting frivolous lawsuits.

Through these efforts, we have identified a number of common principles that should guide Y2K legislation:

• Contracts should be the Starting Point. The contracts which govern the use of software almost always spell out how a product is supposed to work, and which rights and remedies apply when the product does not function as intended by the parties. Thus, in any dispute regarding the performance of a product or fulfillment of a service obligation, public policy should insist that the language and commitments of the contract will be the first point of reference to define the parties' rights and obligations.

• Suits alleging date-related failures should be permitted only when the alleged defect is "material," in the sense that the defect prevents the overall program from operating as designed and intended. To date, virtually all of the Y2K suits that have been filed, allege defects that have an insignificant effect on the operation or functioning of the software, affecting only a component of an item that, as a whole, substantially operates or functions as designed.

Mr. Chairman and distinguished Senators, thank you for this opportunity to provide testimony on this important issue. BSA member companies and staff stand ready to serve as a resource for you and your staff as you work to craft policy that promotes solutions over litigation.