Testimony of Harris Miller (ITAA).
Re: the 'Year 2000 Fairness and Responsibility Act.'
Date: March 1, 1999.
Source: Senate Judiciary Committee.

Testimony of
Harris N. Miller
President - Information Technology Association of America
Before the
Committee on the Judiciary
United States Senate
The Year 2000 Fairness and Responsibility Act

1 March 1999

Introduction

I am Harris Miller, President of the Information Technology Association of America (ITAA), representing over 11,000 direct and affiliate member companies in the information technology (IT) industry - the enablers of the information economy. Our members are located in every state in the United States, and range from the smallest IT start-ups to industry leaders in the custom software, services, systems integration, telecommunications, Internet, and computer consulting fields. These firms are listed on the ITAA website at www.itaa.org.

ITAA appreciates the opportunity to express our industry association's strong support for the legislation being considered today on the Year 2000 (Y2K) software challenge. I am here to offer our perspective on the pressing need for Congress to pass this legislation and for businesses across the entire spectrum of our society to take advantage of and utilize its provisions so that our nation can take the responsible steps necessary to meet the challenge head on. In order successfully to make the transition to the new millennium, the Y2K challenge must be effectively addressed by all the affected stakeholders - governments, businesses, users and suppliers across all industries and enterprises around the globe. Though the clock is ticking, there is still time to assess, fix and test systems, as well as develop contingency plans to prevent business disruption.

Almost every sector of American industry - small business and large companies alike - is already making massive investments to prepare for Y2K. An onslaught of unnecessary, costly, and time-consuming litigation at the turn of the century will, however, hinder rather than help efforts to cure potential Y2K problems. Rather than focusing on whom to sue, organizations should be in a partnership enterprise - working with key suppliers and customers, finding the answers, fixing any problems, and settling disputes quickly in order to prevent business disruption.

Our Common Goal: Remediation Not Litigation

Our common public policy goal should be to continue encouraging Y2K remediation, not litigation. While the Y2K technical challenge cannot be solved by legislation, well-conceived legislative initiatives, which implement a set of key principles, can play a constructive role. We believe that the Federal legislation introduced by you and Senator Feinstein and in the House of Representatives last week will achieve precisely that. This legislation is supported by a truly amazing coalition of trade associations and companies, representing the broad spectrum of the U.S. economy, because it is a fair, reasonable and necessary approach to the Y2K challenge. This coalition of interested parties includes potential Y2K plaintiffs, defendants and those that believe they could be BOTH!

When passed into law your bill will (1) create incentives to assess, fix, and test systems before problems develop; (2) provide business certainty through a uniform Federal approach; (3) encourage contracting parties to resolve Y2K disputes - particularly where there is only an economic loss - without litigation; and (4) screen out insubstantial lawsuits and actions not based on material defects, while preserving the rights of parties that suffer real harm. If there is personal injury or fraud or recklessness, this bill will NOT prevent the recovery of damages or reparations.

I am not a lawyer, so my comments will not attempt to analyze the specific aspects of the proposed bill defining plaintiff rights or defendant responsibilities. Rather, what I can tell you is why our members, their customers and suppliers, the broad spectrum of companies and associations that have come together in support of your bill, and how our overall economy NEEDS and DESERVES this legislation.

ITAA on Y2K

Over the past four years ITAA has been the leading trade association voice on the issue of successfully confronting the Year 2000 challenge. We have long advocated that vendors and users become aware of and actively develop response mechanisms to identify the problems and remediate their systems. Our goal has been to make sure the parties receive the necessary information they require. We developed our own Y2K Product and Service Compliance Questionnaire over two years ago. In response to a specific request from Congress we established the first of its kind Y2K certification program for IT companies and enterprises that utilize IT to provide some certainty in a crowded and often confused marketplace. In the past two years, more than 100 user and provider organizations have successfully gone through the ITAA*2000 Certification Program. We have published and distributed free of charge a Y2K Solution Providers Directory - the 9th edition of which will be out next month. Our Internet website is the only place where the public and public policy makers can look to find all of the Federal and State bills on Y2K, and - unfortunately - all of the Y2K litigation.

ITAA worked closely with the House, this Committee and the Administration, to write and unanimously get passed into law the Information and Readiness Disclosure Act because we and Congress were convinced that the threat of lawsuits was hampering the sharing of vital Y2K information between business partners. Organizations were afraid to provide and could not receive the information needed to successfully approach resolution of Y2K issues to ensure a seamless transition into the next century. Since the passage of the "Good Samaritan" law, which came about in large part through the yeoman efforts of your chairmanship, ITAA has produced a set of special Y2K Guidelines and has sponsored an Internet webcast explaining how to take advantage of the Act's provisions. Companies across the country now have a tool that allows them to share company-to-company information. At same time, the rights of consumers remain protected, and the law did nothing to limit any cause of action that may grow out of actual Y2K-related losses.

The legislation you and Senator Feinstein have introduced will broaden the protections contained in last year's information-sharing bill and will continue to keep organizations focused on the fix - not downstream litigation. This bill will serve to encourage vendors of all types to continue to put the time and resources into Y2K remediation and testing efforts in 1999. It will also serve to provide protection to those enterprises that are impacted by Y2K glitches even though they attempted to get their systems on track, by mandating, for example, an "opportunity-to-cure" period before a Y2K lawsuit can be filed, and discouraging the award of consequential damage penalties against businesses impacted by events outside of their control. By focusing their time, energy and resources on fixing systems, rather than litigating lawsuits, business partnerships will continue and disruptions will be minimized.

Inevitably, even if parties do everything possible between now and the Year 2000 to prevent disruptions, failures and resulting disputes will occur. Business relationships can survive these challenges, however, as long as the contracting parties work together towards a solution and approach the Y2K challenge as partners, realizing that the problems encountered should not lead to contract termination or litigation.

Bill Criticisms Turn Blind Eye To Reality

Let me take a moment to address three principle objections made by critics of this legislation. Contrary to logic and business practice, some have charged that legislation which gives companies a cure period is essentially an opportunity to delay, defer or deny that Y2K problems exist. Such a viewpoint turns a blind eye to the very nature of most business relationships, which is to do everything possible to assure customer satisfaction and a predictable revenue stream into the future. Meanwhile, bill provisions create clear incentives for both potential defendants and plaintiffs to take affirmative action on Year 2000-not hang back waiting for courtroom settlements. I refer here to the responsibility placed on companies to make reasonable efforts in anticipation of contractual or tort claims as well as the requirement to mitigate the likelihood of Y2K risks for those who might raise such claims. Buyers and sellers responding to these key provisions of the bill will implicitly reduce the size of exposures as well as actual damages and, as a result, minimize the need for lawsuits.

Other critics are pointing out that we have not yet seen evidence of the prognosticated flood of litigation, and therefore we are developing a cure in search of a disease. Again, I am not a lawyer, so I can only report what I read and see. What I see is a stable of salivating legal factories gearing up. I am in the "Internet business" so-to-speak, so I used my trusty web access search engine last week and found 11,051 'hits' when I typed in the subject: "Year 2000 + Attorneys." My General Counsel is invited to speak at or is invited to attend two to three Y2K Litigation Seminars and Conferences a day. Is it prudent or responsible for Congress to wait for the inevitable flood or do what it can to provide sandbags now?

There are some critics who contend that this legislation is unnecessary because companies, thank you, are moving ahead on a remediation path just fine without the bill. I have been traveling throughout the country and the world for four years - speaking to every private sector group and government agency you can think of - and we are not even close to full remediation.

A recent ITAA Y2K contingency planning survey found that 87 percent of respondents, representing a wide cross section of industries, call Year 2000 a crisis for the nation and the world. Over half said Y2K will hurt their companies. Over one-third reported actual Y2K related failures.

Our research is supported by other studies and analysis:

In the government sector, the GAO reports 39 percent of federal systems are yet to be made Y2K ready. The National Association of State Information Resources Executives says that of 46 states included in a recent survey, most are not close to being compliant. A recent report from the National Association of Counties found 50 percent of its survey base do not have a Y2K plan.

A National Federation of Independent Business survey of small business owners in January 1998 found that 37 percent of those polled have either taken no Y2K action or do not plan to.

A survey released in January by the Media Studies Center found that 53 percent of Americans agree that the Y2K problem is one of the most important problems facing the country--one percentage point more than had heard about the recent U.S. military action against Iraq.

A January 1999 USA Today/Gallup Poll found 34 percent of respondents predicting major problems from the date bug generally and 14 percent saying they expect to experience major problems personally.

A Cap Gemini/Industry Watch Survey conducted late last year found on-time completion schedules for Year 2000 projects slipping for 90 percent of those polled. An October 1998 survey conducted by CIO Communications, Inc., found over two-thirds of the CIOs polled indicated that the job of the century will not get done on time, and that government officials and consumers should be getting prepared to cope with the consequences. Those consequences could include an economic slow-down in the U.S. Seventy three percent of respondents said Y2K has the potential to cool the economy. Over 50 percent thought Uncle Sam should be creating a disaster recovery fund and emergency management agency.

The nation's Year 2000 glass is not half empty, but I think it is equally fair to conclude that much work and many risks to success remain.

Protracted court action will not fix a single system. Litigation is not a Y2K remedy. It will merely clog the court system; keep truly harmed plaintiffs from getting quick redress; expose companies to public criticism; damage reputations; destroy supplier relationships; and divert attention and energy from technical corrections.

It is for all of these reasons that large and small businesses - suppliers and customers, vendors and users, plaintiffs and defendants - have come together and urge you to pass this legislation as soon as possible.

Essential Bill Components

Let me briefly highlight a few of the key principles contained in the bill, which are essential components of any legislative framework seeking to encourage continuing remediation efforts, to resolve the disputes that may arise and to discourage unnecessary litigation.

American businesses operate with the underlying expectation that they will be held to their contractual and statutory commitments, and expect their vendors, suppliers and customers to do likewise. Courts should not turn away from basic contract law principles and make new law because of Y2K. Contracts should not be "tortified" and should remain the first point of reference to define the parties' rights and obligations in Y2K disputes. Where parties have negotiated contract terms and conditions that limit their respective obligations and liabilities, those limitations should be strictly enforced.

Vendors of products or services must be given an opportunity to respond to the problem identified by the prospective plaintiff and to cure a Y2K problem before a lawsuit is filed. A 90-day notice period is already embraced in existing contract law and the Universal Commercial Code. It is in the overall interest of our society to provide the tools that will solve problems and disputes, not encourage litigation, which will not fix a single system.

We welcome the provision in this bill that encourages parties to resolve disagreements through non-litigative means, such as non-binding mediation and other alternative dispute resolution (ADR) methods. It is in the long-term best interest of contracting parties to maintain an ongoing business relationship, and ADR, rather than litigation, maximizes resolution chances and minimizes transaction costs.

The President told the nation last July that our nation's ability to respond successfully to the Y2K challenge requires sharing the responsibility of fixing the systems. All parties are encouraged by this legislation to continue their remediation efforts and to develop contingency plans because they will have a duty to mitigate Y2K damages they could reasonably have avoided.

In any Y2K claim to recover economic damages resulting from a Y2K problem, a defendant should be permitted to plead and prove that it used reasonable efforts or due diligence in light of the circumstances to achieve Year 2000 readiness. While this is already an accepted standard in negligence or tort actions, we strongly support the inclusion of this evidentiary showing in contract actions: that in light of the efforts made by the defendant, the plaintiff's economic damages were not damages that the defendant could have reasonably anticipated or prevented. This provision will encourage continued remediation efforts because the supplier of goods or services will know THIS YEAR that all of the time, resources and money that it puts towards fixing its systems and the efforts made to contact its suppliers can be entered into evidence if - for reasons outside of its control - a Y2K problem does occur NEXT YEAR and a lawsuit is filed. And that if no such efforts are made, no such defense is available.

Except in cases of personal injury or fraud, recovery in Y2K lawsuits should be limited to actual direct damages, and only when the defect is deemed to be material. Punitive damages have historically been given to deter the defendant or like defendants from engaging in similar behavior in the future. This is a unique situation which will not occur again, and a higher negligence standard should be required if awards beyond actual damages are to be provided.

This legislation will not prevent parties with legitimate claims to have their rights protected, but abusive and frivolous class actions by opportunistic plaintiff attorneys will be discouraged.

Conclusion: Working Towards a Constructive Solution to A Difficult Issue

I will conclude by observing that the century date change challenge is formidable, and our attention and resources should be trained on developing solutions. Relying on lawyers and the courts to solve the problem is certainly not the answer. The IT industry is committed to helping the marketplace work through this difficult issue in a positive, constructive manner. This bill recognizes that establishing and maintaining partnerships with everyone in the 'supply chain' - upstream and downstream - will allow us to be able to confront the issue successfully and find ourselves enjoying January 1, 2000, rather than facing it with dread and trepidation.

Thank you very much for this opportunity to appear before you today.