Year 2000 lawsuits: Bullets or bombs?

Everyone has predictions about what will happen following the millennium, but one thing is certain: there will be many disputes that resort to legal proceedings. Lawyers are like good tailors - they can take a few loose threads and turn them into an expensive suit. The issues associated with Year 2000 problems offer the lawyers enough material for a whole new wardrobe.

But for a moment, let's be optimistic. Assume you are one of the lucky ones. No legal claims are made against you. You have no problems, right? Wrong. Even if you are not a defendant you can still get sideswiped by the practical consequences of lawsuits advanced against your software suppliers.

For example, you have a software license and maintenance agreement with the Canadian subsidiary of a U.S. software supplier. A major lawsuit is filed against the subsidiary in Canada based on alleged deficiencies in the Canadian version of the software. The Canadian subsidiary may have arguments in its favor, but the cost of defending an uninsured lawsuit can be prohibitive. The U.S. head office decides to shut down the thinly capitalized Canadian subsidiary. Your needs are simple. All you require is that the software be corrected in accordance with your signed maintenance agreement. However, your agreement is with the Canadian marketing subsidiary. If the subsidiary fails to perform its obligations, its U.S. parent company has no obligation to provide remedial maintenance for the Canadian version of the product. You may be out of luck.

Let's be even more optimistic. Assume that no claims are made against anyone in Canada. You rejoice, right? Wrong again. For example, the customers of one of your U.S. software suppliers file a class action lawsuit against that supplier in the U.S. A substantial portion of the suppliers financial resources may be consumed in defending that claim. The suppliers' technical experts will be tied up in preparations and depositions associated with the legal proceedings. Bankruptcy of the supplier could be a real possibility. When technical and financial resources become scarce, servicing small fringe markets like Canada is not a priority The net result is that you are unlikely to get the software maintenance updates needed to solve your problems anytime soon, if ever.

What can be done to avoid these problems? Simply making sure your software maintenance agreement is paid up does not offer any meaningful protection. There is nothing your supplier can say to ensure the comfort of continued maintenance. There is little that can be done, except perhaps to establish a separate new service subsidiary strictly to carry on the business of providing maintenance services. Your maintenance fees would be paid directly to that new entity. To the extent the new entity does not market or license the software, its assets may practically be insulated from any claims based on deficiencies in the software.

Consider obtaining a written performance guarantee from the parent company of any marketing subsidiaries. If the subsidiary fails to fulfill its software maintenance obligations, the parent must perform those obligations directly.

In addition, consider obtaining access to an updated copy of the source code through an escrow deposit arrangement with a single trustee for the benefit of all users of the software. Make sure that your license contains a right to modify the software and that any confidentiality restrictions practically allow you to hire third-party developers to use the source code to undertake modifications.

Copyright Plesman Publications Ltd. Sep 1998
Provided by ProQuest Information and Learning Company. All rights Reserved