David Kent is a litigation lawyer and a member of the KNOWlaw* and Competition groups and Bruce McWilliam is a technology and telecommunications lawyer and a member of the KNOWlaw group in the Toronto law firm McMillan Binch. Both are part of the firm’s Y2K initiative.

Opinions vary on the effect the Year 2000 problem will have on society. Some predict only isolated problems; others predict widespread failures of computer systems and embedded chips leading to a collapse of essential systems like our electrical grid, from which it will be difficult or impossible to recover (see title).

The problem

The Year 2000 (or Y2K, as it is affectionately known) problem stems from the fact that much software uses only the last two digits of a date to record a calendar year – it assumes the first two digits will always be 19 so the year 2000 will be read as an invalid entry or as the year 1900.

In fact, problems may start surfacing sooner than Jan. 1, 2000, since some software uses the digits ’99’ or ‘9999’ as an error or stop code. As a result, some problems appeared on Jan. 1, 1999, and others are expected on Sept. 9, 1999. When a computer’s internal time clock ticks over to a critical date, it may reject the information, produce incorrect calculations or shut down entirely.

How will it affect me?

How will Y2K affect the production and broadcast industries? First, anyone or anything using a computer is potentially at risk. The creative side (i.e. Macintosh users) may be somewhat less at risk, since the Mac platform itself is said to be compliant. But Mac users should not be complacent, since some Mac application software is just as likely to have Y2K problems as its Windows counterpart.

Other computers (everything from pcs to mainframes) are virtually certain to have some problems. Accounting systems may fail or produce unreliable output, delaying payments. Scheduling systems may malfunction, creating havoc with production coordination.

More insidious will be problems with the ’embedded chips’ contained in many kinds of modern equipment (anything that plugs in or runs on batteries). Some embedded chips contain tiny computer programs that make them operate. Some of those programs keep track of the date, and some of these will have a Y2K problem. These problems could affect anything from telephones to broadcast equipment to security systems to truck engines.

Even if your organization is ready, your production schedules could be seriously disrupted by interruptions in the supply of goods or services you need to carry on business, or breakdowns in electrical or water service, transportation systems, banking services, or other infrastructure components.

Given the complexities of successfully completing principal photography under ideal circumstances, some production companies are already considering arranging their shooting schedules (and their contracts with cast, crew, suppliers and facilities) so that no production will have to occur during the first few weeks of the year 2000.

Who will get blamed?

Make no mistake – there will be a lot of creative blame associated with Y2K problems. And the finger pointing won’t wait until Jan. 1, 2000. Y2K lawsuits have already been started in the u.s., and some have even been wrapped up. This litigation, both individual suits and class actions, has involved not only early Y2K failures but also claims for repair costs.

There is no shortage of targets once the blame starts to be assigned:

* Software developers and vendors. This one is obvious. People who sell non-compliant software (without adequately disclaiming responsibility) may be responsible both for Y2K problems caused by their software and for repair costs.

* Software users. People who make products which depend on non-compliant software may be sued by customers who purchase the defective products. They may also be sued by those affected by the product. So a hospital might sue an equipment manufacturer for the cost of a defective machine, while a patient might sue the manufacturer (and the hospital) if the machine breaks down during an operation. These manufacturers may (or may not) be able to pass these claims along to their software suppliers.

* Customers and suppliers. Customers will sue suppliers whose deliveries of critical products are disrupted because of the suppliers’ Y2K problems. Suppliers will sue customers whose Y2K breakdowns mean that they fail to take up guaranteed minimum supply obligations.

* Y2K remediators. Computer whizzes who promise, but fail, to fix Y2K problems will get blamed for the resulting mess. It is possible that they may also be sued by the original software manufacturer for tampering with the software and infringing copyright.

* Directors and officers – Part i. This has nothing to do with causing Y2K problems. But officers will be blamed if they fail to implement a plan to detect and fix Y2K problems. And directors will be blamed if they fail to ensure that their officers are taking the problem seriously.

* Directors and officers – Part ii. Companies (i.e. directors and officers) are also required to disclose material items in various public filings and by private arrangements with lenders and others. This may mean disclosing the risk and extent of possible Y2K problems, particularly if the company has determined that it will not be able to completely solve the problems in time.

Some reports indicate that early 1999 filings likely contain inadequate Y2K disclosure. Watch for class actions against directors and officers if company share prices drop as a result of Y2K problems which were not properly disclosed.

* Professional advisors. Many companies hired outside advisors to conduct technical and other Y2K audits and to suggest solutions. Watch for those advisors to be sued if the audit missed a problem or the solution did not work.

Some large international consulting practices stopped taking Y2K retainers last year on the theory that it was getting too late to solve their clients’ problems and that new jobs were just too risky.

* Insurance companies. There is already a lot of debate about the degree to which Y2K problems are covered or excluded by various common insurance policy clauses. Many of these debates will end up in the courts.

What you can do

Many organizations have Y2K action plans well under way. Some, however, are starting late. In any case, the steps organizations should be taking include the following:

* Implement an action plan. Decide what actions are needed to fix Y2K problems – then act on them. Establish a steering committee or appoint a coordinator to direct your organization’s efforts to become Y2K compliant.

* Establish a budget. Estimates suggest that it will cost more than $600 billion worldwide to fix the innumerable Y2K bugs. Y2K expenditures could result in a considerable drop in a company’s profit.

* Perform an inventory and assessment. Do an audit of internal computer systems and other equipment (including embedded chips) to locate potential Y2K problems, assess their possible impact on your operation, and repair or replace problem systems. Test everything, even if you are told it’s compliant.

* Be an informed customer. Examine the outside systems and organizations that you rely on and question their management regarding the actions that they are taking to deal with Y2K issues (including their inquiries to their suppliers).

* Review contracts and licences. Check licence, purchase and maintenance agreements to see if suppliers of systems have responsibility for Y2K compliance of your systems and equipment.

* Examine other legal relationships. Check other agreements, and any unwritten legal arrangements or relationships, to determine whether you can expect uninterrupted performance by those providing goods and services to you, and what legal obligations you have to those that depend on you.

Talk with your insurers to see what Y2K-related losses are and are not covered.

Think about putting Y2K compliance agreements in place with critical business partners. A compliance agreement can apportion responsibility for any losses or delays caused by a supplier’s failure to fix its own systems, and can give organizations influence over the standards and deadlines that their suppliers have established in their own Y2K plans.

* Think about your personnel. Is the knowledge needed to fix the problem available internally? Even if it is, should you be taking steps to actively encourage key people to stay throughout the Y2K project, rather than taking a more attractive position elsewhere?

* Engage outside consultants. Bringing in outside technology and legal experts to advise your organization can be a big help if directors, officers and employees later find themselves defending their actions.

* Be able to show due diligence. Management should create a paper trail of its actions; directors, officers and employees who can show that proper steps were taken to correct the problem will be better off in case of litigation. Ensure that any required disclosure obligations (e.g. securities and financial statement requirements) are met.

* Contingency plans. Things don’t always go according to plan. You should also protect yourself from business interruptions, and, more importantly, from liability, by having contingency plans in place if Y2K problems are not fixed in time, solutions don’t work or unforeseen bugs appear.

Taking prudent steps now can ensure that, come Jan. 1, 2000, you’ll feel fine.

(This article contains general comments only. It is not intended to be exhaustive and should not be considered as advice in any particular situation.)

* The End of the World As We Know It? (apologies to r.e.m.)