The year 2000 ("Y2K") lawsuits that have been filed in the United States allege, among other things, that software and services will fail to serve their intended purpose in the year 2000 and beyond. The vast majority of these suits are class actions. The plaintiffs range from individual users of commercial software to shareholders that claim their company allegedly made Y2K misrepresentations in their financial statements that resulted in a drop of the price of their stock.
Most of the current suits are filed against software developers, manufacturers and distributors and generally allege that some version of the product (not necessarily the most recent release), is either completely Y2K non-compliant or has a specific feature that cannot operate after the year 2000. The defendants in these suits are not just software makers - - they include officers and directors of companies that allegedly made fraudulent statements in IPOs as well as the underwriters who provided financing. Other defendants include telecommunications and voice messaging companies, as well as companies that acquired entities that promised to fix Y2K problems in existing systems.
Common Themes
Two common themes appear throughout the lawsuits:
Charging for Upgrades:
Many software developers have already created Y2K compliant versions of their software but are charging customers for upgrades. These developers have initially argued that (1) customers are not merely paying for an upgrade but also for the increased functionality, and (2) that the upgrade price was minimal. The plaintiffs are responding by saying that the customers have not asked for increased functionality, they merely want the versions they bought to work properly and should not be forced to pay more to fix a product that is defective.
Using Statements from Websites and Marketing Materials:
Plaintiffs are using public statements made in the defendants' websites, press releases, financial statements and marketing/sales materials to make statutory and common law claims of fraud and breach of warranties.
The Plaintiffs' Legal Theories
The plaintiffs are also making fairly uniform legal claims. Since the vast majority of the claims are for non-compliant software, the alleged causes of action tend to be fairly similar:
Fraud:
For failing to disclose the noncompliance before the initial sale and for making fraudulent statements in the websites, user manuals, sales materials and the like.
Breach of Implied Warranties:
Sellers of goods were sued for making two implied warranties under the UCC because they failed to expressly disclaim them: (1) that the product is fit for the particular use for which it was sold; and (2) that the product was generally merchantable.
Violation of State or Federal Deceptive Trade Practices -- Consumer Protection Statutes:
Most states have a Deceptive Trade Practices act (DTPA) which creates a fraud-type cause of action for certain types of consumer transactions. Plaintiffs have also been making similar claims under the Magnuson-Moss Consumer Protection Warranty Act which provides similar consumer protection provisions under federal law. In essence, these are attempts to "undo" warranty disclaimers and contracts.
False Advertising:
These claims tend to be made independently but often fall under the fraud or DCPA claims.
Breach of Express Warranties:
Whenever software contains representations that could be construed as promising some sort of Y2K capability, the plaintiffs often allege that such representations constitute an express warranty that was violated when the customer discovered that the products were not Y2K compliant.
Negligence:
Plaintiffs often claim that the defendant was negligent by selling software before adequately checking or testing that it was Y2K compliant.
Violations of the Securities Act of 1933:
Most of the shareholder suits allege that (1) a prospectus either contained untrue statements or failed to disclose statements of material fact, (2) that the defendant failed to make an appropriate diligent investigation of their statements in the prospectus, and (3) that the defendants were all culpable participants as "control persons."
As the millennium approaches, we expect plaintiffs attorneys to be even more creative with the claims that they make. We also expect that lawsuits will be filed with greater frequency. Nevertheless, future claims should follow a similar theme to those lawsuits already presented and summarized in this article.