President Clinton Signs Year 2000 Information and Readiness Disclosure Act

On October 19, 1998, President Clinton signed into law the Year 2000 Information and Readiness Disclosure Act (the "Act"). In enacting this legislation, Congress found that (i) the Year 2000 computer problem, if not effectively addressed, could severely adversely affect the Nation's economy and critical infrastructure, and (ii) concern about liability arising from disclosure and exchange of Year 2000 information is impeding the ability of both government and the private sector to address the Year 2000 problem. The Act's purpose is to create a safe harbor for the disclosure and exchange of Year 2000 information by (i) limiting liability in civil actions for such disclosure and exchange of information, and (ii) creating a temporary and narrowly tailored exemption from federal and state antitrust laws for such disclosure and exchange of information.

WHAT KIND OF YEAR 2000 INFORMATION IS COVERED BY THE ACT?

The Act distinguishes between "Year 2000 Statements" and "Year 2000 Readiness Disclosures."
Year 2000 Statement means any communication by one party to another or to the public in any form or medium concerning:
  • an assessment, projection or estimate of an entity's ability to process date data before, during and after the Year 2000 ("Year 2000 Processing"); or
  • plans, objectives or timetables for implementing or verifying Year 2000 processing capabilities; or
  • test plans, test dates, test results, or operational problems or solutions related to Year 2000 Processing.

Year 2000 Readiness Disclosure, by contrast, is limited to a written Year 2000 Statement which is:

  • clearly identified on its face as a "Year 2000 Readiness Disclosure;" and
  • inscribed on a tangible medium, or stored in electronic medium and retrievable in a perceivable form; and
  • issued or published by or with the approval of a person or entity with respect to the Year 2000 Processing of such person or entity or of such person or entity's products.

Makers of Year 2000 Readiness Disclosures receive greater protection under the Act than makers of Year 2000 Statements in two respects. First, as discussed below, Year 2000 Readiness Disclosures, unlike Year 2000 Statements, are not admissible against the maker in a civil suit to prove their truth or accuracy. Second, the Act applies retroactively to Year 2000 Readiness Disclosures, but not to Year 2000 Statements.

MATTERS NOT COVERED BY THE ACT

  • The Act addresses liability arising from Year 2000 Statements; it does not address liability arising from Year 2000 Processing failures.
  • With narrowly drawn exceptions, the Act does not protect most Year 2000 Statements made in advertising or solicitation.
  • The Act does not create a duty to provide notice about Year 2000 Processing.
  • The Act does not apply to statements contained in documents filed with the Securities and Exchange Commission or with federal banking regulators.
  • The Act provides that Year 2000 Statements will not be treated as amendments to contracts.

THE ACT LIMITS LIABILITY FOR YEAR 2000 STATEMENTS

Limitation on Admissibility of Year 2000 Readiness Disclosures. No Year 2000 Readiness Disclosure is admissible in a civil suit against the maker to prove the truth or accuracy of any Year 2000 Statement contained in the Disclosure, except that:

  • a Year 2000 Readiness Disclosure may be admissible to prove anticipatory breach or repudiation of a contract; and
  • a court may exercise its discretion and not accord the protections of this Act to a Year 2000 Readiness Disclosure if it determines that such Disclosure was made in bad faith, is fraudulent, or does not further the purposes of the Act.

Although this provision of the Act offers some protection to businesses which disclose and exchange Year 2000 information, protection is limited in two important respects. First, it applies only to Year 2000 Readiness Disclosures which are clearly labeled with a legend identifying them as such. It does not apply to Year 2000 Statements generally. Second, notwithstanding the limitation on admissibility of Year 2000 Readiness Disclosures to prove their truth or accuracy, such Disclosures may still be used against the maker for other purposes. Moreover, Year 2000 information with content similar or even identical to a Year 2000 Readiness Disclosure, but which is not clearly identified on its face as a Year 2000 Readiness Disclosure, may still be obtained through discovery or other means and used against the maker. Going forward, businesses disclosing and exchanging Year 2000 information can gain some protection by clearly labeling such information with a legend identifying it as a "Year 2000 Readiness Disclosure." However, businesses engaging in such disclosure and exchange should not assume that the Act's limitation on admissibility offers unqualified protection from use of such information against them.

Limitation on Liability for Year 2000 Statements. In an action based on an allegedly false Year 2000 Statement, the Act protects the maker from liability with respect to such statement unless the plaintiff proves by clear and convincing evidence that such statement was material and that the statement was made:

  • with actual knowledge that it was false, inaccurate or misleading; or
  • with intent to deceive or mislead, or with reckless disregard for its accuracy.

Protection from Product Defamation Claims. The Act also specifically protects makers of Year 2000 Statements from defamation, trade disparagement, or similar claims based on such statements unless the plaintiff shows by clear and convincing evidence that the statement was made with knowledge that it was false or with reckless disregard for its truth or falsity. These protections apply to all Year 2000 Statements, not just Year 2000 Readiness Disclosures.

Web site Notice Permitted. The Act specifically provides that in any suit in which the adequacy of notice regarding Year 2000 Processing is at issue, posting of such notice on a Year 2000 Internet Web site in a commercially reasonable manner is deemed an adequate mechanism for giving notice, unless the court finds such mechanism to be inconsistent with prior representations, or inconsistent with the regular course of dealing between the parties, or unless individual notice is clearly the most commercially reasonable means of giving notice.

THE ACT CREATES A TEMPORARY AND NARROWLY TAILORED ANTITRUST EXEMPTION.

The Act exempts from the antitrust laws conduct (as distinguished from statements) designed solely to (i) correct or avoid any failure in Year 2000 Processing, or (ii) communicate or disclose information to help correct or avoid the effects of Year 2000 Processing failures. This exemption applies only to conduct that occurs, or to an agreement that is made or concluded, after October 19, 1998 and before July 14, 2001. The Act specifically provides that this exemption does not apply to conduct resulting in an agreement to boycott any person, to allocate a market or to fix prices or output. In addition to the language of the Act, the Antitrust Division of the Department of Justice ("DOJ") has issued several business review letters to industry groups offering guidance on the specific conduct which DOJ will refrain from challenging. The business review letters suggest that DOJ will not challenge exchange of Year 2000 information through customer and vendor surveys, or exchange of information about computer system testing methodology and results. Exchange of pricing information or customer lists or other similar information, however, is not protected by the Act. Although Congress intended this exemption to encourage disclosure and exchange of Year 2000 information, Congress did not intend it to vitiate the public policy rationale underlying the antitrust laws. Accordingly, businesses disclosing and exchanging Year 2000 information should not read this provision as a blanket exemption for all conduct relating to the Year 2000 problem. Rather, businesses, together with their counsel, should carefully evaluate their conduct in light of the business review letters and other DOJ guidance to ensure that it falls within the Act's safe harbor.

RETROACTIVE EFFECT; DESIGNATION OF YEAR 2000 STATEMENTS AS YEAR 2000 READINESS DISCLOSURES

  • The Act applies to Year 2000 Statements made beginning on July 14, 1998 and ending on July 14, 2001.
  • The Act applies to any Year 2000 Readiness Disclosure made beginning on October 19, 1998 and ending on July 14, 2001.

As discussed above, makers of Year 2000 Statements, unlike makers of Year 2000 Readiness Disclosures, are not protected against admission of such statements against them in a civil action to prove their truth or accuracy. However, the Act provides that the maker of a Year 2000 Statement made after January 1, 1996 and before October 19, 1998 may, if certain requirements are met, avail itself of the Act's protection against admissibility by designating it as a Year 2000 Readiness Disclosure. To be eligible for designation as a Year 2000 Readiness Disclosure:

  • The Year 2000 Statement must have satisfied the Act's definition of Year 2000 Readiness Disclosure, other than being designated on its face as a disclosure.
  • By December 3, 1998, the maker must either (i) provide individual notice to all recipients of the original statement, or (ii) prominently post notice on its Web site for a period of 45 days commencing no later than December 3, 1998 and communicate notice using the same method by which the original statement was communicated.
  • The notice must (i) state that the Year 2000 Statement is being designated as a Year 2000 Readiness Disclosure, and (ii) include a copy of the statement with a legend clearly identifying the statement as a "Year 2000 Readiness Disclosure."

In evaluating whether to seek retroactive designation as a Year 2000 Readiness Disclosure, businesses should carefully weigh the following factors: (i) Retroactive designation may prove burdensome; businesses will incur the cost of delivering the required notice and attaching the required identifying legend to each previously published Year 2000 Statement; (ii) The limitation on admissibility, as previously discussed, provides only limited protection for the maker; and (iii) Makers of Year 2000 Statements made after July 14, 1998 enjoy the Act's limitation of liability; retroactive designation as a Year 2000 Readiness Disclosure only limits admissibility, not liability. Businesses should also note that under the following circumstances, a retroactive designation will not be effective: (i) If a plaintiff proves by clear and convincing evidence that the plaintiff relied on a statement and would be prejudiced by the retroactive designation, such designation shall not be effective against the plaintiff; or (ii) If a party objects to the designation within 45 days of receiving individual notice or within 180 days of receiving other notice of the designation, such designation shall not be effective against that party.