Japan Firms Worry About Legal Risks Of Y2K Bug

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Friday April 16 4:17 AM ET

Japan Firms Worry About Legal Risks Of Y2K Bug By Yvonne Chang

TOKYO (Reuters) - The approach of the new millennium is giving Japanese corporate executives a case of legal jitters as they worry about a potential flood of lawsuits stemming from the year 2000 computer bug.

But unlike the United States, which is working on new legislation to limit such lawsuits, Japan plans no new framework to protect firms from legal liabilities.

That means companies will have to rely on existing laws and specific contracts to resolve disputes triggered by millennium-related computer failures, experts said.

Reflecting growing corporate concern, more than 80 businessmen, mainly from the financial and information technology industries, gathered here last week for a seminar on how to protect themselves from legal headaches stemming from the bug.

``On the one hand, we could be sued for damages. On the other hand, we could be suing someone, and we feel the need to clarify the legal situation surrounding the millennium issue,'' said Yoshiteru Sakamoto, an executive at a foreign life insurance company who attended the seminar.

Ayako Odashima of International Conferences for Management in Tokyo, which organized the event, added: ``Companies appear to be becoming more anxious as the time limit approaches, as seen in the rising number of participants on Y2K-related seminars.''

The glitch, known as the Y2K bug, may trigger widespread disruption when 1999 turns to 2000 because some computers and software recognize only two-digit numbers to represent years, and could take the last two zeroes in 2000 to mean 1900.

Experts are advising companies to review existing contracts with clients and partners, as potential lawsuits would most likely be claims for damages based on breach of contract or on breach of warranty against defects.

As part of their efforts to protect themselves from legal liabilities, companies have stirred up a paper blizzard of documents querying partners and clients about the state of play on Y2K compliance.

The documents often seek a simple ``yes-or-no'' response on whether a company is Y2K compliant -- an answer which is theoretically impossible to give since no one can be 100 percent certain until the clock ticks past the critical moment.

Some documents may even demand their business partners give some form of guarantee in case of Y2K-related damages, said Yoshinari Fujita, a Y2K expert at Nomura Research Institute.

Companies hope the pile of paper will count as evidence in the event of lawsuits, but experts say the ploy may not work since the documents are not legally binding and firms have no legal obligation to respond.

Instead, experts say companies' best legal bet is to disclose information on their progress on Y2K compliance in order to minimalise potential risks as well as to protect themselves from being accused of failing to take proper measures ahead of time.

That advice is based on the U.S. example, where firms are encouraged to disclose information on their progress on Y2K compliance under the Y2K Readiness Disclosure Act. The bill protects U.S. firms from having the disclosed information used against them in case of lawsuits.

Despite the rising concern among business executives, legal experts say Japan is unlikely to be flooded with Y2K-related lawsuits given the general corporate aversion to litigation.

Japanese firms would rather opt to resolve disputes internally or through out-of-court settlements to protect business relations, said lawyer Zen Tatsumura.

That may not, however, be the case if foreign firms are involved in business alliances -- which are growing in number as Japanese companies seek U.S. and other foreign partners as part of their restructuring strategies, said lawyer Yasuyoshi Goto.

Potential confusion over legal liabilities related to the millennium bug also highlights a broader problem: Japanese information firms have typically taken a laid-back view of legal matters, the experts said.

``The Y2K issue may finally prompt software firms to organize their legal divisions,'' said Akira Ogata, general manager of the Japan Information Service Industry Association's Research Planning Division.

-- Arlin H. Adams (ahadams@ix.netcom.com), April 16, 1999


Wow, is it me or is this a great example of how Japan is actually about 6 months behind the U.S. Afterall, this was the big news here a while back.

Mike ==================================================================

-- Michael Taylor (mtdesign3@aol.com), April 16, 1999.

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