Mediate Away The Millennium Bug

Republished with permission of Legal Times, 1730 M Street, NW, Washington,

DC 20036.

As the millennium approaches, dissatisfied-customer suits against high-tech companies have blossomed into class actions over fears that software and computer chips unable to recognize and process the date “2000” will cause essential systems to malfunction. It is well recognized, from both technical and legal viewpoints, that the Year 2000 (or Y2K) problem is serious. While the Gartner Group estimates the technical remediation costs at $300 to $600 billion, Lloyd’s of London estimates the related lawsuit costs at more than $1 trillion. Every suit easily could drain hundreds of thousands of dollars from the parties.

So far, less than a dozen Y2K lawsuits have been filed, but an avalanche is predicted in the next year. Few lawsuits of any kind have as fixed a deadline for resolution as these disputes. With less than 17 months until Jan. 1, 2000, how can these cases reasonably be resolved without thousands of preliminary injunction motions further clogging our court systems?

The answer for resolving Y2K and most other high-tech disputes is mediation. In general, mediation allows disputants to work together to find an effective solution in much less time and with much less expense than full-blown litigation. Specifically, mediation has the following advantages for Y2K and similar high-tech adversaries:

Mediation preserves the parties’ relationships.
Most Y2K suits involve vendor-customer disagreements. It is better for both sides to work together than to fight each other. The customer usually will be able to resolve the technical problem more cheaply with help from the original source than from an independent contractor. The vendor has an incentive to cooperate in order to retain the customer and possible future business as well as to prevent more widespread damage to its reputation.

Beyond Y2K disputes, maintaining business relationships can be particularly important in close-knit, high-tech industries where the choice of vendors, distributors, or customers is limited. For example, where the contract does not preclude mediation, defense contractors might wish to mediate disputes with the federal government, presumably a very important customer with whom they wish to do a lot of future business. Similarly, software companies should mediate, say, copyright infringement claims against those resellers with the strongest corporate client base in a particular geographic region.

Mediation provides prompt resolution.
In the 17 months remaining before the year 2000, the time of any and all companies with Y2K problems is best spent on remediation, not in litigation. A mediation can be convened quickly because it does not require discovery and extensive preparation. Most Y2K disputes should be resolvable through mediation in a day or two. Then the parties can get back to business.

Even without the Y2K type of fixed deadline, prompt resolution is essential in many other high-tech disputes. Technologically complex products often have short life spans, as revised and updated versions replace them or as entirely new technologies appear. The risk is that the product at the heart of the dispute will be rendered obsolete even before the suit or appeal is concluded. Thus, a patent infringement suit involving integrated circuits of a certain capacity or a copyright infringement case involving a hot software game may well outlive the dispute’s subject matter.

Mediation permits and promotes creative, complete solutions.
The core of the Y2K controversy is a two-part question: How do we fix this problem in a timely manner so that it doesn’t generate even bigger problems on Jan. 1, 2000, and who will be responsible for doing this? Jury verdicts, judicial opinions, and arbitral decisions can reach the responsibility issue, but they can’t dictate a technical solution. Mediation, on the other hand, can address the technical aspects of the problem and may well result in a detailed remediation plan.

Creating future business

A mediated agreement also may include or lay the groundwork for future business between the parties. For example, an agreement involving a less expensive, off-the-shelf product may provide a rebate or discount on the next upgrade or on another product. An agreement involving a more expensive, customized product may provide a discount on future products or revisions, or an extension of existing service agreements. Mediated resolutions of other types of high-tech disputes may give rise to joint ventures, new distribution deals, or new unrelated contracts.

The point is that the best business solution may exceed the parameters of the current legal controversy and thus exceed the capability of judges, juries, and arbitrators.

Mediation saves money.
Mediators’ fees are either hourly or daily, and usually are split between the parties. Related legal fees are substantially less than those for litigation because mediation avoids discovery, pleadings and motions, and preparation for and attendance at hearings, trials, and appeals.

Perhaps most important in Y2K cases, mediation minimizes diverted executive time. When business executives need to be managing their company’s Y2K fixes, both internally and in relation to their suppliers and customers, mediation spares those same executives long hours in extensive discovery, review of legal submissions, and appearance at lengthy court proceedings.

Mediation safeguards confidentiality.
Unless the parties agree otherwise, statements made in mediation are considered confidential settlement negotiations and protected from disclosure. Such confidentiality allows the company to protect its reputation in the eyes of customers and investors, who might react negatively to the dramatic picture of the company’s Y2K exposure presented in litigation.

In other high-tech disputes, confidentiality may be important for additional reasons. Its use might avoid disclosure of trade secrets, such as technical formulas or customer lists, or prevent disclosure of sensitive business information at an unfavorable time, such as just before an initial public offering or announcement of an acquisition.

Mediation minimizes risk.
Litigation is risky due to the uncertainty of the outcome, which is especially true when, as in Y2K disputes, there is no legal precedent. The first Y2K suit was filed in mid-1997, and no Y2K case has been decided yet.

Mediation, unlike most arbitration, does not render a binding decision. A mediator facilitates resolution by the parties, so there is no agreement unless all the parties accept it. No one is stuck with a “bad” decision following mediation. And litigation can still be pursued if the parties do not reach agreement.

Keeping control over the outcome can be crucial in any high-tech dispute-in which, all too often, judges, juries, and even arbitrators are unfamiliar with the complex technology at the center of the case.

The industries most affected by the Y2K problem are trying to encourage resolution through mediation. The Software Publishers Association created the Software Industry Mediation Service earlier this year to provide mediators experienced with these types of issues (http://www.spa.org/mediation/). For its part, the Information Technology Association of America has joined with JAMS/Endispute to offer Y2K mediation services (http://itaa.org/y2kadr.htm).

Nor are initiatives limited to computer-oriented groups. The CPR Institute for Dispute Resolution, an alliance of 500 varied global corporations, law firms, and academics, has formed a special panel of neutrals devoted to the Y2K problem (http://www.cpradr.org). The Civil Justice Reform Group, an informal association of the top corporations across many sectors of the business community, is working toward a common solution that urges cooperation in exchange for Y2K information and resolution by means other than litigation and legislation. These efforts coincide well with President Bill Clinton’s proposed “Good Samaritan” legislation, which would also encourage exchange of information to solve Y2K problems.

The first Y2K lawsuit, Produce Palace International v. Tec-America Corp. (Mich. Cir. Ct. Macomb County, filed June 12, 1997), is pending in a court system that utilizes alternative dispute resolution mechanisms for most general civil cases. Under the court’s usual procedures, this case was referred to “mediation” in February 1998.

In this mediation, which was really a mini-arbitration, the parties submitted briefs to a panel of three practitioners, who heard oral argument and then submitted a recommendation that the defendants pay $260,000 in damages (liability was presumed). The plaintiff rejected the recommendation. Recently, the parties jointly requested to participate in a second level of ADR, called “facilitation,” which is more akin to true mediation. The facilitation has not yet been scheduled.

The days are ticking rapidly by until that one January day when the fixing of a Y2K problem becomes the cleaning up of a Y2K disaster. According to most published statistics, mediation has a success rate of 80 percent or more. Put those two facts together, and the conclusion is clear: A method of dispute resolution with so great a chance of success, so many benefits, and so little risk should be the preferred means of resolving Y2K and other high-tech disagreements.

                       

Sandra Sellers

Sandra A. Sellers is president of Technology Mediation Services, LLC, of McLean, Va., and director of the Software Publishers Association's Software Industry Mediation Service. She is a certified mediator, an attorney, and a former litigator. MORE >