Japanese Lawyers Get Geared Up

- by Noriko Takezaki -

Corporate executives, take warning! If you're an optimist who thinks you can just blame the hardware or software vendors if your computer systems are not fully Year 2000 (Y2K) compliant, think again. And if you imagine you'll be able to collect from your system vendors, or pass along any claims for damages caused by the effects of your Y2K-noncompliance, you're not just an optimist - youıre dreaming. But you'll get a rude and unpleasant awakening when the first lawsuit lands on your desk.

Check the warranty contracts of your computer systems - now! You'll probably discover that the vendors assume no responsibility for any defects of your hardware or software. Now, where the Y2K problem is concerned, all the responsibility, and all the consequences, rest squarely on your own shoulders.

The potential problems of the Y2K issue have been keeping lawyers very busy lately - even here in Japan, where companies generally do not seek help from a lawyer unless the situation seems hopeless and all other remedies have failed. But many large Japanese companies, particularly banks, want to make sure they are prepared to deal with possible lawsuits from customers or business partners who suffer damages arising from a computer system that is not Y2K compliant.

"The potential legal headaches arising from non-Y2K-compliance could include, in a worst case scenario, shareholder suits as well as substantial claims for damages," warns Yasuyoshi Goto, attorney-at-law with Tokyo Aoyama Law Office, who mainly deals with computer issues. "In the case of an automobile company that uses EDI (electronic data interchange) for its component procurement from suppliers, for example, if a supplier's EDI systems stop because of its Y2K-noncompliant computer system, the entire procurement process will bog down. That could lead to the stoppage of product manufacturing, which will cause a profit loss for the automobile company. The degraded performance would, in turn, have a negative effect on the company's stock price, which will eventually excite the anger of shareholders and lead to lawsuits."

In order to prevent such a scenario for your company, Goto recommends the following corrective actions, to be taken as soon as possible in addition to your own Y2K compliance.

  1. Ask your computer vendor(s), in writing, whether your computer systems are Y2K compliant, and insist on a written reply. Also get confirmation, in writing, of the Y2K-compliance status of all outsourcing companies you are using, such as for calculation and management of wages and social insurance processing.

  2. If a vendor's reply is "not sure" or "no," insist that the vendor working with you to fix the problem(s) (this will NOT be free of charge.) Or stop using the vendorıs system and switch to another vendorıs system which is Y2K compatible. (And remember, time is quickly running out.)

  3. Prepare the proper and necessary documentation regarding your Y2K-compliance actions. It will also help, if there is a future lawsuit, to have a legal audit of your compliance efforts. This legal audit should cover interviews with your company's executives and IT administrators, the vendor(s) of your computer systems, and major customers concerning the Y2K-compliance of all computer systems being used for your business transactions.

  4. For every future business contract, always make sure that all the systems involved are fully Y2K compliant. The contract agreement should state this explicitly, with a clear and precise definition of the meaning of "Y2K compliance."

The legal audit in item 3 above may be necessary only for larger companies. (According to Goto, the fee for such an audit varies depending on the scope of a companyıs business transactions and size and complexity of its computer systems.) All of the other items, though, are essential steps no matter what your companyıs business and operation size are. Most business activities today depend on computer systems, so you as a corporate executive must understand and be prepared to deal with the tragic outcome if your computer systems are not Y2K compliant.

"It is the corporate executives' legal responsibility to take proper corrective actions to protect the company's customers, shareholders, business partners, and employees," warns Goto. "And even though you make full preparation for dealing with the Y2K issue, an unexpected problem might still occur. In that case, you can minimize your legal risk if you can prove you took good-faith corrective actions in advance." In the case of the Y2K problem, what you donıt know can hurt you - and cost you as well.





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