Many older computer systems and software programs contain a bug which may surface on January 1, 2000. The so-called Millennium 2000 Bug or Y2K problem is due to the use of two digits to represent the year in dates rather than four. The Y2K problem had its origin over thirty years ago when memory for computer systems was expensive and programmers utilized techniques to save space. Using two digits instead of four to store the year provided space saving especially in databases containing multiple records. However, such systems cannot correctly process date information after the year 1999. A date in the year 2000 would be interpreted by such systems as occurring in the year 1900.

The problem is serious and should be considered by corporate/commercial lawyers, even those who do not normally deal with technology-related matters. The problem has also been widely publicized recently. Those who ignore the issue and fail to protect their client's interests may find themselves subject to a negligence claim.

Date errors which will arise once the year 2000 rolls around may cause systems which are not year 2000 compliant to produce incorrect results, delete data or shut down. The problem is not restricted to what is typically regarded as computing devices but may affect all types of appliances and equipment that are dependent on dates. These may include elevators, HVAC systems, manufacturing systems, financial systems, security systems and even automobiles.

With respect to computer systems, the problem may even affect year 2000 compliant systems due to the linkages between systems. A system designed to operate correctly after the Year 2000 may still acquire incorrect data from other systems. Even organizations who themselves are not directly dependent on computers may be dependent on suppliers or other third parties who may experience disruptions due to their dependence on systems that may not be year 2000 compliant.

Fixing the Y2K problem has been projected to cost up to U.S. $600 billion. Many large corporations are each expecting to spend tens or even hundreds of millions of dollars to verify their systems and make any required changes.

Many companies are implementing projects to address their internal exposure to Y2K problems. Prudent organizations are advised to consider comprehensive legal audits to assess their vulnerability to liability claims and an assessment of possible recourse against existing suppliers. Another recommended step is to write to suppliers and ask them to certify that their products are or will be year 2000 compliant and to outline the action that they are taking to ensure such compliance.

Lawyers acting for clients in merger, acquisition or financing transactions should deal with the year 2000 issue as part of a due diligence and incorporate appropriate representations and warranties into the agreement.

Other recommendations for dealing with the year 2000 problem are:

• Companies should ensure they have appropriate rights to modify a software program.
• Insurance policies should be reviewed to see if they cover the cost of correcting year 2000 problems before commencing any modifications.
• Employment contracts for programmers and key individuals involved in a company's year 2000 initiative should be drafted to enhance the company's ability to retain such staff.
• New contracts for goods or services should incorporate year 2000 warranties.
• Companies should review their obligations to disclose information regarding significant year 2000 costs or potential liability in financial statements and filings with regulators.