Gold Bugs

Class action lawyers discover Silicon Valley.

Walter Olson from the February 2000 issue

(Page 2 of 2)

In plenty of cases it's obvious that the lawyers' interest is in fact at odds with the expressed wishes or interests of their purported clients. For example, various current suits seeking class action status charge companies with unlawfully having promoted or facilitated gambling; some of these have been filed on behalf of customers who've run up debts at offshore Internet casinos and say credit card companies were wrong to advance them the money to do so. Should they prevail, they may obtain some transient "relief," such as forgiveness of interest or principal, but the wider effect will be to force the credit card companies to withhold credit from many other willing borrowers in the class. If that counts as legal representation, what would legal opposition look like?

Which brings us to the question of who really gains and who loses should courts begin handing out damages liberally over computer failures. Very few high-tech products--hardware, software, Web applications, you name it--are immune to glitches and crashes, particularly not in the versions provided to early adopters before the bugs are worked out. If crashes are eventually seen as compensable, users naturally will tend to arrive at a high valuation of what they think their crashes have cost them. Even glitches whose only cost is lost time and annoyance add up fast as sources of potential compensation. Who hasn't wasted at least a couple of hours struggling with the infelicities of the typical $60 software program?

In fact, it wouldn't require invoking an exaggerated valuation of the cost of time to imagine a typical user as experiencing the aggregate impact of bugs and klutzy design in a $60 program as an implicit cost far in excess of the original $60 outlay. If silicon-economy providers are indeed to be forced to insure their customers against that risk, they'd better take care to build a premium for such insurance into the price of the product--which means charging a good deal more than $60 in the future. Maybe they'd better charge $250, in fact, and set aside the surplus as an escrow against future claims. With tempting settlements like Toshiba's now on the table, you can bet teams of clever lawyers are sifting through bug reports in search of the next likely targets.

There is one legal principle that stands between Silicon Valley and the series of unpleasant effects that would result from an extension of liability, ranging from steep price hikes on techie components to slower (i.e., more "careful") introduction of new products and applications. That legal principle is the good old one known as "freedom of contract."

Indeed, makers of computer products have long tried to protect themselves from litigation by way of "shrink-wrap" disclaimers through which customers agree, as a condition of using the product, not to pursue open-ended liability claims later (lately updated to "first-screen" disclaimers in which they click "OK" to an agreement not to sue before being given access to the product).

Trouble is, the plaintiff's bar has never conceded the validity of shrink-wrap disclaimers; in fact, it vigorously disputes them. It points out (correctly) that such disclaimers would be viewed as virtually unthinkable in the case of many older industries: Imagine if Chrysler tried to shrink-wrap a minivan, requiring buyers to promise not to sue for unlimited damages over later discontent with the vehicle. Why, it would be...it would be a return to the days of laissez faire!

On the strength of a barrier as thin as cellophane may depend the difference between the relatively unlitigious Silicon Valley of today and an overcautious, overlawyered version that might replace it a decade from now. If we're to avoid that prospect, someone from the Valley is going to have to stand up for the principle of freedom of contract, as a principle. Any nominees?