From the NY Times:
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Product Liability Lawsuits Are New Threat to Microsoft

October 6, 2003
  By STEVE LOHR

Trial lawyers have watched with increasing interest in
recent months as malicious computer viruses and worms - all
exploiting security flaws in Microsoft software - have
crashed computers and networks around the world. It is only
a matter of time, they said, before the class-action suits
against Microsoft start dropping.

The first came last week, filed in State Superior Court in
Los Angeles, asserting that Microsoft engaged in unfair
business practices and violated California consumer
protection laws by selling software riddled with security
flaws. The suit seeks class-action status. More such suits
are anticipated.

The litigation, legal experts said, is an effort to use the
courts to make software subject to product liability law -
a burden the industry has so far avoided and strenuously
resisted.

"For a software company to be held liable would be a real
extension of liability as it now stands," said Jeffrey D.
Neuburger, a technology lawyer at Brown Raysman Millstein
Felder & Steiner.

To date, software companies have sidestepped liability
suits partly by selling customers a license to use their
programs - not actual ownership - with a lengthy list of
caveats and disclaimers. So the warranty programs offered
by PC makers, for example, cover hardware but not software.

The industry has argued that software is a highly complex
product, often misused or modified by consumers. Assigning
responsibility for a failure, the argument goes, would be
unfair to any single company.

Besides, software executives say, the industry is a
fast-changing global business that is largely led by United
States companies. Opening the industry up to product
liability lawsuits, they say, would chill innovation and
undermine the competitiveness of American companies.

Yet whether the software industry can remain beyond the
reach of product liability is still not certain. The modern
economy - from office work to financial markets to power
grids - depends increasingly on software. And the trial
lawyers are not the only ones who think software makers
should face stronger incentives to create products that are
more reliable and secure.

Outside of the courthouse, regulations and legislation may
also be deployed to prod the industry toward more secure
software. A report last year by a National Academy of
Sciences panel, made up largely of computer scientists from
universities and companies, included the recommendation
that "policy makers should consider legislative responses
to the failure of existing incentives to cause the market
to respond adequately to the security challenge."

The debate over software liability seems certain to become
more intense, computer security experts say, and some shift
toward holding software makers responsible for defects may
be inevitable.

"The broad issue is, as a matter of policy, do we want
suppliers of products and systems that are critical to our
economy to be able to absolve themselves of all liability,"
said Mark D. Rasch, a former federal prosecutor who is a
senior vice president of Solutionary Inc., a computer
security firm.

But class-action suits against Microsoft over security
matters, legal experts say, will be hard-fought and
difficult to win. Such cases are trying to break new ground
in a way that recent class-action antitrust suits against
Microsoft, for example, did not.

In the antitrust cases, the class-action plaintiffs filed
in the wake of the landmark federal case that found the
company was a monopoly that had repeatedly abused its
market power. Microsoft has tried to settle its antitrust
class actions, including agreeing to pay a $1.1 billion
settlement in California earlier this year.

Microsoft, by contrast, has suffered no reverses in court
that would establish any liability for flawed software. In
the current case, it is conceding nothing. Microsoft issued
a statement saying that developing the most secure software
possible was a top priority for the company.

"This complaint misses the point," the Microsoft statement
added. "The problems caused by viruses and other security
attacks are the result of criminal acts by the people who
write viruses."

The suit was filed by an experienced product liability
lawyer, Dana B. Taschner, on behalf of Marcy Levitas
Hamilton, a Los Angeles film editor, and other members of
the proposed class.

The 19-page complaint is a broad-brush document arguing
that Microsoft's Windows operating system, which runs 90
percent of all personal computers in the world, is poorly
designed, flaw-ridden, and that the company ships software
it knows is riddled with security flaws. The complaint adds
that Microsoft's system for warning the public of security
problems is so confusing and technically complex that it is
of little use to the ordinary computer user.

Because of Microsoft's insecure software, the complaint
asserts, Ms. Hamilton suffered identity theft - someone
obtained unauthorized access to her Social Security number
and bank account information, which was stored on her
computer.

Still, a big hurdle for class-action plaintiffs, legal
experts say, will be the standard software license. It is
what all computer users see and click to agree to - even if
they seldom read it - when they start a new machine or load
a new software program. For the plaintiffs to prevail, a
judge will have to rule, in effect, that the software
license is unenforceable or is overridden by another
standard, like the "fit for intended use" rule that applies
to most consumer products.

Class-action lawyers say they are confident that this
standard will eventually be applied. "As a matter of
policy, I think the courts will find that software
companies have basic obligations to provide a product that
does what it is supposed to do," said Terry Gross, a
partner of Gross & Belsky, a firm in San Francisco. "And
that the companies cannot avoid those obligations just
because of the language in the license."

http://www.nytimes.com/2003/10/06/technology/06SOFT.html?ex=1066448642&ei=1&en=15810b4f6ce93d58


Copyright 2003 The New York Times Company

--
Tom Brandt
Northtech Systems, Inc.
130 S. 1st Street, Suite 220
Ann Arbor, MI 48104-1343
http://www.northtech.com/

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