In 1998, Year 2000 problems should be the number one priority for companies that manufacture or use equipment. Although members of this industry are aware of how the Year 2000 problem impacts mainframe computers, PC computers and software, the real Year 2000 issue confronting equipment manufacturers or users relates to embedded chips.
Microchips are critical to these industries, both because they are the basic controls that run factories, but also because embedded microchips are in the control systems that operate the cranes, lifts, hoists, assembly lines and other equipment manufactured and used by most of corporate America. It is critical, in 1998, that companies recognize the possibility that assembly lines and devices may include embedded computer chips that cannot transition to the next century.
Microchips with embedded program code perform time and date functions in automated devices and processes. In 1996, there were 7 billion microchips sold.
At present, there are 25 billion embedded electronic chips in operation in machines and process control systems throughout the world. In this country, embedded electronic chips run nuclear power plants; telecommunications and GPS satellites; oil and gas pipelines; electronic generating equipment; transmission lines; telephone and fax systems; telecommunication cables; flow meters in underground pipes; process control systems in factories, hospitals; elevators; air traffic control systems; radar systems; traffic lights; HVAC systems; ATM cards; card key systems; safes; vaults; electronic door locks, and many other devices.
Of these 25 billion embedded chips, more than 50 million chips are expected to have Year 2000 date anomalies. Manufacturing companies must find these embedded chips, test them for Year 2000 problems and replace non-compliant chips.
Chip testing presents a special challenge. Unit testing rather than model testing may be required. There is a widely circulated story about a multi-national pharmaceutical company with two identical assembly lines, bearing the same model number, purchased at the same time, from the same manufacturer. Both assembly lines were tested for Year 2000 compliance by setting the clocks forward to December 31, 1999. One was compliant, and the other was not. The non-compliant assembly line simply ceased to function, because non-compliant chips in the control box could not process a date containing ‘00. Companies testing their assembly lines have found that even devices purchased in the last year or two may not be Year 2000 compliant. Chip manufacturers were selling computer chips with a two digit year code in the clock function in 1996 and sometimes as late as 1997.
There is a wealth of information on the Internet about Year 2000 compliance. One popular Website called Project Damocles (http://www.year2000.com/archive/damocles.html) is soliciting information from working employees about the Year 2000 compliance of their employers. Project Damocles has already successfully solicited from employees throughout the world information on public safety hazards, that may be created by non-compliant computer chips which run process control systems. It is certainly within the realm of possibility that employees in the material handling industry have reported potential chip failures to Project Damocles.
Among the many reports which currently appear on the Internet is a report that a certain named manufacturing company has found that 50% of its assembly lines are not Year 2000 compliant, that chlorine gas detection equipment in an unnamed plant is not Year 2000 compliant creating a risk of explosion and that certain specified models of medical devices will cease to function on January 1, 2000.
Against this backdrop, Reed Smith Shaw & McClay LLP recommends in 1998, that companies undertake a seven step program with regard to computer chips.
1. Assess each company’s Year 2000 embedded chip problem. This embedded chip problem appears in three places:
a. in manufacturing systems and assembly lines;
b. in new products that the company manufactures today; and
c. in old products in the hands of customers.
2. Prepare a plan for dealing with the embedded chip problem. Decide, with the assistance of counsel, how to handle devices that are already in the hands of customers (consider customer notifications, customer letters and whether the company has a legal obligation to make a post-sale warning. If you are a regulated company (FDA, CSPC) check the agency’s guidances and WEB sites. Each company might also want to check the Project Damocles Website to see if the problem is already public). Test and fix non-compliant assembly lines. Get iron clad warranties from chip manufacturers that new chips purchased in 1998 are Year 2000 compliant.
3. Put all computer chip suppliers on notice today that the company needs information immediately about chips that were supplied in prior years and which are included in products already in the hands of customers.
4. Consider legal rights against suppliers and chip manufacturers.
5. Where appropriate, enter into Tolling Agreements to toll the statute of limitations with suppliers and chip manufacturers who supplied non-compliant components.
6. Undertake a product liability and business damages risk assessment for products that are already in the marketplace. If a machine ceases to function because of non-compliant chips, will it cause personal injury to users of the device or will a factory or business cease to operate? Will the problem only occur on January 1, 2000 or can customer’s expect failures and possible injuries on a later date in 2000?
7. Determine whether the company has insurance coverage and, if so, when it should notify the insurance carrier of any losses.
Conclusion
Year 2000 embedded chip problems will be a serious issue for industry in 1998. This is an issue which cannot be delegated solely to the engineering department. These issues demand the attention of counsel and of the officers and board.