Old enemy, new battle for high-tech world

Andrea Orr

PALO ALTO: California's high-tech companies would seem to have their hands

full battling this year's stunning economic downturn and the statewide power

emergency.

But the industry now says it faces an even more insidious threat.

A group of Internet startups, venture capital firms and some of the world's

biggest computer makers have united against some new legislation pending in

California that would do away with the confidentiality agreements that typically

let businesses keep all their messy court proceedings out of the public eye.

"It would have a devastating impact on our industry and on the

California economy," John Doerr, partner with the prominent Silicon Valley

venture capital firm Kleiner Perkins Caufield & Byers said earlier this week

at a press briefing where he was joined by other industry heavyweights.

"These proposals would cost the state jobs and discourage innovation."

Doerr said he had not seen the industry so united against a common threat

since 1996, when it defeated a state proposition that would have allowed

shareholders to sue individual company officers when their predictions about

future results turned out to be wrong.

The only real winners when such laws get passed, Doerr insisted, are the

trial lawyers, who get more leeway to bring frivolous lawsuits. May be. But back

in 1996 there was at least a very clear threat to high-tech companies who

routinely discussed their operations and their business outlooks and were

without question vulnerable to the whims of the market.

Now, however, it's harder to see why companies that build things like

printers, semiconductors or Web sites need to be so concerned.

Tires, not microprocessors



Some of the backers of the bills currently under attack say they are frankly
baffled to have so much opposition from an industry that rarely gets involved in

any injury or wrongful death lawsuits in the first place. They say all they are

asking is that consumers are allowed to know when a company is sued for a

dangerous or faulty product.

The celebrated Erin Brokovich story of a big utility polluting a community's

drinking water is one such example of a court case that would be subject to

public disclosure under the pending laws. The ongoing Bridgestone/Firestone

litigation over faulty tires is another.

"Secrecy agreements can have tragic consequences," explains the

bill pending before the California State Senate. "For many years,

Bridgestone/Firestone Inc. knew about ... dangerous defects, but kept the

information out of the public eye by secretly settling many lawsuits brought as

a result of crashes related to defective tires."

It is hard to find a more compelling argument in favor of public disclosure.

In fact, California State Senator Martha Escutia who authored the Senate bill

issued a statement Tuesday saying it appeared the high-tech industry and its

political arm, TechNet, had simply misread the legislation. She noted that trade

secrets, the main asset of companies dealing with intellectual property, would

not even be covered by the bill.

Not so simple, say the powers at TechNet. Michael Morris, General Counsel at

Sun Microsystems Inc. stresses that along with injury and wrongful death

lawsuits, the bill also covers litigation for defective products, financial

fraud, unfair insurance claims practices and environmental hazards - effectively

leaving a wide-open window that would in effect cover any kind of lawsuit.

Only the paranoid survive



"Think back to how many times you have sent an e-mail where the first line
discussed a business matter and the second line related to the health of a

spouse, or some other personal matter," said Morris. "That document,

in it's entirety, would be covered by these bills, meaning the public would be

able to see it all."

And, consistent with the standard big business argument against any sort of

consumer litigation, opponents in the high-tech world say the bills now pending

would bring little real consumer protections. Rather, they would clog the courts

with a multitude of new documents in need of review for public disclosure. The

cost of doing business in California would go through the roof and companies

would lose guarded secrets such as business plans, competitive analyses and

drafts of merger agreements.

Still, lawmakers maintain they were just never really thinking about the

high-tech world when they drafted these bills. Some suggest that in an industry

where paranoia is often regarded as a virtue, some people may be overreacting,

or just missing the point.

"Next to the 'clogging the courts' argument, the 'frivolous lawsuit'

argument always seems to be the most popular," said State Assemblywoman

Sheila Kuehl, who co-authored the assembly bill. "I certainly don't think

that consumers bring cases just so they can find out some mad software king's

secrets," she said.

(C) Reuters Limited 2001.