Texas lawyers scare Toshiba out of $1.2 billion

A group of aggressive Texas-based attorneys has apparently scared laptop producer Toshiba out of $1.2 billion in a class-action lawsuit that appears to lack credible evidence that any serious damage was caused by an allegedly faulty floppy disk drive controller chip. Toshiba announced it has reached a $1.2 billion in the out-of-court settlement with the attorneys representing five plaintiffs, two of whom are also lawyers in the case.

Toshiba was accused of having knowingly used a floppy disk drive with a faulty controller IC in some 5 million of its laptops sold in the United States during the last 18 months. The controller supposedly caused damage to data on floppy disks. Upon concluding the settlement with Toshiba, the team of lawyers immediately filed four new similar lawsuits in a Texas Federal District Court against NEC/Packard Bell, Compaq, Hewlett-Packard and eMachines.

As part of the settlement, Toshiba will issue refund coupons worth between $100 and $200 to the 5 million customers for laptops sold since March of 1998. Toshiba has also agreed to pay some $120 million to the group of lawyers to settle their legal expense claims. In return for the settlement, Toshiba does not have to admit any liability for the problem in which a faulty drive controller chip reportedly causes damage to floppy data disks. The company will also provide a software patch or hardware fix fort he problem.

At NEC, company officials say they will fight the lawsuit because no defects like those attributed to the Toshiba floppy drives were found in systems it has sold in the United States. Even Toshiba said it was not aware of any damage caused by the defect. But the company decided to settle because there was a similar case that resulted in a large damage award to the plaintiffs. To avoid exposing itself to such liability, the company decided to accept the settlement terms. At Compaq, Compaq spokesman Alan Hodel said the company has no intentions of settling and will vigorously defend itself instead. "We believe the vague claims that are outlined in the complaint are completely baseless and without merit. We're confident that Compaq products have no such problem.''

In all of the cases, the PC producers are accused of having knowingly let PCs equipped with faulty floppy-disk drives to be sold. The lawsuits also seek a court injunction that would prevent the four companies from producing ands selling any of the products containing the faulty devices. Compaq officials said they are not likely to capitulate as easily as Toshiba. "The complaint filed against Compaq appears to be a copycat suit filed in an attempt to exploit the settlement with Toshiba. The issues raised in that suit dealt with microcode problems specific to Toshiba laptop computers," said Hodel.

At eMachines, officials said they were caught completely off guard. Spokeswoman Pattie Adams said the lawsuits deal with floopy drived for laptops, which eMachines does not produce. "This doesn't really apply to us. It appears to be about technology from before we were even established.'' One of the lead attorneys in the cases is Wayne Reaud, one of several attorneys who represented the State of Texas in lawsuits against the U.S. tobacco industry.

Ironically one of the two lawyers who is doubling as a plaintiff is David Packard, the same name, but not relationship to the co-founder of Hewlett-Packard which is also being sued by the group. Analysts said they were surprised Toshiba seemed to have fallen for what almost seems like a legal scam that used a legal precedent case to scare the company into a settlement.