Toshiba settlement could fund host of PC lawsuits

Toshiba's recent billion dollar-plus settlement of a class-action suit could well spawn a host of similar suits as the plaintiffs now have a way to fund the litigation.

3 min read
Toshiba's recent billion dollar-plus settlement of a class-action suit could well spawn a host of similar suits as the plaintiffs now have a way to fund the litigation.

Flush with a reported $147 million war chest and lots of firepower from the Toshiba suit--which alleged that Toshiba sold notebooks with defective floppy drives--the Beaumont, Texas, law firm of Reaud, Morgan & Quinn now has the means to file suits against other manufacturers. That process has already started, as the firm has filed suits against six companies (including Toshiba). It could use the same set of facts to file suits against 13 more, sources said.

And, although more suits may lead to more refunds for consumers, what individuals eventually get may not be huge. Although the plaintiff's lawyers stated that Toshiba settled the case for $2.1 billion, Toshiba puts the figure closer to $1 billion, a figure that includes legal fees and costs. About $600 million is being set aside for consumers, who will receive coupons for cash or Toshiba products.

If funds go unclaimed, the remainder will go to charity, Toshiba said.

The company settled the class-action suit late last week, which alleged Toshiba sold notebooks with faulty floppy drives capable of deleting or corrupting data without warning.

The wheels of justice began cranking almost immediately. Sunday evening, Reaud, Morgan & Quinn, which cut its teeth on trials involving asbestos and big tobacco firms, filed class-action suits against Compaq Computer, Emachines, Hewlett-Packard, NEC, and Packard Bell NEC.

Legal experts speculate Toshiba backed down only six months after receiving the suit for a couple of reasons: Texas is one of a handful of states notorious for handing out generous plaintiff verdicts and the stature of the attorneys bringing the suit.

"There's?something of a trend of more generous verdicts out there, especially when you have out-of-state defendants," said David Levine, a law professor at the University of California at Berkeley. "Texas and Alabama are the ones that stick out."

Toshiba possibly feared a much bigger loss, Levine said. "It looks like a lot more than nuisance value," he said of the settlement.

Getting a settlement from the new parties, however, could pose some problems. One company, Emachines, claims it didn't use the microcontrollers that caused the faulty disk drives. Houston-based Compaq vowed to fight its suit, but the other litigants had yet to see the suits last night and would not comment.

Another litigant, Packard Bell NEC, said it would greatly scale back operations and lay off 80 percent of its workforce. In addition, few reports of actual losses or damage from the faulty drives have been reported.

"Just because the attorneys get it right once, doesn't mean they get it right the next time," said Rich Gray, intellectual property attorney with Outside General Counsel of Silicon Valley.

"The attorneys are now flush with cash to take up the next fight and have the wherewithal to go out and do it again. I expect through their own technical experts and through discovery they may also have developed a lot of information," Gray added. "They will have developed a family tree, if you will, of how that technology was used in other products."

A sign that the law firm is planning a big fight with lots of defendants is its exaggeration of the settlement, sources said. The firm proclaimed a $2.1 billion settlement, but Toshiba estimates it will pay out no more than half that.

Court to set rebate price
The settlement, which is not yet finalized, offers a complicated compensation process. The company will post final terms of the deal on November 10, as well as a free software patch to fix the faulty floppy drive, Toshiba said. To collect anything, Toshiba notebook owners must produce proof of purchase.

Those who bought a Toshiba notebook on or after March 5 may be eligible for a cash rebate, which will be adjusted based on the appreciated value of the portable, Toshiba said. The court will determine the amount sometime in the next week.

Toshiba expects to have the revised floppy control in all models manufactured after November 8.

Coupon settlements can have the effect of inflating the value of a settlement or verdict, Levine noted. "Coupons may not be particularly beneficial," he said, "You're going to see a very small percentage of coupons ever coming back."