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October 31, 1999

Toshiba Faces $1bn Costs for “Faulty” Floppy Controllers

By CBR Staff Writer

Toshiba Corp faces a pay-out of up to $1bn to owners of its PCs in the US after settling a class action suit in a Texas courtroom over allegations of faulty floppy disc controllers (FDC). While Toshiba denied liability, fears that it could face a substantial amount of compensation if the case went before a jury, led it to settle the action. As a result of the case, Tokyo-based Toshiba Corp has increased its forecast of net losses for the current financial year to March 31 from $144m to $480m.

The settlement is expected to send a nervous tremor through hardware manufacturers as the case could bring a rash of copycat actions and they could end up paying the kind of settlements traditionally associated with automobile manufacturers.

Toshiba has the third largest share of the US PC market and up to 6 million machines may be affected by the judgement. The company says that the FDCs at the center of the judgement were made by NEC Corp. Other PC manufacturers may therefore be affected by the decision but no-one at NEC was available for comment.

Under terms of the deal, even owners of Toshiba PCs that were out of warranty on March 5 this year will get a $100 coupon that can be spent on Toshiba products. Owners of PCs under warranty will get a coupon worth either $225 or $200, depending on whether they choose a software patch or hardware solution to a problem that Toshiba denies exists. Recent purchasers of Toshiba PCs can get their money back and Toshiba says that from November 8 it will incorporate a new FDK in PCs for sale in the US.

The court action was brought by two individuals who claimed that a condition in the microcode for the FDC could cause data to be lost or corrupted as it is written to the floppy disk. Toshiba still denies that its PCs have technical problems and says it is not aware that the operating restriction on its FDC has ever resulted in the alleged data loss or data corruption.

Toshiba backed off going to a full trial when it realized the enormous figures that could be awarded in a class action. It has however, put considerable spin on the enormous settlement by saying that it wants to ensure its customers that the Toshiba brand name merits their trust.

What worried company executives was the thought of a long-running court case damaging its reputation as it battles it out with market leaders Dell and Compaq – and the possibility that the unpredictability of juries could lead to a far larger payment when the case was over.

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