''Strike Suits''

    Class action litigation often involves lawyer-generated suits challenging asserted misconduct that caused no real injury. Although the amounts at stake in these cases for individual class members are small, the enormous size of the classes, along with the unpredictability of juries in some jurisdictions, makes such suits ''bet the company'' propositions for the defendant. This reality, combined with the substantial expense of litigating a massive class action (often on several fronts), can place significant pressure on the defendant to settle, regardless of the merits.

    Intel has had experience with this problem. For example, one of the sets of suits I mentioned earlier involved Intel's original Pentium processor. Despite extensive pre-production testing by Intel and major computer manufacturers, the initial version of the Pentium processor contained an undetected flaw. Intel's scientists determined that the problem would arise approximately once in every nine billion random division operations, which was tantamount to once in 27,000 years for the average spreadsheet user. In fact, after millions of processors were shipped, there was only one confirmed instance of a user encountering the flaw: a mathematics professor who was doing theoretical analysis of prime numbers noticed reduced precision at the 9th place to the right of the decimal in specific, rare circumstances. His observation was posted on the Internet, drawing public attention in early November 1994.

    On December 1, 1994, Intel announced a ''lifetime replacement policy'' whereby it would ''supply an updated version of the Pentium processor to replace the original version free of charge'' for every user who wanted one, regardless of actual need. Intel widely publicized its replacement policy, distributed a computer program to enable users to determine whether their processors were flawed, expanded its toll-free telephone call center to handle inquiries, and established a nationwide network of local service centers to assist with replacements.

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    On December 2—the day after Intel announced its lifetime replacement policy—the class action complaints began to appear.(see footnote 7) In all, thirteen class actions were filed in a three week-period in state courts in Chicago, Detroit, Denver, Camden, New Jersey, and San Jose, California, as well as in the federal district courts in Colorado and California, all alleging the same facts, all asserting essentially the same claims, and all purporting to be class actions on behalf of the same nationwide class of consumers. When these multiple class actions were settled in March 1995, Intel confirmed only that it would continue to offer free replacements, maintain the service centers, operate the toll-free telephone numbers, and provide the diagnostic computer programs—all of which Intel was doing before the settlement. The plaintiffs' lawyers, meanwhile, received fees of $4,272,969 (in addition to costs of approximately $127,000). These sums do not include Intel's expenses in defending the litigation.

    A similarly abusive set of class actions was triggered by an Intel press release, issued on January 5, 1996, announcing that, as a result of a single error in a pre-release (''beta'') version of compiler software (the error essentially being one misplaced parenthesis among hundreds of thousands of lines of programming code), the results of one particular ''benchmark'' test on 100, 120 and 133 MHz Pentium processors were incorrect. The performance yardstick affected was not widely used and was almost certainly not used by consumers in making purchase decisions. The erroneous benchmark results were never available in any consumer publication or on Intel's Web site, and at all times Intel's web site provided dozens of other benchmarks that were accurate and were of more relevance to consumers. A small article appeared in the New York Times on January 6, quoting an independent expert as saying that ''[i]t was an innocent mistake.''

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    Two business days later, however, the first class action was filed alleging that Intel had engaged in false and misleading advertising by releasing erroneous test results. Ultimately, seven class actions were filed, including five in a nine-day period, in the state courts in San Jose, Chicago and Camden. The cases eventually were settled, with class counsel receiving $1,489,000 in fees. Again, this number does not include Intel's own litigation costs in defending against suits.

Confusing Class ''Opt-Out'' Notices

    Because class members are bound by the terms of a class settlement unless they affirmatively ''opt out'' of the class, it is essential that all members of the class receive a description of the settlement that is intelligible and comprehensive. Yet class members often are sent notices that are easily mistaken for junk mail and that, on examination, are virtually incomprehensible. I don't think I exaggerate when I say that most of us in this room have received such notices, and that many recipients find the notices impossible to understand. For example, if any of you rent movies at Blockbuster, you probably were handed a two-foot long receipt full of legalese at some point advising you of the proposed terms of a class action coupon settlement in Jefferson County, Texas. Here is an excerpt:

If the proposed settlement is approved, class members will receive compensation in the form of certificates to be used toward certain rentals or non-food purchases, including some or all of: (1) $1.00 off any rental or non-food purchase; (2) free ''Blockbuster Favorites'' and five-day rentals; and (3) rent-one-get-one-free rentals. If class members paid extended viewing fees between April 1, 1999 and April 1, 2001 in an aggregate amount (1) equal to or lesser than $30; (2) between $30 and $60; or (3) over $60, they will receive certificates worth approximately $9, $13, and $20, respectively, upon the submission of a valid Class Settlement Claim Form (available at www.blockbuster.com or by calling 1.800.224.2703) by December 15, 2001 or upon the completion of a transaction in a Blockbuster company-owned or participating franchise store during the Certificate Period, which shall be a 120-day period to occur within 12 months of a final nonappealable judgment. Settlement Class members who did not pay extended fees to Blockbuster between March 1, 1998 and November 15, 2000 must submit a valid Class Settlement Claim Form by December 15, 2001, to receive certificate consideration. Class members must also submit a Class Settlement Claim Form to receive certificate compensation for fees paid to Blockbuster for the nonreturn of rental items. Nonreturn fees shall be treated as extended viewing fees for the purpose of determining which of the three certificate levels a class member will receive. Members may use the certificates during the Certificate Period.