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Pentium Chip Flaw Could Leave Intel Liable for Damages


SEATTLE — In an ominous new twist to the Pentium chip controversy, computer users in corporations around the world are rushing to establish whether a flaw in the Intel microprocessor may have resulted in miscalculations that could make them vulnerable to lawsuits or trouble from government agencies.

The Food and Drug Administration told drug companies earlier this week that it is concerned about the accuracy of data on clinical trials for new drugs that might have been generated on computers using Pentium chips.

Smith Barney, a New York securities firm, has demanded that IBM replace Pentium chips in 600 of its personal computers because of concern that miscalculations could draw the ire of the Securities and Exchange Commission and generate lawsuits, according to an article in today's issue of InformationWeek, an industry publication.

Meanwhile, a growing number of individual entrepreneurs concerned that the flaw might affect activities ranging from fund management to bookkeeping are pushing Intel Corp. for chip replacements. Intel's stock dropped $1.75 to $58.625 on Thursday on rumors that the trade journal Infoworld would print test results showing a higher error rate than that disclosed by Intel.

Intel acknowledged last month that its flagship Pentium microprocessor had a bug that could cause errors in some math calculations. The company insists the errors will almost never occur in the real world, but IBM Corp. said Monday that it was halting shipments of Pentium PCs because the problem is worse than Intel says.

Legal experts said Thursday that miscalculations resulting in economic loss, particularly in the five months between the time Intel discovered the flaw in June and when it was publicly disclosed in November, could leave Intel liable for damages.

"If there is misrepresentation about the product, there is recognized tort for recovery of economic loss," said Robert Rabin, a Stanford University law professor.

Rabin noted that Intel's concealment of the flaw and the computer users' legitimate assumption that they could depend on the computer for critical calculations could give the users a strong case against Intel.

Intel said it is not concerned. "Heavy-duty users are rechecking their calculations all around the world," said Howard High, an Intel spokesman. "So far, Prof. (Thomas) Nicely is the only person who has seen a problem in a real calculation." Nicely is the Virginia mathematics professor who discovered the flaw.

Some lawyers argue that Intel is liable for damages regardless of whether the chip has caused errors in miscalculation. Bill Audet, a San Francisco attorney, has filed three class-action suits against Intel in Santa Clara County.

Intel initially said the flaw would cause a miscalculation only once in 27,000 years. IBM suggested errors could occur as often as once in 24 days. After further testing, Intel said it has come up with new numbers based on a collection of spreadsheets used by businesses that suggest that for heavy users, errors could occur once in 2,700 years, 10 times more often than its initial estimate.

Nevertheless, in a sign of the extent to which Intel chips have become a basic engine of the economy, worries about their performance are spreading.

The Pharmaceutical Research and Manufacturers Assn., a group representing about 100 drug firms, sent out a notice to its members on behalf of the FDA expressing concern about test data that might have been generated on Pentium PCs.

"The FDA hasn't told the companies what to do, they just said they were concerned," said spokesman Steve Berchem. Berchem said he expects the FDA to be more specific in a note to be published soon in the government's Federal Register.

Smith Barney declined to comment on reports that it has already replaced the Pentium processor in 200 of its 600 machines and will replace the rest by year-end, in part because of concerns about the SEC's stringent demands for accuracy in financial reporting.

SEC spokesman John Heine confirmed that computer errors are not a legitimate excuse for misreporting data. "Whether you use a paper and pencil or a Pentium chip, it doesn't matter; it has to be accurate," he said.


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