Legal Myths #6 and 7– The U.S. is very litigious and that is too threatening to a small company like
This article first appeared on the EACCNY website. It is part of a series of articles written by Marc S. Friedman, Director of Professional Relations at Global Commerce Education, Inc. as a collaboration with the European American Chamber of Commerce in New York.
In the most recent article in this series, I explained how many non-US companies, including Baltic businesses, are discouraged from exploiting a robust US marketplace by Myth #5 –If we enter the US we may be jeopardizing our valuable intellectual property. In this installment, I will address Myths #6 and 7 which are related – The US is very litigious and that is too threatening to a small company like ours. As a result, the risk of liability and lawsuits relating to our products and/or services is too great. Like the other Myths, this one, too, is easily debunked.
There is a common misconception that the U.S. is the most litigious nation in the World. This is simply untrue. While it’s true that the U.S. has a large number of lawsuits crowding its courts each year, it barely cracks the Top 5 of most litigious countries in the world. In his book, “Exploring Global Landscapes of Litigation,” Christian Wollschlager notes that the litigation rates per 1,000 people shows that European nations top the list of the world’s most litigious countries. Here is a list of the top 5 most litigious countries by capita: 1. Germany: 123.2/1,000 2. Sweden: 111.2/1,000 3. Israel: 96.8/1,000 4. Austria: 95.9/1,000 5. U.S.: 74.5/1,000. The Top 10 also includes the UK (64.4); Denmark (62.5); Hungary (52.4); Portugal (40.7); and France (40.3).
As you can see, the risk of lawsuits in the U.S. is less than in Germany, Sweden, Israel, and Austria, and not much greater than the other countries listed in the top 10. Simply stated, Americans are not as litigious as many believe. While the large verdict against McDonalds for serving hot coffee received enormous publicity, that judgment was significantly reduced on appeal and the plaintiff spent the rest of her life being ridiculed.
Apart from the favorable statistics, there are at least three additional reasons why European companies should not be dissuaded from doing business in the US because of the risks of litigation.
First, generally speaking, sales or leases of products are governed by s statute commonly known as the Uniform Commercial Code or UCC which is a state statute adopted by all 50 states, the District of Columbia, US territories and even some Native American tribes that have jurisdiction over tribal lands. This statute provides a seller or lessor of products, including software, with several contract drafting techniques which, if followed can substantially reduce the possibility of product liability lawsuits and large damages awards. And this is equally true for providers of services although, generally, it is the common law that governs and not the UCC which applies to products.
Second, all courts have rules that greatly discourage the filing of frivolous or baseless lawsuits. Plaintiffs who file such lawsuits, and sometimes even their lawyers, can be subject to serious sanctions and penalties including monetary fines and damages.
Third, the availability of many kinds of insurance coverages also can significantly reduce the chances of a European company being sued or having to pay a large judgment relation to their goods or services. Such coverages include generally liability insurance, errors and omissions insurance, intellectual property infringement insurance, and many other types of coverages.
As you can see, the possibility of lawsuits and judgments, while certainly existing, is not a sufficient reason for a European company to refrain from coming to the US. As noted, Americans are not as litigious as many think. Plus there are safeguards that exist to protect companies against frivolous or baseless lawsuits, and even the correct mix of insurance coverages can significantly reduce the risk of a judgment.
In the next installment of this series I will address Myth #8 – The possibility of many employee lawsuits scares us.
Compliments of Global Commerce Education, a member of the EACCNY