Here is are some examples: Reports issued last year on the competitiveness of U.S. capital markets found that the ability to bring broad securities class actions in the U.S. was a factor in a foreign company’s decision to list or trade in the United States. In fact, a 2007 Financial Services Forum study found nine out of every ten foreign companies who de-listed from a U.S. exchange in the last four years said the litigation environment played a role in that decision. Foreign companies are not the only ones de-listing from the U.S. or choosing to go elsewhere – U.S. companies are doing the same. The percentage of U.S. companies going public oversees without also listing at home jumped from less than one percent a decade ago to over nine percent today.
While most people think the filing of lawsuits are “victimless” acts because they target huge, faceless corporations, the fact remains that small U.S. businesses are getting hit with a bill for $98 billion every year to pay for tort costs. If small businesses are the backbone of our economy, then abusive lawsuits are throwing America’s spine out of whack.
The U.S. Chamber Institute for Legal Reform released a Harris Interactive survey last year revealing that three-quarters of small business owners are worried about becoming the target of a frivolous or unfair lawsuit, and that 34 percent of them had a suit filed against them in the past 10 years. Of those who are most concerned, six in ten say the fear of lawsuits makes them feel more constrained in making business decisions generally, which has led to them make their products and services more expensive or to lay off employees.
In the same survey, we asked small businesses owners how they would grow their businesses if they felt like they were protected from lawsuit abuse. Their answers included improving their facilities or buying new equipment, increasing wages and benefits for their current employees and hiring new employees.
They also said that, if protected from frivolous lawsuits, they would be willing to invest more into developing new products or services. Instead, companies are diverting resources from productive purposes into legal and settlement costs. Using a large company as an example, the drug maker Wyeth spent $25 billion on legal costs and reserves between 1999 and 2004, but only invested $19 billion in researching and developing new life-saving or life-improving pharmaceuticals. And more recently, the automaker Volkswagen decided that the threat of liability was too great to offer a new “lane assist” feature in the U.S. that would save lives by guiding a car back into the lane if it senses drifting.
So not only are lawsuits taking money out of our economy, they are also preventing new products and services from ever seeing the light of day.
As recent reports on the capital markets demonstrate, the U.S. is no longer the only game in town. We live in a global economy, and it is time to ensure the lawsuits we laugh about do not cause the competitiveness of our economy to slip beyond repair. America is a world leader because of our ability to adapt and innovate. Now is the time to fix our broken lawsuit system before more of our economy falls victim to lawsuit abuse.
Lisa A. Rickard serves as president of the U.S. Chamber Institute for Legal Reform (ILR), where she provides strategic leadership to ILR's comprehensive program aimed at changing the legal culture that has resulted in our nation's litigation explosion.
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