The US Legal System: Strong Legal Certainty, Even for Small and Mid-Sized Businesses

This article is part of our fact-check series on entering the US market. In it, we cover some of the most important facts about the expansion of non-American companies into the States. Because the legal frameworks in Europe and North America differ, misjudgments are common unless you look closely at the subject.

This is about liability and litigation in the United States. We take a close look at everything foreign entrepreneurs need to keep in mind.

1The legal framework for doing business in the USA

There are legal differences between the USA and Europe, and some risks work differently there, such as how litigation costs are split and how high damages claims run. These are higher in the States on average, but very large punitive awards (by European standards) are only imposed when, for example, someone acted with gross negligence against safety standards or even put people's health at risk for financial gain. Leave such extreme cases aside and you can reduce the risks to a minimum. That of course takes thorough preparation for the legal situation in the USA, which for larger investments and in doubtful cases should always be done with the help of specialized attorneys.

Keep a few points in mind and you can plan your move abroad with far more peace of mind from day one.

In many cases, for example, you can do without a US subsidiary, which makes it harder to sue a European company. If a subsidiary is needed, its ties to the parent company can be structured so that the parent carries fairly limited liability in the USA. That lowers the risk of a successful lawsuit accordingly.

The sale and leasing of products is generally governed by a law commonly known as the Uniform Commercial Code (UCC). It has been adopted by all 50 states. The UCC gives sellers and lessors of products (including software) a range of contract drafting techniques. Followed properly, they significantly limit the risk of product liability lawsuits and large damages awards. Note that services generally fall under common law (judge-made law) rather than the UCC.

On top of that, all courts are bound by rules that strictly limit frivolous or baseless lawsuits. Plaintiffs who file them can face serious sanctions and penalties, including fines and damages.

There are also many kinds of insurance coverage. With them, European companies minimize the risk of being sued or having to pay a large judgment related to their goods or services. These include not only liability insurance but also errors and omissions, intellectual property infringement and many others. Make sure the coverage applies in every state where the product or service is offered.

If a product is being exported, or is still in development, make sure from the start that it meets American safety requirements and other standards. These are usually set by the Consumer Product Safety Commission (CPSC), which offers useful tips for getting started on its website. A closer look at similar products already sold on the US market can help too. Once you have an overview, you can check with experts whether your own product meets the standards. If instructions for use are needed, the relevant warnings can go in them. Here, too, other manufacturers' products can serve as a guide. When translating into English, keep the language clear and simple.

Set up a way for consumers to give feedback, and check it regularly. An active presence and quick responses on your website and social media can reveal customer dissatisfaction early, and ideally the company can respond before it turns into a legal dispute. In general, internal communication across all departments matters, so that marketing, development and sales stay up to date and avoid misunderstandings.

2What the US legal situation means for you

As you can see, lawsuits are of course possible in the USA, as in any other country. But they are no reason for a European company to hold back from entering the US market. There are safeguards that protect companies from frivolous or baseless lawsuits. Combined with the right insurance, you can protect yourself and your business and reduce the risk considerably. How to guard against employee lawsuits and what applies to product liability in the USA is covered in the other parts of the series.