Over the years, I have had the privilege of representing international companies doing business in the U.S. or contemplating doing business in the U.S. If you are considering doing business in the U.S., what I am about to say is not new, but is always worth remembering: The U.S. is different. More specifically, the U.S. legal system is different and doing business in the U.S. involves risks not present in most of the rest of the world. That's the bad news. The good news is that those risks are usually manageable. Let's review some of the important points.
1. The U.S. legal system involves the following characteristics that are not present in many other countries: (a) lawyers are allowed to take cases (typically product liability or other personal injury cases) on a contingency fee (percentage of recovery) basis, which makes filing a lawsuit in the U.S. easy; (b) in most cases, there is no "loser pays" rule, meaning that there is little risk in filing a questionable lawsuit that may prove unsuccessful, while the defendant (or its insurer) must bear the cost of defending the lawsuit; (c) generally, legal cases in the U.S. are, if not settled, tried to juries, consisting of ordinary citizens who may not understand complex technical issues; (d) in many product liability and personal injury cases, damages are awarded based on the "enlightened conscience of the jury," meaning that awards can bear little relation to actual injury; (e) in many cases, juries can award "punitive" damages, which are awarded not to compensate the plaintiff, but to punish the defendant; and (f) in many product liability cases, proof of compliance with applicable regulations will not establish a complete defense.
2. It is important to understand that when I use the term "U.S. legal system," I am speaking in a very general manner. Each state has its own laws and regulations that will typically apply in, for example, product liability cases and breach of contract cases. Often, there is an overlay of federal (national) law that creates a complex interplay with state law. All of the general issues noted above can vary somewhat from state to state. This means that the legal issues in the U.S. can be very complex.
3. U.S. contracts tend to be much longer than, for example, contracts on the same subjects used in Europe. The basic reason for this, particularly in commercial transactions, is that the U.S. favors freedom of contract. The Uniform Commercial Code (UCC), which applies to most commercial sales transactions, generally provides buyers with a wide scope of remedies. However, the UCC also generally allows the parties to make their own agreements and to limit the scope of remedies. For contracts not governed by the UCC, in most instances parties are similarly free to make their own agreements. For this reason, U.S. lawyers try to anticipate scenarios if there is a breach or failure to perform and to insert provisions in the contract to govern those situations. As part of this effort, the parties may agree to define and limit remedies.
4. There are also more subtle reasons that the U.S. is different. Two that come to mind are, first, the U.S. is culturally a more litigious society than many other countries. Although many in the U.S. have a generally negative reaction to "frivolous litigation," and although there has been "tort reform" legislation passed in many states seeking to limit lawsuits, lawsuits remain a common way to resolve disputes. Second, the U.S. has become a consumer-focused society. What does this mean? It means that consumers have very demanding expectations regarding products, expecting them to work and expecting companies that sell them to stand behind them. These consumer-based expectations now seem to permeate commercial transactions as well.
OK, so the U.S. is different and more risky. Can the risks be managed? The answer is generally yes, but you need to understand that this is not a do it yourself proposition and it is not something that can be accomplished for a minimal investment of time and money. If you plan to start up operations in the U.S. and plan on spending just a few thousand dollars, my advice is simple: Don't do it. If you are serious about doing business in the U.S., invest in setting up the business properly. Here are a few thoughts that might be of value.
The first step is to understand the risks applicable to your business. This is going to involve engaging an experienced lawyer. If possible, it is best to find a lawyer with experience in your industry. There are a lot of lawyers in the U.S., so how can you make sure you are dealing with a good one? Most law firm websites contains detailed information regarding the qualifications of their lawyers. For more information, you may want to consult my book, An Insider's Guide on Hiring a Business Attorney, which provides a step-by-step guide for finding, evaluating, interviewing and working with an attorney. Forgive me if this seems to fall into the shameless plug category, but I wrote the book because there did not seem to be any other resource available for this purpose.
A word of caution here for international companies: Many international companies seem attracted to lawyers from their own country who may have opened an office in the U.S. Often, language is the reason for engaging such lawyers. Sometimes these lawyers are fully licensed by the states in which they practice, sometimes they are not. Is engaging such a lawyer a good idea? My answer (and it is only my answer) is that all lawyers should be evaluated based on their qualifications and experience before the engagement. Provided the executives handling the U.S. business speak reasonably good English (and, frankly, they need to), I would put common national origin and foreign language capability relatively low on the list of qualifications. Legal documents in the U.S. will be written in English and all court and arbitration proceedings will be in English. Experience and qualifications in the U.S. are of prime importance.
If your company is planning to do business across the U.S. (as it likely will want to do), it is also important that your primary lawyer have access to a network of lawyers in other states. Because the law varies from state-to-state, it will sometimes be necessary to consult lawyers from other states.
Once your lawyer is in place, it is a good idea to spend some time evaluating the risks your business will face and putting in a plan to minimize the risk. This can include, for example, developing standard terms and conditions of sale that include language limiting remedies, disclaiming implied warranties, and providing for arbitration of claims and disputes. It may also be a good idea to develop a set of "golden rules" for contracts -- meaning that your company simply will not enter into contracts without certain key terms to limit risk.
Although contracts and terms and conditions can limit risks of customer claims, they will generally not limit the risk of third-party claims, such as product liability claims. This is where insurance comes into play.
Although it is very important to put a strong insurance program in place, this may not be easy. Ideally, you will want to engage an insurance agent or broker who will take the time to understand your business and advise you on the coverages available to insure the risks your company will be facing.
Unfortunately, many companies seem to find their way to a local agent lacking the necessary experience. Equally unfortunately, even dealing with the giant international brokers may prove disappointing. Many people in the insurance business seem to want to take orders, check boxes, and collect commissions without providing sophisticated advice. Check your agent out carefully -- if they are an order taker, run, don't walk, to another source.
Remember, the U.S. is different. The U.S. can be a wonderful market for international companies. It can also be a risky environment. Those risks can be managed, but you will need help. Don't go it alone.
1. The U.S. legal system involves the following characteristics that are not present in many other countries: (a) lawyers are allowed to take cases (typically product liability or other personal injury cases) on a contingency fee (percentage of recovery) basis, which makes filing a lawsuit in the U.S. easy; (b) in most cases, there is no "loser pays" rule, meaning that there is little risk in filing a questionable lawsuit that may prove unsuccessful, while the defendant (or its insurer) must bear the cost of defending the lawsuit; (c) generally, legal cases in the U.S. are, if not settled, tried to juries, consisting of ordinary citizens who may not understand complex technical issues; (d) in many product liability and personal injury cases, damages are awarded based on the "enlightened conscience of the jury," meaning that awards can bear little relation to actual injury; (e) in many cases, juries can award "punitive" damages, which are awarded not to compensate the plaintiff, but to punish the defendant; and (f) in many product liability cases, proof of compliance with applicable regulations will not establish a complete defense.
2. It is important to understand that when I use the term "U.S. legal system," I am speaking in a very general manner. Each state has its own laws and regulations that will typically apply in, for example, product liability cases and breach of contract cases. Often, there is an overlay of federal (national) law that creates a complex interplay with state law. All of the general issues noted above can vary somewhat from state to state. This means that the legal issues in the U.S. can be very complex.
3. U.S. contracts tend to be much longer than, for example, contracts on the same subjects used in Europe. The basic reason for this, particularly in commercial transactions, is that the U.S. favors freedom of contract. The Uniform Commercial Code (UCC), which applies to most commercial sales transactions, generally provides buyers with a wide scope of remedies. However, the UCC also generally allows the parties to make their own agreements and to limit the scope of remedies. For contracts not governed by the UCC, in most instances parties are similarly free to make their own agreements. For this reason, U.S. lawyers try to anticipate scenarios if there is a breach or failure to perform and to insert provisions in the contract to govern those situations. As part of this effort, the parties may agree to define and limit remedies.
4. There are also more subtle reasons that the U.S. is different. Two that come to mind are, first, the U.S. is culturally a more litigious society than many other countries. Although many in the U.S. have a generally negative reaction to "frivolous litigation," and although there has been "tort reform" legislation passed in many states seeking to limit lawsuits, lawsuits remain a common way to resolve disputes. Second, the U.S. has become a consumer-focused society. What does this mean? It means that consumers have very demanding expectations regarding products, expecting them to work and expecting companies that sell them to stand behind them. These consumer-based expectations now seem to permeate commercial transactions as well.
OK, so the U.S. is different and more risky. Can the risks be managed? The answer is generally yes, but you need to understand that this is not a do it yourself proposition and it is not something that can be accomplished for a minimal investment of time and money. If you plan to start up operations in the U.S. and plan on spending just a few thousand dollars, my advice is simple: Don't do it. If you are serious about doing business in the U.S., invest in setting up the business properly. Here are a few thoughts that might be of value.
The first step is to understand the risks applicable to your business. This is going to involve engaging an experienced lawyer. If possible, it is best to find a lawyer with experience in your industry. There are a lot of lawyers in the U.S., so how can you make sure you are dealing with a good one? Most law firm websites contains detailed information regarding the qualifications of their lawyers. For more information, you may want to consult my book, An Insider's Guide on Hiring a Business Attorney, which provides a step-by-step guide for finding, evaluating, interviewing and working with an attorney. Forgive me if this seems to fall into the shameless plug category, but I wrote the book because there did not seem to be any other resource available for this purpose.
A word of caution here for international companies: Many international companies seem attracted to lawyers from their own country who may have opened an office in the U.S. Often, language is the reason for engaging such lawyers. Sometimes these lawyers are fully licensed by the states in which they practice, sometimes they are not. Is engaging such a lawyer a good idea? My answer (and it is only my answer) is that all lawyers should be evaluated based on their qualifications and experience before the engagement. Provided the executives handling the U.S. business speak reasonably good English (and, frankly, they need to), I would put common national origin and foreign language capability relatively low on the list of qualifications. Legal documents in the U.S. will be written in English and all court and arbitration proceedings will be in English. Experience and qualifications in the U.S. are of prime importance.
If your company is planning to do business across the U.S. (as it likely will want to do), it is also important that your primary lawyer have access to a network of lawyers in other states. Because the law varies from state-to-state, it will sometimes be necessary to consult lawyers from other states.
Once your lawyer is in place, it is a good idea to spend some time evaluating the risks your business will face and putting in a plan to minimize the risk. This can include, for example, developing standard terms and conditions of sale that include language limiting remedies, disclaiming implied warranties, and providing for arbitration of claims and disputes. It may also be a good idea to develop a set of "golden rules" for contracts -- meaning that your company simply will not enter into contracts without certain key terms to limit risk.
Although contracts and terms and conditions can limit risks of customer claims, they will generally not limit the risk of third-party claims, such as product liability claims. This is where insurance comes into play.
Although it is very important to put a strong insurance program in place, this may not be easy. Ideally, you will want to engage an insurance agent or broker who will take the time to understand your business and advise you on the coverages available to insure the risks your company will be facing.
Unfortunately, many companies seem to find their way to a local agent lacking the necessary experience. Equally unfortunately, even dealing with the giant international brokers may prove disappointing. Many people in the insurance business seem to want to take orders, check boxes, and collect commissions without providing sophisticated advice. Check your agent out carefully -- if they are an order taker, run, don't walk, to another source.
Remember, the U.S. is different. The U.S. can be a wonderful market for international companies. It can also be a risky environment. Those risks can be managed, but you will need help. Don't go it alone.
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