Foreign direct investment, a key driver of the U.S. economy, brings jobs, exports and innovations. But a new report raises concerns that foreign investors may be turned off by an increasing perception of the United States as a litigious society, with its excessive punitive damages, "forum shopping," and class action lawsuits.
The just-released U.S. Department of Commerce report, "U.S. Litigation Environment and Foreign Direct Investment: Supporting U.S. Competitiveness by Reducing Legal Costs and Uncertainty," emphasizes the high quality of the U.S. legal system and the competitiveness of America's open investment policy.
But the report also notes that high litigation costs impact America's ability to compete and recommends sustained efforts to bring these costs in line with those of other nations.
In 2007, the U.S. economy benefited from $238 billion in foreign direct investment. Last year, foreign firms employed more than 5.3 million workers in the United States.
One perception that may negatively affect investors' view of the U.S. tort system is that is has sometimes "produced decisions that are inappropriate and not grounded in common sense."
The report cites on well-known example -- the $2.9 million verdict against McDonald's (later reduced to $640,000), which was awarded to a person who spilled hot coffee while leaving a drive-through restaurant.
"Although it is generally recognized that verdicts of that kind are the exception, the possibility of being sued, as well as the awareness that unreasonable and extreme verdicts are possible, has had a negative impact on businesses, as well as on Americans in general."