Note to Small Businesses: The Lawsuit Epidemic Is Over

Attention, entrepreneurs: You may hereby ignore the fear-mongers who want you to get upset about being targeted by a meritless lawsuit.

Here's what they would like small business owners to believe: "Lawsuit abuse clogs our courts and raises the costs of goods and services," warns the National Federation of Independent Business, which calls itself "The Voice of Small Business." What's more, "many small businesses become innocent victims of this sue-thy-neighbor mentality."

These two statements are echoed with varying degrees of shrillness by various groups, including general business organizations like the NFIB as well as single-issue advocacy outfits such as the American Tort Reform Association. The ATRA declares that "these lawsuits compromise access to affordable health care, punish consumers by raising the cost of goods and services, chill innovation, and undermine the notion of personal responsibility."

Groups such as these produce reams of press releases, reports and studies purporting to show that small businesses are being overwhelmed by a reckless tide of frivolous litigation. Since they are, by definition advocacy organizations, research supporting their advocacy positions must be viewed with skepticism. Here's the U.S. Chamber of Commerce from a September 23, 2010, press release about a survey: "The survey also shows that lawsuits are a major concern for small business owners and an obstacle to economic growth."

In fact, the real danger of a small business being harmed by a meritless or overblown lawsuit is small. The NFIB's own research upheld this in 2005, when it asked 3,500 small business owners to rank the problems they faced. "Costs and Frequency of Law Suits/Threatened Suits" came in 65th of 75, barely beating out "Solid and Hazardous Waste Disposal."

Further, the risk is shrinking, not growing. The number of civil tort cases shrank by more than 31 percent from 1996 to 2005, according to a U.S. Department of Justice examination of state courts in the nation's 75 most populous counties. The actual number of tort trials in 2005 was 7,038.

Most of these trials involved automobile accidents. It's hard to see how somebody suing somebody else over a car wreck is an obstacle to economic growth. Almost all types of tort trials declined, according to the DOJ study, with product liability cases -- the kind that presumably would do the most to chill innovation -- down nearly 47 percent. The only category that increased was medical malpractice up 5.5 percent.

With tort trials down nearly a third and with small businesses ranking fear of lawsuits lower than taking out the trash, it seems clear that there never has been much of an epidemic of abusive lawsuits and, if there was, it's over. Unless you're planning to produce a defective product, worry about something else.

Image courtesy of Flickr user srqpix, CC2.0