The United States, of all Western legal systems, is probably the harshest on manufacturers, at least insofar as they can be held liable for millions or even billions of dollars in damages for unanticipated defects in their products.  Until about the middle of the 20th century, liability standards in this country were not significantly different from those of England or Europe.  Manufacturers could not be held liable in litigation by those who suffered harm from using their products if the manufacturers exercised due care in the preparation of those products.  If, for example, reasonable practice in an industry was to pull every tenth widget off the line and inspect it for defects, the manufacturer would not be liable if, somehow, one of the unexamined widgets had defects that later caused harm.  This is called the negligence standard, and it still governs in other areas of tort law (the law of responsibility for damages caused to strangers).  Further, at least until the early 20th century, negligent manufacturers, with a few exceptions, had no liability to anyone but the immediate purchasers of their products.  For example, if an automobile manufacturer sold to a dealer, a consumer who had purchased a lemon could only recover from the dealer.

By the mid-1960’s, all of that had changed.  Under the new standard (pioneered in the courts of California, a source of much mischief in American torts jurisprudence), a manufacturer was held liable to end users or even to bystanders if any product left the factory in an unreasonably dangerous condition.  This was referred to as “absolute” or “strict” liability, because, even if the manufacturer had followed industry standards, there might still be liability.  The result was a plethora of product-liability suits—a litigation explosion.  Though European and other jurisdictions are now flirting with strict or absolute product liability, for many years, while American manufacturers were being hit with such lawsuits, foreign manufacturers were subject only to the negligence standard, which put American manufacturers at something of a disadvantage.

There are additional advantages to being a manufacturer in a European or a South American or an Asian country.  Outside of America, the risk of catastrophic legal expenses for manufacturers is greatly reduced, because most jurisdictions do not permit punitive damages (damages assessed in an amount far beyond those necessary to compensate for the harm caused, presumably to deter future misconduct).  It was the punitive-damage element that caused the infamous four-million-dollar judgment for the mildly defective paint job on a BMW and the three-million-dollar verdict for the lady who burned herself when she unwisely removed the lid from her McDonald’s coffee cup after leaving the drive-thru window.  Most foreign jurisdictions use judges rather than capricious juries to find facts and calculate damages.  Most, if not all, do not permit contingency fees whereby plaintiffs pay nothing to their lawyers if the lawsuit is unsuccessful.  (Contingency fees, by lowering the costs to plaintiffs who litigate, result in more lawsuits.)  In many other countries, plaintiffs who lose must pay the legal expenses of the defendants, including the massive lawyers’ fees they will have incurred.  In our system, however, the losing plaintiffs are not liable for such costs.  Finally, most of these outside jurisdictions do not permit the extensive pretrial “discovery” procedures whereby litigants badger each other through interrogatories (written questions that must be answered), subpoenas for documents (which can call for the provision of written records that may be extremely expensive and time-consuming to produce), and depositions for weeks, months, or years before the trial itself takes place.  Often, these discovery procedures are so costly that many defendants will settle cases on terms favorable to plaintiffs rather than submit to discovery or go to trial.  In short, plaintiffs are at a great advantage in American courts, and manufacturing defendants are at a great risk.

The precise nature and costs of that advantage are subject to debate.  Critics of the American system claim that, because of the current state of product-liability litigation, the cost of producing goods in America—which are eventually passed on to the consumer—include a tort tax of between $200 and $300 billion per year or, according to one estimate for 2004, $845 per year for each American.  That roughly translates into a five-percent tax on wages for the average American worker.  Indeed, because of the potential for product-liability suits, some entire American industries, such as that involving single-engine aircraft, have nearly collapsed.  Still, defenders of our system (especially plaintiffs’ lawyers who have reaped windfalls from suits against tobacco, asbestos, and drug companies in which massive punitive damages have been assessed—contingency-fee lawyers characteristically receive from 20 to 40 percent of any settlement or damages) and their colleagues in the legal academy (in which there has been a traditional hostility toward corporations) are sanguine.  They claim that whatever costs have accrued to the economy from litigation have been offset by cost savings flowing from improved product safety and other benign offshoots of litigation and that, in any event, whatever “tort tax” is out there does not seem to have interfered with the high productivity and profits of recent years.

Defenders of the tort tax believe that those who advocate civil-justice reform (including a reduction in punitive damages, elimination of contingency fees, reduced discovery, and other means of discouraging litigation) are simply, as one economist recently declared, following an “ideology that is consistent with their philosophy that when it comes to corporations, anything goes.”  Not surprisingly, those who seek civil-justice reform and favor a reduction of the “tort tax” accuse the trial lawyers and their academic fellow travelers of malevolent hostility to American manufacturers, and of fostering the redistribution of wealth from corporations to plaintiffs and their lawyers.  Indeed, in many of these product-liability lawsuits, only the lawyers benefit, since the plaintiffs (who may include a class comprising millions of users of allegedly defective products) may recover only coupons good for their next purchase from the manufacturer in question—coupons that are almost never redeemed.

Litigation is big business in our country.  We have more lawyers as a percentage of our population than most, if not all, other nations, and the costs incurred in litigation make up a greater percentage of our economy than of anyone else’s.  It has been estimated that, in the United States, tort costs are two percent of GNP—a figure twice as high as that of Japan and three times as high as Britain’s.

Perhaps the only things that are certain about our torts system are that it costs a lot; some lawyers have become fabulously wealthy from it; it does, at best, an erratic job compensating those harmed by defective products; and some manufacturers have been subjected to ruinous damage judgments.  In an important 2005 law-review article on the topic, three attorneys advocating civil-justice reform observed that the hundreds of billions of dollars spent on our tort system would be enough to solve our Social Security crisis and could pay for all the government programs involving

Education, training, and employment; general science; space and technology; conservation and land management; pollution control and abatement; disaster relief and insurance; community development; Federal law enforcement and administration of justice; and unemployment compensation.

This is not to suggest the wisdom of those programs—just that the money squandered by our tort system might be better spent elsewhere.