Chris Wade of Isomer Capital puts the difference succinctly:
“In the US, lawyers are part of the competitive dynamic, whereas in Europe they confirm agreements”.
Legal counsel is part of the cost of doing business in the US. Companies here spend nearly triple the amount on legal services for every dollar of revenue than their counterparts around the globe: on average, 0.4% of revenue versus 0.15% for the rest of the world. For those preparing to expand here, the message is to ’Lawyer Up’ during the planning phase.
Land of Litigation
The cultural and commercial difference stems from both higher legal costs and requirements for more services. For example, in the US, each party to a lawsuit bears her own legal costs. If you’re sued, you’ll have to pay your legal bill regardless of the outcome of the case.
Given the high costs of litigation (the scope of pre-trial document ‘discovery’ is significantly broader in the US than in most countries) the opposing party knows you’re likely to settle instead of fighting the case in court. Relatively weak claims by plaintiffs have settlement value because the defendant’s cost of settlement may be less than the cost of the defending the claim. Plaintiffs — and their contingent fee lawyers — know this, and may bring claims they wouldn’t otherwise assert if they were at risk of paying the defendant’s legal fees.
It is relatively easier in the US than in most countries for lawyers to initiate “class action” litigation on behalf of groups of people claiming to have been harmed in the same way. In addition, government regulators are substantially more aggressive here than in most other countries, and more prone to mount extensive investigations and seek penalties in enforcement actions. As a result, the threat of litigation is a common tool of business negotiation in the US. While most of these claims settle before trial, you may still find yourself having to take weak claims seriously.
Employment discrimination claims are also common and expensive. Extensive employment regulations at the Federal and State level will influence every step of hiring, managing and terminating employees. The upfront costs of expert advice aimed at avoiding potential problems, through the crafting of well-worded contracts, is well invested, considering the prices and disruption of a lawsuit.
Because states treat business regulations differently, it’s important to have experienced, localized counsel to evaluate the different regulatory requirements. Many registrations, licenses, oversight bodies and regulations vary on a state-by-state basis, so local counsel is key to assess the business impact of compliance. This differing legal landscape, state to state, may have an impact on where you want to locate your HQ.
“Get expert advice for all legal and admin issues; don’t try to find out answers on your own — focus your efforts on key hires and goals for your first year.” – Pablo Graiver, Antidote
Patent Trolls and Other Monsters
Intellectual property claims, primarily patent claims, are common in the US, and can be very expensive to defend. Sometimes patent claims are brought by competitors who are trying to keep you out of the market or by non-practicing entities, less politely referred to as “patent trolls”, whose business model is based on buying up patents and then seeking license fees from companies whom they claim are infringing. It can be difficult to determine in advance if you are infringing on the patent rights of others, but awareness and preparation are the best defenses in the short term.
Unlike the EU, the US does not have a single overarching privacy law. On a federal level, the United States maintains a sectoral approach towards data protection legislation where certain industries are covered and others are not. This has significant commercial implications for direct-to-consumer digital marketing, for example. If your business is operating in a regulated sector, you may be subject to the rules of a number of regulatory agencies. Applying for licenses is straightforward if time-consuming, but it could be worth seeking counsel to establish which licenses regulations apply to you.
Or more colloquially, “forewarned is forearmed”. The story above may paint a picture of piratical warfare more than collaborative commerce, but bear in mind those who have thrived here before you. Pro-active anticipation, addressing problems before they arise, is the message. Greater care, for example, in crafting contracts that accurately describe services and performance obligations; handling HR situations sensitively; and addressing regulatory and tax issues in advance are the behaviors that cultivate unhindered success. Tasking one person or team with clear responsibility for tracking compliance from the inside whilst hiring the right legal counsel, with local and federal expertise, establishes a firm footing from the start.
“In the States, your approach to legal matters needs to be problem-avoidance rather than problem-solving. US companies obtain proactive legal advice to minimize potential future problems; reacting to and resolving current problems is expensive and time-consuming.” — Dan Glazer, Wilson Sonsini Goodrich & Rosati
Note: Here is a useful link to help with applying for licenses and permits