The U.S. Chamber of Commerce is running a false ad claiming that "52 percent of all lawsuits" target small businesses. The claim is contradicted by the very study the Chamber cites as its source, and it’s not even close to the truth. The study shows the true figure is somewhere between 5 percent and 8 percent.
A spokesman for the Chamber, Mark Szymanski, told us the ad began airing "nationally" in late December and will continue to air until the end of January. But he would not disclose the amount of money the Chamber Institute for Legal Reform is spending on the ad.
Szymanski said the source for the ad’s claim is an October 2005 study, "Impact of Litigation on Small Businesses," conducted for the Small Business Administration by Klemm Analysis Group Inc. of Washington, D.C. But that report says nothing of the sort. In fact, it found that less than 15 percent of federal lawsuits target any business entity at all, and that roughly half of those, or fewer, involved small businesses.
This is not the first time we’ve caught the Chamber making an inflated claim about the impact of lawsuits. See our article from May 11, 2007, for another example.
And it’s the second time this week that we’ve caught somebody misrepresenting the results of research to make an inflated claim. In our Jan. 5 item, "MoveOn.org: Starved for Facts," we dealt with the liberal group’s false claim that 49 million Americans are "going hungry." Like the Chamber ad, that was also a gross exaggeration of what the research really showed.
Misrepresenting the Research
The SBA study cited by the Chamber was based on a sample of 12,102 randomly drawn federal lawsuits filed between July 2002 and June 2003. The report states: "Manual review of the parties in the cases by members of the research team reduced the total of 12,102 cases to 1,791 cases potentially involving a business." (See pages 5 and 6.)
That actually shows that only 14.8 percent of federal lawsuits are "business cases" that target any business at all. And how many of those are "small" businesses? The study’s authors examined a small sub-sample, consisting of 222 of the businesses or locations that had been sued, and concluded that 52.7 percent were "small," which they defined as having 50 or fewer employees.
So only about half of all the "business" cases involve "small" businesses, and fewer than 8 percent of all federal lawsuits target businesses with 50 or fewer employees.
Even that number may be too high. The study states:
SBA study: The research team believes it is problematic to estimate reliably the percent of firms involved in filed civil cases that have fewer than 50 employees from this initial study. The evidence obtained during the execution of this study (described above) suggests that the estimate falls within a range of 36 to 53 percent.
If only 36 percent of "business cases" involve "small" businesses, then the true figure for "all" lawsuits would be just over 5 percent.
Based on this study, the Chamber would have been correct to say that up to 53 percent of all the federal lawsuits against businesses involve small firms. But it’s false to claim that half of "all" lawsuits target small businesses. The actual figure is somewhere between 5 percent and 8 percent, based on the study of federal suits the Chamber itself cites.
Footnote: The SBA study did not attempt to estimate how many lawsuits were filed against small businesses in state courts, but it did cite a 1992 Department of Justice study that found that only 47 percent of state lawsuits involved businesses of any size.