The United States has been the most prolific platform for forming new business ventures and entrepreneurial startups in the history of the world. One of the reasons for this has been the legal system that protects property rights.

But the legal system can be both a blessing and a bane.

One of the most feared lawyers to new startups is William Lerach. Over the past 25 years his firm has won $25 billion to $30 billion in awards from companies, mostly startups. His primary tactic is to identify companies whose stock price has fallen dramatically, comb through public documents to see if senior management made positive comments about the future of the company prior to the fall in stock price, and then launch a class action suit for fraudulent and misleading statements.

He claims that he protects the small investor from the fraudulent statements of corporate management. Maybe. But the billions he has won also represents money that is not available for companies to invest in new products or jobs. To put this in perspective, $25 billion represents more than an average full year of all venture capital investments in new startups.

That's a lot of startups . . . and jobs.

But the award amounts represent only the tip of the iceberg. The overwhelming effect of litigation lies hidden beneath the surface.

For example, lawyers cite statistics indicating that the cost of malpractice awards has not risen precipitously. But they overlook a much more insidious cost. Suppose only one out of 100,000 patients exhibiting certain symptoms has a serious disease. For the rest, the symptoms can be handled inexpensively with over-the-counter drugs. Now, suppose there is a $1,000 diagnostic procedure that will definitively test for the disease. Out of fear of a malpractice suit, most doctors will order the procedure on all patients even though the odds indicate the vast majority of patients don't need it.

The doctor doesn't care about the cost because he will be paid the same and he will avoid a lawsuit. The patients want the procedure because the cost is covered by insurance and they will be protected. Of course, this means an extra $100 million in expense, which will eventually show up in rising health care and insurance costs. But it doesn't show up in jury awards. That is why I say that jury awards are only the tip of the iceberg.

Similarly, a pharmaceutical company that develops a product that will dramatically relieve the suffering of 999 out of 1,000 patients may very well choose not to release it because the cost of paying for the one adverse reaction would overwhelm the profits attainable from the 999 benefited. The media will never choose to look at the benefit of the 999, but will rather focus on the one out of a thousand who is hurt. As a result the company would never pursue the product.

How many highly beneficial products have never been pursued or launched out of fear of litigation? We will never know.

While it's true that we need protection from malpractice and fraud, we also need to recognize the serious - but often hidden - destruction that over-litigation causes to entrepreneurial startups. Unless we are careful we will find our litigious ways stifling the growth and development of innovative products, and increasing the costs hidden in everything from health care to insurance to product prices.