Why understanding divergence between the US and European IP systems is the key to global due diligence success
For global organisations, intellectual property (IP) represents far more than a legal checkbox; it's a cornerstone of business value and competitive advantage. However, as many businesses discover, managing IP-related risks effectively across international borders presents significant challenges. Despite many successful harmonisation efforts, stubborn areas of divergence remain, and new uncertainties develop as case law evolves in territorial silos.
One of the most significant challenges in global IP risk management stems from the nuanced divergence between IP systems in the United States and Europe, which can create uncertainty at key development milestones or during critical transactions.
A particularly common pitfall we observe is when organisations, despite their global operations, conduct their IP risk assessments through a one-dimensional lens focused on their current home market. This approach leaves companies exposed to significant risks. Our experience suggests that a more comprehensive approach , one that carefully considers the key western markets of the US and Europe,can dramatically reduce global IP risk exposure. IP risk management is certainly not a one-size-fits all activity; but perhaps two sizes fit most?
When IP Risk Bites
When releasing new products, undertaking mergers and acquisitions, or navigating funding rounds, IP landscapes shift and businesses often find themselves in unfamiliar territory, facing new or altered IP-related risks. Let's explore how each of these scenarios necessitates careful IP risk assessment:
New Product Development and Launch
The process of bringing innovations to market increasingly requires navigation of a complex global IP landscape. Companies investing significant resources in R&D face the very real risk that existing third-party IP rights could block commercialisation in key territories, or result in unexpected and painful litigation. Long before anyone has their day in court, litigation can undermine share price, deter investment, and will leave a lasting marker for any future due diligence activities.
Now add to the mix multi-jurisdictional uncertainty regarding third party IP risk: the possibility of IP infringement. A market-blocking asset in one territory can be a wholly invalid (and thus unenforceable) right in another, due only to differences in the way that the asset is assessed by the courts.
When launching a new product or entering a new territory, a narrow risk assessment will leave uncertainty for later, or worse, allow risk to go unnoticed until it’s too late to proactively mitigate.
Mergers & Acquisitions
During M&A transactions, especially in life sciences and technology transactions, the value proposition often hinges substantially on the target company's IP portfolio, in particular: asset quality and coverage. Inadequate due diligence can lead to costly misjudgements: overvaluation when IP assets prove less robust than anticipated, or missed opportunities when potential value remains unrecognised.
However, even when IP asset quality and coverage is carefully considered, a lack of attention to the broader IP risk landscape in the relevant market can lead to unpleasant surprises late in the day. This is particularly relevant when a large corporate acquires a start-up or scale-up that’s less visible in the market, or an acquisition is targeted for its innovations and success in one market with an eye for taking the innovations global. In these cases, big-picture, globally-minded IP due diligence is essential, pre-completion, to manage and mitigate IP-related risks.
Funding Rounds
For companies seeking venture capital or private equity investment, the strength and defensibility of IP positions frequently drives valuation discussions. Sophisticated investors increasingly expect comprehensive IP strategies that address global markets, not just domestic protection. They understand that IP vulnerabilities in major markets can undermine even the most promising business models, making IP assessment a crucial component of the investment decision. Where innovation efforts and the IP portfolio are immature, robust processes for invention capture and a clear IP strategy can help close the gap and can be assessed as a useful proxy for future portfolio potential.
Why Both US and European Perspectives Are Essential
Whatever the reason for undertaking a due diligence exercise, in our experience, a dual perspective is the key to multi-jurisdictional insight.
The global influence of the United States Patent and Trademark Office (USPTO) and the European Patent Office (EPO) extends far beyond their respective territories. These institutions serve as influential standard-setters whose approaches are frequently emulated by other jurisdictions worldwide. Countries including China, Japan, South Korea, and numerous emerging markets often look to these leading IP systems when developing their own frameworks and jurisprudence.
Consequently, a due diligence approach that thoughtfully assesses IP risk from both US and European perspectives offers a remarkably comprehensive picture of global risk, and one that neither perspective alone could provide. By understanding the nuances and differences between these influential systems, organisations can identify potential risks that might otherwise remain hidden and implement proportionate mitigation strategies before problems emerge and before substantial investments are made.
Make or Break Issues in Europe
Thankfully, and due to many years of collaborative international legislative effort, there is global alignment on many key IP issues. However, there are several topics, that if not carefully considered from a US and European perspective, could lead to unexpected divergence between the IP landscapes on either side of the Atlantic, some of which may be catastrophic for business-critical IP for those entering or operating on European soil.
Here's our countdown of the Top 5 issues for any US practitioner to be aware of:
5. Added Matter Restrictions – A European Minefield
The EPO's notoriously strict approach to amendments can catch US practitioners off guard. Any change must have clear basis in the application as filed – a standard applied far more rigorously than in the US. A lack of knowledge of this, especially in a young US-centric portfolio could spell trouble for future European growth plans.
4. Priority Issues – The Foundation of Patent Rights
The EPO sets a very high standard for a valid claim to priority, which sets a trap for those applicants relying on the US provisional system for filing priority applications. Minor drafting differences between priority applications and subsequent filings can be fatal, potentially exposing patents to intervening prior art, including a patentee’s own disclosures. For companies in fast-moving sectors, these priority nuances can mean the difference between valid protection and worthless rights. In addition the entitlement to claim priority, i.e. the relationship between the entity filing an EP application and the entity that filed the priority application, can be a patent killer, you can read more about that here. If you’re operating in a litigious market then ensuring this is checked out in Europe before acquiring any IP is particularly important.
3. Beyond Patents – Europe's broad IP Toolkit
Europe offers distinctive IP tools unfamiliar to many US practitioners: German utility models (faster, unexamined alternatives to patents), EU design rights (unexamined protection for product appearance under different standards than US design patents), and for life sciences, SPCs (extending pharmaceutical patent protection up to five years) and regulatory exclusivity periods. These mechanisms can represent either undervalued assets or unrecognized risks in transactions. Knowing about these rights when searching for risks or reviewing a portfolio is critical.
2. The Unified Patent Court – Europe's Game-Changer
The recently established UPC represents a seismic shift in European patent litigation that is being felt globally. Operational since June 2023, it's rapidly becoming the forum of choice for patent disputes in Europe, but also for many US companies. With centralized enforcement across multiple markets, specialized judges, relatively low costs and efficient procedures, the UPC makes Europe an increasingly important IP battleground.
1. Preliminary Injunctions – Europe's Swift Sword
Perhaps the most underestimated risk in US-focused due diligence is Europe's patent-friendly approach to preliminary injunctions. Germany and the UPC offer injunctive relief under standards that are seen extremely attractive and have made Germany the European forum of choice, and with its significantly broader geographical coverage, the presence of preliminary injunctions under the UPC has resulted in a patent forum to rival the US. For product launches, this represents an existential business risk: the possibility of being blocked from market before a full trial even begins.
A Collaborative Approach to Global IP Risk Management
Although the differences between the US and European IP risk landscape can be significant and impactful, the differences are not universal. Because of this, our experience suggests that rather than duplicating diligence efforts, a collaborative approach leveraging expertise from both US and European perspectives can efficiently identify and mitigate the most significant global IP risks. This approach maintains US-led diligence as the foundation for those with a US (or US-leaning) home market, while supplementing it with targeted European analysis focusing on high-risk areas specific to European practice.
By leveraging these complementary perspectives, organisations can identify potential blind spots in their risk assessment and develop proportionate mitigation strategies addressing both markets. This collaborative model offers particular value because it doesn't require rebuilding due diligence from the ground up. Instead, it strategically augments a core review with targeted input on European-specific risk factors, providing global perspective without dramatically increasing costs or timelines.
Conclusion: The Strategic Value of Transatlantic IP Assessment
Understanding the key differences between US and European IP systems allows organisations to significantly reduce global IP risk without dramatically increasing cost or complexity. For US companies releasing new products, engaging in M&A, or seeking funding, this collaborative approach enables more confident navigation of global IP landscapes. The investment in bridging the transatlantic IP divide pays dividends through reduced risk and more robust protection for innovative technologies.