Comparing Pharmaceutical and Biotechnology Innovation in the United States and Europe : The Key Player is Venture Capital Financing and not Patents

It is often claimed that the liberal granting of patents is essential for the development of the pharmaceutical industry, especially modern biotechnology. The facts do not support that view.

NGP’s Mind the gap? writes:

Fast facts

For most of the past century, Europe has been leading the world in pharmaceutical innovation. But over the last decade, the US gradually overtook Europe both in terms of innovative efforts (R&D investment) and in terms of the output of its innovative activity (New Molecular Entities).

Europe is still leading the world in pharmaceutical production, which has risen fivefold in value over the last 20 years, with exports accounting for 60 percent of total production.

More than 400,000 Europe-born scientists are estimated to have crossed the Atlantic, where they account for 40 percent of scientists working in the US.

About 40 percent of the new active substances launched nowadays on the world market have been discovered and developed in Europe, whereas 30 years ago Europe’s share of pharmaceutical discoveries was 65 percent.“

The reason for the mass exodus of pharmaceutical scientists from Europe to the USA is the lure of more money, enabled by exorbitant U.S. pharmaceutical profits as engendered by a failed and exploitative patent policy. As written by Marcia Angell in Excess in the pharmaceutical industry:

Although the pharmaceutical industry claims to be a high-risk business, year after year drug companies enjoy higher profits than any other industry. In 2002, for example, the top 10 drug companies in the United States had a median profit margin of 17%, compared with only 3.1% for all the other industries on the Fortune 500 list. Indeed, subtracting losses from gains, those 10 companies made more in profits that year than the other 490 companies put together. Pfizer, the world’s number-one drug company, had a profit margin of 26% of sales. In 2003, for the first time in over 2 decades, the pharmaceutical industry fell slightly from its number-one spot to third, but this was explained by special circumstances, including Pfizer’s purchase of another drug giant, Pharmacia, which cut into its profits for the year. The industry’s profits were still an extraordinary 14% of sales, well above the median of 4.6% for other industries. A business that is consistently so profitable can hardly be considered risky.

Excess profits are, of course, the result of excess prices — and prices are excessive principally in the United States, the only advanced country that does not limit pharmaceutical price increases in some way. Of the top 10 drug companies in the world, 5 are European and 5 are American, but all of them have the US as their major profit centre. In the US, uninsured patients (of which there are many) are charged more for drugs than those who have large insurance companies to bargain for them, and the prices of prescription drugs are generally much higher to start with than in other advanced countries. Moreover, the prices of top-selling drugs are routinely jacked up in the US at 2 to 3 times the general rate of inflation.“

In reality, biotechnology patents are not an issue of health, invention or patent law, but rather a matter of greed for money, as discussed in the Journal of Intellectual Property Law & Practice by Katherine A. Helm in her article, The battle over global drug markets: enforcement of pharmaceutical patents in the United States, Europe, and Japan.

The facts also tell a different story about the alleged relationship of patents to innovation. Margaret Sharp and Pari Patel, SPRU, University of Sussex, write as follows in their article Europe’s Pharmaceutical Industry: An Innovation Profile: Summary as part of EIMS (European Innovation Monitoring System):

For the 20 largest R&D spending pharmaceutical firms, there is little correlation between measures of innovation such as R&D spending, patenting, the number of new drugs under development (in R&D), or the number of top-selling drugs, except for a positive correlation between R&D intensity and the number of new drugs as a percentage of sales….

Biotechnology offers a new route to drug discovery that could potentially reduce R&D costs and development times. A large number of small, dedicated biotechnology firms (DBFs) have been established in the United States in response to a conducive environment characterised by a developed venture capital market, lenient stock exchange rules, and a well-funded research base in the life sciences (Irvine et al, 1990). In contrast, few DBFs have flourished in Europe, while Europe’s large pharmaceutical and chemical firms were latecomers to biotechnology, although several built up research teams in the early 1980s in order to keep abreast of developments. Since the late 1980s an important route for European firms to access biotechnology expertise has been through the purchase of American DBFs or the establishment of research laboratories in the US. However, case-study research shows that there is no systematic tendency for leading-edge biotechnology research by European firms to move to the United States (Senker et al, 1996). On the contrary, European firms are building up strong research capabilities in biotechnology, using links with American DBFs in areas where Europe is weak.

Few DBFs have been able to become fully integrated pharmaceutical firms and as of 1993 only about 3.9% of all pharmaceutical sales were due to biotechnology drugs (Ernst & Young, 1994). Most DBFs survive through a synergistic relationship with larger firms, where the DBF supplies potential new products to a large firm which in turn takes them through clinical trials and helps defend patents. This has meant that there has been a shift over the past decade from R&D agreements to alliances based on marketing and licensing.


Innovation in the pharmaceutical industry is difficult to measure. Too much R&D is devoted to duplicating the work of other firms and much patenting is defensive. Counts of drugs under development is not a satisfactory innovation indicator because they can reflect poor management as much as real innovation. The best measure is perhaps to take the number of top-selling drugs, but the drawback with this measure is that it measures past rather than present innovation. By this measure German firms have been lagging while British firms are the leading innovators in the EU. All EU firms have been rather slow at making the shift from a drug development paradigm based on chemistry to one that also includes biotechnology, although most are now moving in this direction, partly through establishing links with American DBFs.

The priority for European policies to support innovation in this sector is to create an environment conducive to innovation. Several policy measures would assist the European pharmaceutical industry: continued substantial support for the public research base in the life sciences; encouraging the full exploitation of that base by Europe’s major firms (who still tend to know too little about what lies beyond national boundaries); the reinforcement of the single market and in particular the construction of a European rather than a national regulatory system, the easing of financial restrictions on venture capital financing; and finally, the promotion of other mechanisms to support and fund new, technology-based firms.“

Accordingly, the surely short-lasting biotechnology edge that American firms obtained in the last decade was largely a product of more lenient American venture capital financing practices. Biotechnology innovation has had little to do with patents and patent law.

Patent Baristas Comments Extensively on In Re Kubin : The Use of Conventional Techniques to Arrive at an Obvious Result Does Not Make an Invention

Stephen Albainy-Jenei at the blog Patent Baristas has an extensive posting on In re Kubin at Court: It’s Not An Invention If You Use Conventional Techniques To Make It, writing:

In In re Kubin (08-1184), the US Court of Appeals for the Federal Circuit held that the US Patent and Trademark Office’s Board of Patent Appeals and Interferences was correct to hold claims as unpatentably obvious when applicants use “conventional techniques” to make an invention. This is bad news not just for biotech but for all arts.

The discussion by Albainy-Jenei is a good one, so be sure to read it, although we think that In re Kubin is not going to be long-term bad news for biotech or for the arts. The Federal Circuit in In re Kubin, following the United States Supreme Court’s new obviousness standard in KSR, simply has finally drawn an understandable and desperately needed line for biotechnology patent applications – this far and no further. Not every foreseeable – obvious – increase in our scientific knowledge is – or should be – subject to patent protection. There is something we might call the “normal” progress of science – and that – to our mind – is not invention.

The patent situation in biotechnology has gotten as much out of hand as in the rest of the patent world. We need merely to refer to the Google Public Policy Blog where

After the last time I blogged about patent reform in late 2007, the House went on to approve the Patent Reform Act. The bill unfortunately got bogged down in the Senate the following year. Since then the problems of the current system — and the need for reform — have only grown.

Consider this: Of the 20 patent lawsuits filed against Google since late 2007, all but two have been filed by plaintiffs who don’t make or sell any real product or service — in other words, by non-practicing entities or “patent trolls.” Most of these cases seem to feature the same small set of contingent fee plaintiff’s lawyers asserting patent claims against the same small set of companies. We’ve also noticed a more disturbing trend: in many of these cases, the patents being asserted against us are owned by — and in a surprising number of cases, are even “invented” by — patent lawyers themselves.

Unfortunately, the temptations and opportunities for abuse have gotten too high. Lawyers and plaintiffs have seen the potentially huge payoffs available in patent litigation. Before 1990, there had been just one patent damage award of over $100 million. Since 1990, there have been at least 15, with at least five topping $500 million.

As the current world financial crisis shows, especially in the United States – which is bogged down by a mountain of debt to various vested financial interests, including those created by patent monopolies – you can’t have the non-producing sectors of society sucking the life out of the economy without serious deleterious economic and political consequences.

Federal Circuit affirms In re Kubin and puts sensible limits on Biotechnology Patents pursuant to the KSR obviousness standard, thus negating Deuel

We posted previously, extensively and definitey about the need to limit biotechnology patents at In re Kubin : Hitting the NAIL on the Head : Sequencing Poor Federal Circuit Court Decisions out of the Biotechnology Patent Genome via KSR and/or Bilski Reasoning.

Through Filewrapper we just became aware of the the fact that the Federal Circuit decided this landmark biotechnology case just last Friday, applying the obviousness standard in KSR to biotechnology cases and in so doing finding that Deuel in this regard is no longer good law. BRAVO to the Federal Circuit in properly applying the U.S. Supreme Court’s KSR standard.

Read the full posting Kubin decided: Federal Circuit provides guidance for application of KSR in biotechnology at Filewrapper, which provides excellent links to most if not all of the necessary resources – something we ourselves always try to do in our often lengthy postings, but which most blogs in their superficiality never do.

Well done, Filewrapper team!

By contrast, Patent Docs, pushing their particular subjective and outdated view of biotechnology patents, still doesn’t get it, assigning multiple errors to the Federal Circuit court rather than trying to formulate a workable understanding of the rule now applied in In re Kubin and applicable to the grant or denial of all biotechnology patents in the future. When Patent Docs writes that “the Court set forth a plethora of factual grounds unlikely to be identically (or even substantially) encountered for other genes,” they are engaging in wishful nostalgic thinking which has no bearing on the current and modernized patent realities.

The fact is that biotechnology patents will be more difficult to obtain because of In re Kubin, make no mistake about that, and thank goodness for that, for the sake of the health of the patent industry as a whole and for the sake of the health of the entire legal system.

Rethinking the Legal Profession at the New York Times : Adam Cohen Ponders the Logical Consequences of the Downturn

At the New York Times, Adam Cohen ponders the logical consequences of the financial crisis in big law in his article, With the Downturn, It’s Time to Rethink the Legal Profession:

The employment pains of the legal elite may not elicit a lot of sympathy in the broader context of the recession, but a lot of hard-working lawyers have been blindsided, including young associates who are suddenly finding themselves with six-figure student-loan debts and no source of income.

Leading firms have historically avoided mass layoffs, concerned that their reputations would take a hit. But some have been putting those inhibitions aside, perhaps calculating that the stigma of pushing out their colleagues has faded. Law firm managers and bar associations should be looking for more creative ways to deal with the hard times — like reducing pay for both partners and associates to save jobs, as a few firms have begun doing.

The silver lining, if there is one, is that the legal world may be inspired to draw blueprints for the 21st century.

Read the rest here.

European Union (EU) Political Blog Aggregator at

The has instituted an interesting concept as it provides a website that aggregates European Union political blogs, 334 in number as of the date of this posting.

Hat tip to GrahnLaw.

The Odd Couple : President Nicolas Sarkozy of France and Chancellor Angela Merkel of Germany : A Partnership for European Unity ? The G20 Summit

Steven Erlanger and Nicholas Kulish have a very perspicacious March 30, 2009 article in the New York Times on the European economic situation at Sarkozy and Merkel Try to Shape European Unity, in which they refer to the “odd couple” of President Nicolas Sarkozy of France and Chancellor Angela Merkel of Germany, who are currently leading a world in which we are surely seeing the inglorious end of what Erlanger and Kulish call “unbridled capitalism”.

Erlanger and Kulish write about the French and German government heads:

[A]n extremely odd couple — he is short and hyperactive, she is dour and shy. He believes in the power of the state and big interventions; she believes in a softer role for the state, guiding and prodding the market. Nicolas Sarkozy and Angela Merkel don’t even get along very well, aides to both leaders say. He has made fun of her accent in private meetings, the aides say, and she says he is self-centered and impetuous.

But the French president and the German chancellor find themselves in a forced marriage in these days of economic crisis. Responsible for the two largest economies among nations that use the euro, known as the euro zone, they are trying to shape European unity in the days before the Group of 20 economic summit meeting this week.Read the rest here for current German and French economic policies.

That London G20 summit started today. G20 stands for the Group of Twenty at whose home page we find the following information:

The Group of Twenty (G-20) Finance Ministers and Central Bank Governors was established in 1999 to bring together systemically important industrialized and developing economies to discuss key issues in the global economy. The inaugural meeting of the G-20 took place in Berlin, on December 15-16, 1999, hosted by German and Canadian finance ministers….

The G-20 was created as a response both to the financial crises of the late 1990s and to a growing recognition that key emerging-market countries were not adequately included in the core of global economic discussion and governance….

The G-20 is made up of the finance ministers and central bank governors of 19 countries: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom and the United States of America, and also the European Union who is represented by the rotating Council presidency and the European Central Bank. To ensure global economic fora and institutions work together, the Managing Director of the International Monetary Fund (IMF) and the President of the World Bank, plus the chairs of the International Monetary and Financial Committee and Development Committee of the IMF and World Bank, also participate in G-20 meetings on an ex-officio basis. The G-20 thus brings together important industrial and emerging-market countries from all regions of the world. Together, member countries represent around 90 per cent of global gross national product, 80 per cent of world trade (including EU intra-trade) as well as two-thirds of the world’s population. The G-20’s economic weight and broad membership gives it a high degree of legitimacy and influence over the management of the global economy and financial system.

Well, we shall see what the G20 brings. Right now they really have their work cut out for them in the face of a recession that can easily devolve into a full-scale world depression if the right counteracting measures are not taken immediately worldwide by these governments and institutions in particular.

Hat tip to CaryGEE.

Building a Better Legal Profession (BBLP) : April 3-4 National Student Conference on Large Law Firm Reform : Layoffs, Recession : New Book on BigLaw



Stanford, CA, April 3, 2009 – Building a Better Legal Profession (“BBLP”) – the national student group whose efforts to reform large law firms “shook up the legal world,” according to the New York Times – has intensified its efforts in the wake of the economic downturn. On April 7, 2009, the group will release its first book, Building a Better Legal Profession’s Guide to Law Firms, a “for students, by students” guide designed to help students make considered career choices in a tightened labor market. On April 3 to 4, 2009, the group will host a national conference at Stanford Law School focusing on how the current recession has increased the need to reform law firm business practices.

The organization, now a registered 501(c)(3), founded at Stanford Law School, first made headlines in April 2007 for its critique of the business model of the large corporate law firm. That model depends on associates working excessive hours, resulting on high attrition, low female and minority partnership rates, and poor client service.

“Building a Better Legal Profession is a path-breaking effort to reform the legal profession in ways that speak to the most fundamental concerns of its next generation,” said Deborah Rhode, Earnest W. McFarland Professor of Law at Stanford Law School and Director of the Stanford Center on the Legal Profession.

According to BBLP President, Stanford 2L Davida Brook, “The economic downturn makes it clear as never before that the large law firm must adopt more rational business practices.” Brook pointed out that while some firms have laid off large numbers of young associates, “not all firms are the same. Some firms have better practices, for example, more diverse partners carrying a more diverse book of business, and were better positioned to weather the economic storm.”

Keisha Stanford, BBLP’s Director of Firm Outreach and a Stanford 2L, points out that “firms such as Cadwalader and Thatcher Profitt bet heavily on mortgage-backed securities and credit default swap deals with catastrophic results.” In response, the website has added a feature highlighting those firms that have done severe layoffs, information BBLP hopes that law students will consider during the fall law firm recruiting season.

“One particularly irrational layoff practice in some firms is laying off first and second year associates while continuing to recruit new classes of graduates,” said BBLP faculty advisor Michele Dauber, a professor at Stanford Law School. According to Dauber, firms are doing this to curry favor with law schools like Stanford. “These firms would rather fire 150 young people who have done nothing to deserve it than risk alienating the elite schools by not hiring for a few years until the economy improves.” Dauber suggested that associates should have a voice in layoff policies and that firms should give laid off associates the chance to be recalled before doing more hiring.

Guide to Law Firms

April 2009 marks the release of BBLP’s groundbreaking book for law students seeking ‘Biglaw’ jobs, Building a Better Legal Profession’s Guide to Law Firms (360pp., Kaplan Publishing, $24.95). The book was written by Stanford law students and includes numerous essays and contributions by law firm partners, associates, and other experts.

BBLP’s unique guidebook is intended to demystify and facilitate the law firm job search. “Our goal is to make the law firm a more transparent institution, by providing information to students about factors that are important to them such as work-life balance, diversity, billable hours, and pro bono commitment,” said Irene Hahn, the book’s editor and a 2L at Stanford Law School.

  • In the book’s Forward, Sheila Birnbaum, a partner in the NY office of Skadden Arps, recounts her own brush with pay discrimination early in her career, and cautions young women that informal barriers to success still exist. According to Birnbaum, “this book is packed with practical suggestions” that will be invaluable to young lawyers.
  • The first section of the book walks anxious interviewees through the hiring process. It provides information on how to evaluate law firm diversity initiatives, pro bono programs, and partnership models, as well as what questions to ask during the interview process.
  • The second section of the book is devoted to BBLP’s trademark, turning the tables on firms by giving them grades based on diversity. The book’s firm report cards examine percentages of female, African-American, Latino-American, Asian-American, and LGBT partners. Rankings are provided for the country’s six largest markets: New York; Washington, D.C.; Chicago; Boston; San Francisco; and Los Angeles. The group’s website also provides rankings for five smaller markets including: Texas; Atlanta; and Philadelphia. Some brief findings from the book’s rankings:

    – While some large Manhattan firms have made strides in promoting women to partner, at approximately half of New York firms women make up less than 15% of the partners. Hispanic women seem to face particularly severe hurdles, with fewer than 20% of NY firms reporting any Latina partners, and only 7 out of the 80 firms surveyed reported more than one.

    – Certain areas of the country have done better than others in developing diverse lawyers. California – particularly Southern California – has far higher demographic diversity among both the partner and associate ranks of large law firms than other regions.

David Lat, founder of the popular website Above the Law, says, “It’s easy to lament the state of the legal profession today; bringing about real change is harder. But that’s exactly what BBLP is doing, with its revolutionary, market-based approach to reforming the modern law firm as a workplace. This book, part of BBLP’s larger mission of harnessing information for empowerment, is an invaluable resource for anyone exploring the often bewildering world of ‘Biglaw.’”

National Student Conference

The conference will host BBLP leaders from the nation’s top law schools, including Yale, Stanford, Harvard, Chicago, and Columbia. These students are the leaders of BBLP chapters started last year around the country. These leaders are coming together at the Stanford conference to plan the agenda for the year ahead.

“We are pleased to sponsor the conference and to support BBLP’s efforts to understand and change how law firms operate,” said Dean Larry Kramer of Stanford. “This will benefit clients, young lawyers, and the firms themselves in the long run. Nothing is more important for our profession.”

Highlights of the conference include:

  • Saturday afternoon will feature a videoconference appearance by Ralph Nader, a 1958 graduate of Harvard Law School and a long-time critic of corporate law firms.
  • The conference keynote will be delivered by Paul Barrett, associate managing editor of Business Week, and author of the 1999 book on race relations in large law firms entitled The Good Black.

    – Other speakers include journalists, academics, representatives of law firm management, corporate counsel, professional unions including SEIU and WGA, law professors, and former law firm associates hit by the “golden axe” of firm firings for a series of panels aimed at frank discussion of the current crisis challenging the legal profession.

    – BBLP has also partnered with the National Law Journal and the American Association of Law Schools to hold a discussion on the continuing importance of pro bono service at the conference.

    “With the current economic downturn, the issue of pro bono work has taken on even greater urgency,” said Rachel F. Moran, President of the Association of American Law Schools, Raven Professor at Berkeley Law, and Founding Faculty of UC Irvine School of Law. “There are fewer resources to support public interest work, and meanwhile, the ranks of those in need only grow.”

# # #

About Building a Better Legal Profession

Building a Better Legal Profession is a national grassroots movement that seeks market-based workplace reforms in large private law firms. By publicizing firms’ self-reported data on billable hours, pro bono participation, and demographic diversity, we draw attention to the differences between these employers. We encourage those choosing between firms – students deciding whom to work for after graduation, corporate clients deciding whom to hire, and universities deciding whom to allow on campus for interviews – to engage only with the firms that demonstrate a genuine commitment to these issues.

BBLP was founded in January 2007 by Stanford Law students. In the summer of 2007, using publicly available data reported by firms and collected by the National Association of Law Placement (NALP), the organization examined the largest law firms in six geographic markets by several important quality-of-life criteria. BBLP produced a set of rankings for each market –New York, Washington, Boston, Chicago, Los Angeles, and San Francisco/Silicon Valley – for billable hour requirements, demographic diversity, and pro bono participation.

The organization released these reports on October 10, 2007 at a press conference at the National Press Club in Washington, DC. The goal was to provide law students a new set of rankings to help them decide where to work after graduation, in the hope that as more law students began to select firms based on quality-of-life criteria, rather than simply prestige or compensation, the top law firms would face increasing market pressure to reform their workplace culture in order to attract the best recruits. This project received significant media attention, including from the Los Angeles Times, Wall Street Journal, New York Times, CBS News, New York Law Journal, American Lawyer, and Above the Law.

More information is available at For a press copy of our book, the BBLP Guide to Law Firms: The Law Student’s Guide to Finding the Perfect Law Firm Job (Kaplan Press 2009) please contact Davida Brook at the number and/or email below.

Media Contacts

Davida Brook

Michele Dauber
Professor of Law, Stanford Law School

Keisha Stanford
Director of Firm Outreach

Praise for Building a Better Legal Profession and the Guide to Law Firms

“It’s easy to lament the state of the legal profession today; bringing about real change is harder. But that’s exactly what BBLP is doing, with its revolutionary, market-based approach to reforming the modern law firm as a workplace. This book, part of BBLP’s larger mission of harnessing information for empowerment, is an invaluable resource for anyone exploring the often bewildering world of ‘Biglaw.’”

David Lat, Founder,

The Building a Better Legal Profession Guide to Law Firms is “a refreshingly readable, comprehensive, and wonderfully practical guide for launching your professional career as a lawyer.”

Sheila Birnbaum, Partner, Skadden, Arps, Slate, Meagher & Flom LLP

“Building a Better Legal Profession has provided us with a resource that has great promise. By comparing the largest law firms in the top legal markets, the students have put a spotlight on the key issues of demographic diversity, pro bono participation and hours billed. These enterprising law students have an enormous potential to be a force for good and for positive change – now and throughout their careers. I commend them for their dedication and hard work.”

Marcia D. Greenberger, Co-President, National Women’s Law Center

“We are pleased to sponsor the conference and to support BBLP’s efforts to understand and change how law firms operate. This will benefit clients, young lawyers, and the firms themselves in the long run. Nothing is more important for our profession.”

Larry Kramer, Dean and Richard E. Lang Professor of Law, Stanford Law School

“This report confirms that the legal profession has a long way to go in terms of becoming more diverse and fully reflective of our society. We hope that this report can also serve as a springboard for devising strategies that increase minority representation in law firms.”

L. Jared Boyd, National Attorney General, National Black Law Students Association

“Building a Better Legal Profession is a path-breaking effort to reform the legal profession in ways that speak to most fundamental concerns of its next generation.”

Deborah Rhode, Earnest W. McFarland Professor of Law at Stanford Law School and Director of the Stanford Center on the Legal Profession.

“Change is coming to law firms. The most powerful agents for encouraging these changes, however, are not the law firm decision makers, the most powerful agents for change are associates, clients, and the shrinking talent pool of law students, who are, at last, finding their voices, asking hard questions, and forcing change.”

Patricia K. Gillette, Partner, Orrick, Harrington & Sutcliffe LLP

“These reports are extremely important. Even the best intentioned law firms can have gaps between policy and actual practice and objective numbers can help point out those gaps. Law firms as well as law students will benefit from better information that is widely available.”

Cynthia Thomas Calvert, Co-Director, Project for Attorney Retention