Germany had a flourishing chemical industry in the 19th century. You couldn't patent chemical compounds, being things of god and nature, but you could patent the process. This created the perfect environment for competition and innovation. England, by contrast, did allow patents on chemical compounds, and by contrast their chemical industry was weak.

Switzerland continued in the German tradition until recent years, and had a flourishing pharmaceutical industry, despite the lack of patents.

More: http://www.econtalk.org/archives/2009/05/boldrin_on_inte.htm...