Grants can also pick up the incentive slack where markets value an innovation adequately, but firms cannot appropriate enough of its value to justify investment. The problem of appropriating the value of an information good is a fundamental justification for intellectual property. Ideally, intellectual property allows firms to appropriate social value of nonexclusive, nonrivalrous information goods by creating an exclusivity mechanism.241 But intellectual
236. In some cases, of course, no entity, whether private or public, will have a good answer as to the social value of a potential innovation. In such cases, whoever is making the decision must simply muddle through—as happens anyway. See, e.g., Charles E. Lindblom, The Science of
“Muddling Through”, 19 PUB.ADMIN.REV.79 (1959) (explaining the difficulty in determining
the social value of a policy).
237. Cf. Pedraza-Fariña, supra note 10, at 439–41 (proposing that the grant system issue calls for scientists to propose important cross-disciplinary problems that need to be solved). 238. Rachel E. Sachs, Administering Health Innovation, 39 CARDOZO L.REV.1991,1993–96
(2018).
239. Id. at 2028.
240. See id. at 2038–41; see generally Laura Pedraza-Fariña, Constructing Interdisciplinary
Collaboration: The Oncofertility Consortium as an Emerging Knowledge Commons, in GOVERNING
MEDICAL KNOWLEDGE COMMONS 259 (Kathy Strandburg, Brett Frischmann, & Michael
Madison eds., 2017) (discussing failures in interagency collaboration in the context of the NIH Roadmap grants) [hereinafter Pedraza-Fariña, Oncofertility].
241. See generally Mark A. Lemley, Ex Ante Versus Ex Post Justifications for Intellectual Property, 71 U.CHI.L.REV. 129 (2004) (discussing the different justifications that exist for having
property mechanisms don’t always work. Where they fail, grants can step in, even if the innovation is relatively late in the development pipeline.242
To take one prominent example, medical diagnostics are a tough target for current patent law; grants could help. Diagnostics range from simple blood tests used in everyday care to the use of next-generation sequencing and complex multigene panels to pinpoint the cause of cancer. Often, the science underlying a diagnostic test is developed with grant funding. For instance, the Supreme Court’s 2012 case about diagnostic methods patents, Mayo v.
Prometheus, turned on a relationship between the proper dosing of a drug and
the amount of a drug-related metabolite in the patient’s blood.243 That
relationship was identified through grant-funded research, though the Court did not note that.244 When the Court held in Mayo that the resulting diagnostic
test was unpatentable as essentially stating a natural law (the underlying relationship) and telling doctors to “apply it,”245 scholars (including me) noted
that this description could cover many diagnostic tests, and worried that patents would no longer provide adequate incentives for firms to develop diagnostic tests and bring them into the market and into clinical use.246 Some
have suggested changing patent law to allay this concern.247 But grants may do
the job without needing to change patent law.248
Grants could support the process of bringing scientific relationships into use as diagnostic tests. For some diagnostics, not much needs to be done to go from relationship to test: once scientists identify genetic mutations associated with a disease (often using grant money), doctors can then identify
exclusive intellectual property).
242. See Ouellette, supra note 22, at 1131–32, 1134–35, 1139.
243. Mayo Collaborative Servs. v. Prometheus Labs, Inc., 566 U.S. 66, 73–75 (2012) (describing diagnostic technology in question).
244. See Marla C. Dubinsky et al., Pharmacogenomics and Metabolite Measurement for 6-
Mercaptopurine Therapy in Inflammatory Bowel Disease, 118 GASTROENTEROLOGY 705, 713 (2000)
(“Supported by the Charles Bruneau Foundation . . . Fonds de la Recherche en Santé du Québec . . . and Fonds pour la Formation de Chercheurs et l’Aide à la Recherche . . . .”). 245. Mayo, 566 U.S. at 72–73.
246. See, e.g., Eisenberg, supra note 21; Sachs, supra note 21; W. Nicholson Price II, Big
Data, Patents, and the Future of Medicine, 37 CARDOZO L.REV.1401,1425–26(2016).
247. See, e.g., Jeffrey A. Lefstin, Peter S. Menell & David O. Taylor, Final Report of the
Berkeley Center for Law & Technology Section 101 Workshop: Addressing Patent Eligibility Challenges,
33 BERKELEY TECH.L.J.551(2018) (outlining a workshop aimed at changing aspects of patent
law).
248. Changing patent law back to a pre-Mayo state would bring its own complications. See,
e.g., Price, supra note 246, at 1444–45 (briefly discussing these problems and citing more in-
depth analyses). At a minimum, the Supreme Court seems uninterested in this possibility, having reaffirmed Mayo in Alice; change would require Congressional action.
the mutation after obtaining the patient’s genetic sequence.249 In those cases,
additional grants may not even be needed. If more research needs to be done—exploring how well existing assays measure the relationship, whether the relationship accurately predicts status in various groups, and whether measurements can be used to improve clinical outcomes—grants can support this work without relying on patent incentives. And where doctors need new technology to apply newly discovered scientific relationships, patent law can still provide the market-calibrated incentives it does for other biomedical technologies—but focused on the technology, not the underlying relationship. For diagnostics, then, grants can support intermediate-cost technologies where some incentive is needed but other incentives are unavailable.
* * *
Grants are not unique in their ability to create incentives for innovation where social value exceeds appropriable market value. Prizes, in particular, can also provide incentives for such innovation, because they typically do not rely on exclusivity or matching market demand.250 Indeed, prizes may work better
in some circumstances where parallel effort between many research teams is demanded,251 though they do not particularly help capital constrained firms.252
R&D tax credits also create incentives for innovation where social value exceeds appropriable market value, though they do so by reducing innovation costs across the board rather than by targeting particular areas of likely social benefit. The point is not that grants are the only mechanism that can create incentives to solve this type of innovation problem, but that grants are a useful tool in this area, and that they use a different set of decision processes to create incentives. Grants are unique, however, in a different area.
249. See Ass’n for Molecular Pathology v. U.S. Patent & Trademark Office, 653 F.3d 1329, 1338 (Fed. Cir. 2011) (describing role of DNA testing in diagnostics). In a parallel to Mayo, the Supreme Court held in Myriad that unaltered genomic DNA is unpatentable, making simple genetic tests of the “here’s an important mutation; find it to diagnose a problem” variety similarly unpatentable. See Ass’n for Molecular Pathology v. Myriad Genetics, Inc., 569 U.S. 576, 580 (2013) (holding that “a naturally occurring DNA segment is a product of nature and not patent eligible merely because it has been isolated”). Today, doctors don’t typically interpret genetic results on their own—genetic counselors act as intermediaries to interpret genetic testing results. A business model could rely on providing that intermediary service. Cf. Rachel E. Sachs, Divided Infringement and the Doctor-Patient Relationship, IPTHEORY (forthcoming)
(noting the difficulty of enforcing diagnostic methods patents in models with such intermediaries). But there is nothing to stop information about well-characterized mutations from becoming as routinely interpreted as, for instance, high cholesterol levels, once genetic sequencing becomes more common.
250. See Adler, supra note 16, at 12–13. 251. Id. at 13–14.