The Third Circuit Court of Appeals affirmed on July 27, 2023, that infringement-suit defense costs for ANDA filers who file Paragraph IV certifications are deductible legal expenses, not capital expenditures to obtain FDA approval. The Court of Appeals noted that legal defense costs for ANDA filers do not “facilitate” obtaining an intangible asset because “ultimate FDA approval is never decided by the outcome of patent litigation under § 271(e)(2), even if it is delayed by such litigation.” The IRS Commissioner’s argument was rejected despite arguing that the decision to pursue Paragraph IV certification is a choice that exposes the ANDA filer to litigation and delays FDA approval, therefore seemingly making the litigation part of the process. The Court of Appeals did not find this compelling, noting the undisputed facts that FDA approval can be granted while litigation is ongoing or independent of a determination on infringement, and not all patent holders file suit in the 30-month window so litigation is not guaranteed. The Third Circuit Court of Appeals affirmed the Tax Court which had found that though coordinated in timing under the Hatch-Waxman Act, patent infringement litigation is still litigation and is not converted into part of the scientific review process of the FDA.
As we noted in our February post, Tax Court proceedings should continue to find ANDA litigation costs deductible. Now, two appeals courts have affirmed tax court findings that ANDA legal defense costs are deductible like ordinary litigation costs.