In Actavis v. U.S., a case at the intersection of tax law and patent law, the Federal Circuit held that generic drug companies’ Hatch-Waxman litigation expenses are “ordinary and necessary business expenses” and can be deducted immediately. It’s an important decision for tax practitioners, aligning tax treatment for generic manufacturers’ legal expenses with how Section 271(a) patent litigation expenses and brand-name drug companies’ Hatch-Waxman expenses are already treated, and maintaining consistency with the Tax Court and Third Circuit on the same issue. Patent practitioners should take note as well: not only will Hatch-Waxman litigation be potentially more cost effective for ANDA filers, the Federal Circuit’s repeated statements that “[t]he Hatch-Waxman and FDA processes are fundamentally separate” and “Hatch-Waxman litigation is not part of the ‘process of . . . pursuing’ approval of an ANDA” may have implications for both sides litigating Hatch-Waxman cases.
