Case: Hatch-Waxman Patent Infringement Defense Costs Deductible (Fed. Cl.) (IRC §263)

Legal expenses incurred to defend against patent infringement case deductible as ordinary and necessary business expenses, the Court of Federal Claims held. Generic drug manufacturer deducted legal expenses associated with a lawsuit brought by brand drug manufacturers claiming patent infringement. The IRS denied the deduction asserting the expenses incurred defending patent litigation under 35 U.S.C. §271(e)(2) must be capitalized under the origin of the claim test and Treasury Reg. §1.263(a)-4 in facilitating the acquisition of FDA-approved Abbreviated New Drug Applications (ANDAs), intangible assets. Litigation expenses originated out of the brand-name drug companies’ patent assertion efforts, do not facilitate FDA ...