Third Circuit: Legal expenses for defending patent infringement suits are deductible
U.S. Court of Appeals for the Third Circuit affirmed the U.S. Tax Court
U.S. Court of Appeals for the Third Circuit affirmed the U.S. Tax Court
The U.S. Court of Appeals for the Third Circuit today affirmed the U.S. Tax Court holding that a generic drug manufacturer can deduct as ordinary and necessary business expenses legal fees incurred in defending itself against patent infringement suits.
The case is: Mylan, Inc. v. Commissioner, No. 22-1193 (3rd Cir. July 27, 2023). Read the Third Circuit’s decision [PDF 231 KB]
Summary
The Tax Court previously held that the legal expenses incurred by the taxpayer (a U.S. manufacturer of brand name and generic pharmaceutical drugs) to defend itself against patent infringement suits were deductible as ordinary and necessary business expenses. 156 T.C. No. 10 (April 27, 2021). Read TaxNewsFlash [PDF 89 KB]
The IRS appealed, arguing that the legal fees ought to be understood as a cost of acquiring approval from the U.S. Food and Drug Administration (“FDA”) to market the taxpayer’s generic drugs and should therefore be treated as capital expenditures.
The Third Circuit held the Tax Court correctly determined that patent litigation is distinct from the FDA’s scientific review process and not actually facilitative of generic drug approval.
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