Generics Beat the Tax Man

November 27, 2023

Recently Mylan in Mylan, Inc. v. Comm’r of Internal Revenue, 76 F4th 230 (3^rd Cir. 2023), beat the tax man. Mylan tried to deduct its ANDA litigation expenses as ordinary and necessary business expenses which are an immediate deduction, while the Internal Revenue Service (IRS) claimed the expenses should be capitalized which is not as valuable. The IRS asserted that the expenses should be capitalized, under 26 U.S.C. § 263 and the associated regulations, similar to money paid to acquire approvals from the Food and Drug Administration (“FDA”).  Mylan at 243. The Court rejected the IRS’ argument observing “ultimate FDA approval is never decided by the outcome of patent litigation under [35 U.S.C.] § 271(e)(2), even if it is delayed by such litigation.” Mylan at 244. The Court concluded “it makes no difference in deciding the question of deductibility whether the patent litigation expenses are incurred by the patentee or the alleged infringer.  Nor does it matter that the deductibility question arises in the context of an ANDA suit.” Mylan at 239-40.

This decision means that a portion of a generic company’s litigation expenses will be subsidized by the taxpayers.  The ruling may also apply to the fees and expenses incurred in preparing the required paragraph IV notices.