A March 21 Federal Circuit decision in Actavis Laboratories FL, Inc. v. United States, No. 23-1320 (Fed. Cir. Mar. 21, 2025) marked a victory for generic drug developers, affirming that legal expenses incurred defending Hatch-Waxman suits are tax-deductible as ordinary and necessary business expenses. The Federal Circuit's ruling provides potentially significant tax benefits to Hatch-Waxman defendants and clarifies that they can deduct litigation expenses to the same extent as other patent infringement litigants.
This case relates to Actavis Laboratories FL, Inc.'s ~$12 million tax deductions between 2008 and 2009 for legal expenses it incurred defending itself in Hatch-Waxman litigations. Actavis deducted these costs under 26 U.S.C. ' 162(a), which permits deductions for ordinary and necessary business expenses. But the IRS disagreed, determining that the expenses were non-deductible capital expenditures under an IRS regulation because...
