In a recent development that has captivated the legal and pharmaceutical communities, the U.S. Court of Appeals for the Third Circuit handed down a decision that might portend significant financial implications for generic drug manufacturers. The verdict effectively holds that the costs incurred by these manufacturers in defending patent infringement suits, specifically those initiated under the Hatch-Waxman Act, are deductible from their federal taxes as ordinary and necessary business expenses. JD Supra reports on this topic in detail.
As many readers are undoubtedly aware, the Hatch-Waxman Act was spearheaded by Senator Orrin Hatch and Representative Henry Waxman in order to strike a balance between the need for innovator companies to reap a fair return on their innovative drug formulations and the public’s need for access to cost-effective generic alternatives. The act, in essence, instigated a new class of litigation often referred to as “patent dance” suits, wherein generic manufacturers challenge the validity of innovator patents to hasten the market entry of generic formulations.
The costs associated with these litigation procedures have often been substantial, but given the recent decision by the U.S. Court of Appeals Third Circuit, these costs are now seen in a new fiscal light. Generic manufacturers can now consider these litigation expenses not as a burdensome overhead but as ordinary and necessary business expenses – essentially making them tax-deductible. This has the potential to alter the dynamics of Hatch-Waxman litigation and may likely even encourage more generic drug companies to step into the arena.
This judgement emerged from the axiom, as Ben Franklin put it, that ‘nothing is certain except death and taxes.’ Yet, in holding these legal expenses as tax-deductible, the court provides greater certainty on at least one half of Franklin’s equation.