1 5 6 T.C. No . 1 0

UNITED STATES TAX COURT

M YLAN, INC. & SUBSIDIARIES, Pet i ti o n er v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

Do ck etNo s . 2 6 9 7 6 -1 6 , 2 6 97 7 -1 6 , Fi l edAp ri l 2 7 , 2 0 2 1
.

2 6 9 7 8-1 6
.
P, a U.S. co rp o rat i o n , i s a m an ufact u rer o f b ran dn am e an d g en eri c p harm aceu t i cal dru g s . Duri n g 2 0 1 2 t o 2 0 1 4 P i n cu rred l eg al fees i n co n nect i o n wi th ap p l i cat i on s s ub m i t tedt o the Fo o d& Dru g Ad m i ni st rat i o n (FDA) fo r ap p ro v al t o m ark etan d s el l g en eri c v ers io n s o f b ran d n am e dru g s. As p arto f t h e ap p li cat i o n p ro ces s P was req u i red t o p ro v id e a cert i fi cat i o n reg ard i n g th e s t atu s o f an y p at en t s th at h ad b een l i s t edb y th e FDA as co v eri n g t h e res p ect i v e b ran d n am e d ru g . Ons o m e ap p l i cat i o n s P cert i fi edth atl i s t edp at en t s co v eri n g th e b ran d n am e d ru g s were i n v al i do r wo u l dn o t b e i n fri n ged b y th e m an u facture o f P’ s g en eri c d ru g s . Wh eni tm ad e s u ch a cert i fi cat i on , P was req u i redt o s en dn ot i ce l et t ers t o th e b ran d n am e dru g m an u fact u rer an dan y p at en t ees s t at i n g t h atP h adm ad e s uch a cert i fi cat i on . Cert i fi cat i on al s o co n s t i tu t ed an acto f p at en t i n fri ng em en tg i vi ng th e b ran dn am e m anu fact u rer an d p at en t ees th e ri gh t t o b ri n g a p at en ti n fri n g em en t s ui tag ai n st P. Ati s s u e are t h e l eg al ex pen s es i n cu rredt o p rep are n o t i ce l et t ers an d l eg al ex p en s es i n cu rredi n d efen d i n g ag ai n s t th es e p at en ti n fri n gem en t s u i t s . Served 04/27/21- 2
- Oni t s 2 0 1 2, 2 0 1 3 , an d2 0 1 4 ret u rn s , P d edu ct edi ts l eg al ex p en s es as o rd i n ary an dn eces s ary b u s i n es s ex p en d i tu res . Up o n ex am i n at i o n, R d et erm i nedth atth es e ex p en s es were n o n d edu ct i b l e cap i tal ex p en d itu res req u i redt o b e cap i t al i zedan ds ub s equ en t l y d i s al l o w edP’ s cl ai m edd edu ct io n s fo r th e ex pen s es ati s s ue. R th ereaft er i s s u eda n o t i ce o f d efi ci en cy fo r each o f P’ s 2 0 12 , 2 01 3 , an d2 0 1 4 t ax ab l e y ears d et erm i n i n g d efi ci en ci es o f $ 16 ,4 3 0 , 9 47 , $ 1 2 ,6 18 , 6 9 5 , an d $ 2 0,9 8 8 ,6 5 7 , res p ect i v el y . Hel d : Th e l eg al ex p en s es P i n cu rredt o p rep are n o t i ce l et t ers are req u i redt o b e cap i t al i zedb ecau s e th ey were n eces s ary

t o o b t ai n FDA ap p ro v al o f P’ s g en eri c d ru g s . Hel d , fu rt h er, t h e l eg al ex pen s es P i n cu rredt o d efen d p at en t i n fri ng em en ts u i t s are d edu ct ib l e as o rd i n ary an dn eces s ary b u si nes s ex p en s es b ecau s e t h e p at en tl i t i g at i o n was d i s t i n ctfro m th e FDA ap p ro v al p ro ces s .

W i l l i am F. Nel s o n an dJ am es G. St eel e III, fo r p et i t i o n er. Em i l y J . Gi om et t i , Li s a M . Ro dri g u ez, M ary Hel en W eb er, Kath ryn E. Kel ly , an dNi n a P. Ch i n g , fo r res p o n d en t .
URDA, J ud g e: Pet i t i o n er, M y l an , In c. & Sub s i d i ari es (M y l an ), i s a
m an u fact u rer o f b ran dn am e an dg en eri c p h arm aceu t i cal dru g s. Fro m 2 0 1 2 th ro u g h 2 0 1 4 i t i n cu rreds i g ni fi can tl eg al ex p en s es i n p rep ari n g n o t i ce l et ters an d d efen d in g p at en ti n fri n g em en t l aws ui t s rel at edt o i t s g en eri c v ers i o n s o f cert ai n b ran dn am e d ru g s . Oni t s 2 0 12 th ro u gh 2 0 1 4 Fed eral i nco m e t ax return s , M y l an- 3
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cl ai m edd edu ct i on s fo r t h e l eg al fees as o rd i n ary an d n eces saryb u s i n es s ex p en s es
u n d er s ect i o n 1 6 2 (a). 1 Th e In t ern al Rev en u e Serv i ce (IRS) s ub s equ en t ly d i s al lo wedth es e d edu ct i o n s , d et erm i n i n g th atthe l eg al ex p en ses were req u i redt o b e cap i t al i zedp u rs uan tt o s ect i o n 2 6 3 (a). W e co ncl u d e th atth e l eg al ex p en s es M y l an i ncu rredt o p rep are n o t i ce l et t ers are req u i redt o b e cap i tal i zed , wh il e t h e l i ti g at i o n ex p en s es M y l an i n cu rredt o d efen d p at en ti n fri ng em en ts u i t s are d educt i b l e as o rd i n ary an d n eces s ary b u s i n es s ex p en s es . In tro du ct i o n W e b eg i n b y

d es cri b i n g t h e h i g h ly

ret i cu l at eds t atu t ory

an dreg u l at o ry
s ch em e u n d er wh ich M y l an ’ s l eg al ex p en s es were i n cu rred . Befo re a p h arm aceu t i cal co m

p an y can m ark eto r s el l a b ran dn am e o r g en eri c d ru g i n th e Un i ted St at es , i tm

u s tfi rs t o b t ai n ap pro v al fro m th e Fo o d& Dru g Adm i ni s trat i o n (FDA), t h e Fed eral ag en cy res p o n s ib l e fo r, i n t er al i a, t h e s afet y an deffi cacyo f p h arm aceu t i cal s . See Fed eral Fo o d , Dru g , an dCo s m et i c Act , ch . 6 75 , s ec. 5 0 5 , 5 2 St at . at 1 05 2 (1 9 3 8 ) (co d i fi edas am en d ed at2 1 U.S.C. s ec. 3 55 (2 0 1 2 )). Al th o u g h th e fi rs ts t ep i n req ues ti n g ap p ro v al i s th e s am e fo r b ot h b ran d n am e an dg en eri c

1 Un l es s o th erwi s e i nd i cat ed , al l s ect i o n referen ces are t o th e In t ern al Rev enu e Co de (2 6 U.S.C.), as am en ded , i n effect fo r t h e y ears ati s s u e. Ru l e referen ces are t o th e Tax Co u rtRu l es o f Pract i ce an dPro cedu re. Al l am o u n t s are ro u n dedt o th e n eares td o ll ar.- 4
-

dru g s, i .e., b y

s ub m i tt i ng t o th e FDA a Fo rm FDA 3 5 6 h, Ap p l i cat io n To M ark eta New o r Ab b rev i at ed New Dru g o r Bi o lo g i c fo r Hu m an Us e, t h e ro ad s d i v erg e th ereaft er. A. Bran dNam e Ph arm aceu t i cal s 1
. New Dru g App l i cat i o n Fo r b ran dn am e p h arm aceu t i cal s , a dru g ’ s m an u fact u rer fo rm al ly p ro p o s es th atth e FDA ap p ro v e t h e n ew dru g fo r s al e an d m ark et i n g i n t h e Un i t edSt at es th ro u g h a n ew dru g ap p l i cat i o n (NDA). See, e.g ., FTC v . Act av i s, In c., 5 7 0 U.S. 1 3 6 , 1 4 2 (2 0 1 3). Th e NDA m u s tp ro v id e s u ffi ci en ti n fo rm at io n fo r t h e FDA t o
rev i ew t h e d ru g’ s co m

p on en t s , m et h o d s o f m an ufact uri n g an d t es t in g , p ro p o s ed
u s es an dl ab el i n g , an d res u lt s o f cl i n i cal tri al s d em o n st rat i n g th ati ti s s afe an d effect i v e. 2 1 U.S.C. s ec. 3 5 5 (b ). Th e d ru g m an u fact u rer t hen u n d erg o es a “ l o n g,
co m p reh en s i v e, an dco s t l y

t es ti n g p ro ces s , aft er wh i ch , i f s ucces s fu l , th e
m an u fact u rer wi l l recei v e m ark et i n g ap p ro v al fro m th e FDA.” Act av i s , 5 7 0 U.S. at1 4 2 ; s ee al s o 2 1 U.S.C. s ec. 3 5 5 (d ). 2
. Th e Oran g e Bo o k NDA h ol ders are req u i redt o s ub m i tp at en ti n fo rm at io n fo r p at en t s th at
co v er an FDA-ap p ro v ed b ran dn am e d ru g o r an ap p ro v edm et h o d o f u si n g th at dru g . See 2 1 U.S.C. s ec. 3 5 5 (b )(1 ), (c)(2 ); s ee al s o aai Ph arm a In c. v . Th o m p s o n ,- 5
-

2 9 6 F.3 d2 2 7, 2 3 0 (4 th Ci r. 2 0 02 ). Pat en ts s o d i s cl o s edare l i s t edi n a reg i s t er
m ai n t ai n edb y

th e FDA, th e Ap p ro v ed Dru g Pro du ct s wi th Th erap eu t i c Equ iv al en ce Ev al u at io n s (Oran g e Bo o k ). See Caraco Ph arm . Lab s . , Lt d. v . No v o No rd i s k A/ S, 5 6 6 U.S. 3 9 9, 4 0 5 -4 0 6 (2 0 12 ); aai Ph arm a, 2 9 6 F.3 dat2 3 1. Th e FDA d o es n o tco n fi rm

the accu racyo f t he i n fo rm at io n p ro vi d ed wi th the Pat en t& Trad em arkOffi ce o r t h e NDA ap p l i can t . See Am . Bi o s ci en ce, In c. v . Th o m p s o n , 2 6 9 F.3 d1 0 77 , 1 0 8 0 (D.C. Ci r. 2 0 0 1); s ee al s o Caraco , 5 6 6 U.S. at4 0 6 -4 0 7 ; Ap o t ex , In c. v . Th o m

p s o n , 3 4 7 F.3 d1 3 35 , 1 34 9 (Fed . Ci r. 2 0 03 ). B. Gen eri c Ph arm aceu t ical s 1
. Hat ch -W ax m an Act Un t i l 1 9 8 4 , m an ufact u rers o f g en eri c p h arm aceu ti cal s , l i k e t h ei r b ran dn am e
co u nt erp art s , were req ui redt o s ubm i tan NDA fo r FDA ap p ro val . See aai Ph arm a, 2 9 6 F.3 dat2 3 0 -2 3 1 . Co n g res s al t eredco u rs e, h o wev er, i n the Dru g Pri ce Co m p et i t i o n an d Pat en t Term

Res t o rat i on Acto f 1 9 8 4 (Hat ch -W ax m an Acto r Act ), Pub . L. No . 9 8-4 17 , 9 8 St at . 1 5 8 5
. Inth e ActCo n g res s s o u g ht“ t o s tri k e a b al an ce b et ween ‘ two co n fl i ct i n g p o l icy o b j ect i v es : t o i n duce n am e-b ran d p h arm aceu t i cal fi rm s t o m ak e t h e i n v es t m en t s n eces s ary t o res earch an d d ev el o p
n ew dru g p ro du ct s , wh i le s im u l t an eo u s ly

en ab l i n g co m

p et i t o rs t o b ri n g ch eap er, g en eri c co p i es o f t ho se d ru g s t o m ark et .’ ” aai Ph arm a, 2 9 6 F.3 d at2 3 0 (qu o t i n g- 6
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Ab b o t tLab s . v . Yo u n g , 9 20 F.2 d9 84 , 9 9 1 (D.C. Ci r. 1 99 0 ) (Ed ward s , J ., d i s s en t i n g o n o th er g ro u n ds )); s ee al s o El i Li l l y & Co . v . M ed tro n i c, In c., 4 9 6 U.S. 6 6 1 , 6 7 6 (1 9 9 0); In re Li p i t o r An t i tru s t Li t i g ., 8 6 8 F.3 d2 3 1 , 2 4 0 (3 dCi r. 2 0 1 7 ). 2
. Ab b rev iat edNDA
a. FDA Sub m i s s i on To i m p lem en tth e co ng res s i o n al p u rp o s e o f b ri n gi n g ch eap er g en eri c d ru g s t o m ark et , th e Hat ch -W ax m an Actes t ab l i s h eda s h o rt cu tt o FDA ap pro v al fo r
m an u fact u rers h op i n g t o d ev el o p an dm ark et g en eri c co pi es o f b ran d n am e d ru g s p rev i o u s l y ap p ro v edb y

th e FDA. See Act av i s , 5 7 0 U.S. at1 4 2 ; In re Li pi t o r, 8 6 8 F.3 dat 2 40 . Un d er th i s ex ped i t edap p ro ach , a g en eri c d ru g m an u factu rer m ay
s ub m i tan ab b rev i at edn ew dru g ap p l i cat i o n (ANDA) th atp i g g y b ack s o n an ap p ro v edb ran d n am e dru g ’ s NDA i n fo rm at i o n b y s peci fy i n g th atth e g en eri c h as th e “ sam e act i v e i n g red ien t s as , an di s b i o l o g i cal ly equ i v al en t t o ,” t h e al read y -ap p ro v ed b ran dn am e d ru g . Caraco , 5 66 U.S. at4 0 4 -4 0 5 (ci t i n g 2 1 U.S.C.
s ec. 3 5 5(j)(2 )(A)(i i ), (i v )); s ee al s o Act av i s , 5 7 0 U.S. at1 4 2 . Becau s e th e FDA
wo u l dh av e p rev i o u s l y

d et erm i n edth e b ran dn am e d ru g t o b e s afe an d effect i v e, th e ANDA ap p l i can tcan o b t ai n ap p ro v al wh i l e av o id i n g th e “ co s t l y an d t i m e-co n s u m i n g s tu d i es ” n eed edt o o b t ai n ap p ro v al fo r a b ran d n am e d ru g . See El i Li ll y , 4 9 6 U.S. at 6 7 6
.- 7
- b
. Ap p ro v al Th e “ FDA wi ll ap p ro v e an * * * [ANDA] an ds en dth e ap p l i can t an ap p ro v al l et ter i f n o n e o f t h e reas o n s i n § 3 1 4
. 1 2 7 fo r refu si n g t o ap p ro v e t h e * * * [ANDA] ap p l i es .” 2 1 C.F.R. s ec. 3 1 4 .1 0 5 (d ) (2 0 14 ); s ee al s o 2 1 U.S.C. s ec. 3 5 5 (j)(4 ). Ti tl e 2 1 C.F.R. s ec. 3 1 4 .1 2 7 (2 0 1 4 ), i n turn , en u m erat es a n u m b er o f t ech n i cal reas o n s fo r t h e reject i o n o f an ANDA i ncl u d in g fai l ure t o s h o wthatth e g en eri c h as th e s am e act i v e i n g red i en t s as th e b ran dn am e d ru g , fai l u re t o s h o w b i o equ i v al en ce b et ween th e d ru g s , fai l u re t o es t ab li s h th atth e p ro du ct i o n m et h o d s
wo u l dp res erv e th e g en eri c’ s i d en t it y , s tren g th , qu al i ty , an d p uri ty , an dfai l u re t o
s h o w p ro p er l ab el i n g . See al s o 2 1 U.S.C. s ec. 3 5 5(j)(4 ). No n e o f t h e l i s t ed g ro u nd s rel at es t o p at en t i s s u es . See i d .; 2 1 C.F.R. s ec. 3 1 4.1 2 7
. FDA ap p ro v al o f an ANDA, h o wev er, d o es n otn eces s ari l y m ean th ata g en eri c d ru g m ay

b e s o l d an dm ark et ed . A g en eri c dru g, rat h er, “ m ay b e i n tro du ced* * * i n to i n ters t at e co m m erce wh en ap pro v al o f th e * * * [ANDA] fo r th e d ru g p ro du ctb eco m es effect i v e.” 2 1 C.F.R. s ec. 3 1 4
. 1 0 7 (a) (2 0 1 4 ); s ee al s o 2 1 U.S.C. s ec. 3 5 5 (a) (“No p ers o n s h al l i n tro du ce o r d el i ver fo r i n tro du ct i o n i n t o i n t ers t at e co m

m erce an y

n ew dru g , u n l es s an ap p ro v al o f an ap p l i cat i o n fi led p u rs u an t t o s ub s ect io n (b ) o r (j) o f t h i s s ect i o n i s effect iv e wi th res pect t o s u ch dru g . ”). As a g en eral m at t er, t h e “ ap p ro v al s h al l b e m ad e effect i v e i m m ed iat el y ”.- 8
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2 1 U.S.C. s ec. 3 5 5 (j)(5 )(B)(i i i ). In cert ai n i n s t an ces ap p ro v al co m es wi th a d el ay edeffect i v e d at e. Su ch an ap p ro v al i s t en t at iv e an dd o es n o tb eco m e fi n al
u n t i l th e effect i v e d at e, i d . cl . (i v )(II)(d d)(BB), wh i ch m ean s th ata n ew dru g p ro ductm ay

n o t b e i nt ro du ced o r d el i v eredfo r i n tro du ct io n i n to i nt ers t at e
co m m erce u n t il ap p ro val o f th e ANDA i s effect i v e, i d . s ub s ec. (a). 3
. Pat en t Pro t ect i o n s In ad d i t i o n t o en d o rs in g a m o re s im p l i fi edp ro ces s fo r b ri n g i ng g en eri cs t o
m ark et , th e Hat ch -W ax m an Act“ co n t ai n s a co m p l ex s eto f p ro v i s i o ns d es i g n ed t o p ro t ectth e i n t el lect u al p ro p ert y ri gh t s o f * * * [b ran d n am e] dru g co m p an i es an d
o th ers h o l d i n g p at en t s o n b ran d n am e d ru gs .” aai Ph arm a, 2 9 6 F.3 dat2 31
.

a. Pat en t Li ti g at i o n Th e Hat ch -W ax m an Actcreat ed “ s p eci al p ro cedu res ” fo r i d en ti fy i n g an d
res o l vi n g p at en td i sp u t es . See Act av i s , 5 7 0 U.S. at1 4 3 ; In re Li p i t o r, 8 6 8 F.3 d at2 4 0 ; s ee al s o Ap ot ex , 3 4 7 F.3 dat1 3 3 8 (“ Th e Actal s o s o u g h tt o faci li tat e t h e
res o l ut i o n o f p at en t -rel at edd i s p u t es o v er p harm aceu t ical dru g s b y creat in g a
s tream l i n edm ech an i s m fo r i d en t i fy in g an d res o lv i n g p at en ti s s u es rel at edt o th e p ro p os edg en eri c p ro du ct s.”). Wh en fi li n g an ANDA, a g en eri c d ru g
m an u fact u rer m

u s tm ak e o n e o f fo u r “ cert i fi cat i on s ” wi th res p ectt o each dru g fo r wh i ch th ere i s a p at en tl is t edi n th e Oran g e Bo o k . 2 1 U.S.C. s ec. 3 55 (j)(2 )(A)(v i i ).- 9
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M o s trel ev an tt o thes e cas es , a g en eri c d ru g m anu fact u rer m ay cert i fy th atan y p at en t“ is i n v al i d o r wi l l n o tb e i n fri n g edb y the m an u fact ure, u s e, o r s al e” o f t h e g en eri c v ers io n (p arag rap h IV cert i fi cat i o n ). Id . s ub cl . (IV); s ee al s o Act av i s , 5 70 U.S. at1 4 3
. A p arag rap h IV cert ifi cat i o n “ au t o m at i cal l y co u n t s as p at en ti n fri n g em en t , s ee 3 5 U .S.C. § 2 7 1 (e)(2 )(A) (2 0 0 6 ed ., Sup p . V), an do ft en‘ m ean s p ro vo k i n g l i ti g at i o n ’ ”. Act av is , 5 7 0 U.S. at1 4 3 (quo t i n g Caraco , 5 6 6 U.S. at4 07 ); s ee al s o Pu rep ac Ph arm . Co . v . Th o m p s o n , 3 5 4 F.3 d8 7 7, 8 7 9 (D.C. Ci r. 2 0 04 ) (“ In
es s en ce, ap p l i can t s u se p arag rap h IV cert i fi cat i o n s t o ch al l en ge t he v al i d i ty o f b ran d -n am e m an u fact u rers ’ p at en ts .”); Ap o t ex , 3 4 7 F.3 dat 1 3 3 9 . AnANDA ap p li can tm ak i n g a p arag rap h IV cert i fi cat i o n i s req ui redt o n ot i fy th e p at en t ees
an d h o l d er o f t h e ap pro v edNDA i m p l i cat edb y

i ts cert i fi cat io n th ati th as m ad e
s u ch cert i fi cat i o n wi th i n 2 0 d ay s o f t h e ANDA’ s fi l i n g . See 2 1 U.S.C.
s ec. 3 5 5(j)(2 )(B)(i i ) an d(i i i ). Th i s n o t i fi cat io n l et t er, i n ter al i a, m u sti n cl u d e a d et ai led s t at em en tl ay i n g o u t th e fact u al an dl eg al b as es fo r th e ap p l i can t ’ s
co n cl u s i o n th atth e p at en ti s i n v al ido r n o t i nfri n g ed . See i d . cl . (i v ). Th e p at en t ees an dth e NDA h o l d er are en t i t l edt o b ri n g s u i t i n Fed eral Di s tri ctCo u rt , wi th rem ed i es i n cl u d i n g a co urto rd er t h at “ th e effect i ve d at e o f an y ap p ro v al o f t he d ru g * * * i s n o tearl i er t h an th e d at e o f th e ex p i rat i o n o f th e p at en t- 1 0 -

wh i ch h as b een i n fri n ged ” an di n jun ct i v e rel i ef p recl ud i n g th e ANDA ap p l i can t fro m co m m erci al m an ufact ure. 3 5 U.S.C. s ec. 2 7 1 (e)(2 )(A), (4 )(A) (2 0 12 ); s ee al s o 2 8 U.S.C. s ec. 1 33 8 (a) (2 0 1 2 ) (p ro v i d i n g th atth e Fed eral Di s tri ctCo u rt s h av e
o ri g i nal juri sd ict i o n o v er “ an y ci v i l act i o n ari s i n g u n d er an y Act o f Co n g res s rel at i n g t o p at en ts ”). “No twi th s t an d i n g th [e] d efi n edact o f i n fri n g em en t , a d i s t ri ct
co u rt ’ s i n qu iry

i n a s ui tb ro u g h tu nd er [3 5 U.S.C.] § 2 7 1 (e)(2 ) i s th e s am e as i ti s i n an y o th er i n fri n g em en ts u i t , v i z., wh et h er t h e p at en t i n qu es t i o n i s ‘ i n v al i do r wi l l n o tb e i nfri n g ed b y th e m an u fact u re, u se, o r s al e o f t he d ru g fo r wh i ch th e
* * * [ANDA] i s s ub m i t ted .’ ” Gl ax o , In c. v . No v o p h arm , Lt d ., 1 1 0 F.3 d1 5 6 2 , 1 5 6 9 (Fed . Ci r. 1 9 9 7 ) (qu o t i ng 2 1 U.S.C. s ec. 3 5 5 (j)(2 )(A)(v i i )(IV)). “ T he o n l y d i fferen ce i n act i o n s b ro u g htu n d er [3 5 U.S.C.] § 2 7 1 (e)(2 ) i s th atth e al l eg ed l y i n fri n g i n g d ru g h as n o ty etb een m ark et edan dth erefo re t h e qu es ti on o f i n fri n g em en tm

u s tfo cu s o n wh atth e ANDA ap pl i can twi l l l i kel y m ark eti f i t s ap p li cat io n i s ap p ro v ed , an actth ath as n oty et o ccu rred
. ” Id
.

b
. Effect i v e FDA Ap p ro v al Th e d at e o n wh i ch a 3 5 U.S.C. s ec. 2 7 1 (e)(2 ) (Sect io n 2 71 (e)(2 )) s u iti s i n i t i at edh as co n s equ en ces fo r t h e ap p ro v al o f t he g en eri c d ru g b eco m i n g effect i v e. If a s ui ti s b ro u g htwi th i n 4 5 d ay s o f n o ti ce o f anANDA wi th a p arag rap h IV cert i fi cat i on , i t tri g g ers a 3 0 -m o n th s t ay du ri n g wh i ch the FDA i s- 1 1 -

p ro h ib i t edfro m

g ran ti ng “ effect i v e” ap p ro v al t o th e ANDA wh i l e t he p art ies l i ti g at e p at en tv al i d i ty

o r i n fri n g em en t . See 2 1 U.S.C. s ec. 3 5 5 (j)(5 )(B)(i i i ); Act av i s , 5 7 0 U.S. at1 43
. 2 If t h e FDA ap p ro v es th e ANDA du ri n g the 3 0 -m o n th s t ay p eri o d, i t wi l l i s su e a “ t en t at i v e ap p ro v al l et ter”. 2 1 C.F.R. s ec. 3 1 4.1 0 7 (b )(3 )(v ). “ In o rd er fo r
an ap pro v al t o b e m ad e effect iv e * * * , th e ap p l i can tm us trecei v e an ap p ro v al l et t er fro m

the ag en cy

i n d i cat i n g th atth e ap p l i cat i o n h as recei v edfi n al ap p ro v al .” Id . “ Ten t at i v e ap pro val o f anap p l i cat i o n d o es n o tco ns t i tu t e ‘ ap p ro v al ’ o f an ap p li cat io n an d can no t , ab s en ta fi n al ap pro v al l et t er fro m the ag en cy , res u l ti n an effect i v e ap p ro v al u nd er p arag rap h (b )(3 ) o f t h i s s ect i o n . ” Id
.

“ If t he co u rt s d eci d e t h e m at t er * * * [du ri n g th e 3 0-m on th s t ay ] p eri o d , th e FDA fo l l o ws th at d et erm i n at io n ; i f t h ey d o n o t , th e FDA m ay

g o fo rwardan dg i v e [effect i ve] ap p ro v al t o m ark etth e g en eri c p ro du ct .” Act av i s , 5 70 U.S. at1 4 3 ; s ee al s o 2 1 U.S.C. s ec. 3 55 (j)(5 )(B)(i i i ) (ex pl ai ni n g t h atap p ro val “ s h al l b e m ad e effect i v e up o n th e ex p i rat i o n o f t h e thi rt y -m o n th p eri o d ” ab s en tco u rtact i o n ). 3

2 Al th o ug h a p at en ts u i tm ay b e b ro u g h to u t s i d e t h e 4 5 -d ay wi n d ow, th e fi li n g o f s u ch a s u i td o es n o t p ro h i b i tth e FDA fro m m ak i n g i t s ap p ro v al effect iv e. 3 Th u s , i f t h e co u rtco n cl ud es th atth e p at en twas i nv al i do r n o ti n fri n g ed , FDA ap pro v al b eco m es effect i v e o n th e s am e d at e as en try o f t h e ju d g m en t . See 2 1 U.S.C. s ec. 3 5 5 (j)(5 )(B)(i i i )(I) (2 0 1 2 ); s ee al s o 2 1 C.F.R. s ec. 3 1 4 .1 0 7(b )(3 )(i i ) (co n ti n u ed ...)- 1 2 -

“ Th e g en eri c m an u fact u rer t h en h as th e o p t io n t o l au n ch ‘ atri s k ,’ m ean i n g th at , i f th e o n go i n g co u rtp ro ceed i n g u l t i m at el y d et erm i n es thatth e p at en twas v al i dan d i n fri n g ed , th e g en eri c m an u fact u rer wi l l b e l i ab l e fo r t h e b ran d -n am e
m an u fact u rer’ s l o s t p ro fi t s d es p i t e t h e FDA’ s ap p ro v al .” In re Li p i t o r, 8 6 8 F.3 d at2 4 1
. c. 1 80 -Day Ex cl u s i v i ty

Peri o d On ce ap p ro v al o f an ANDA b eco m es effect iv e, t he g en eri c d ru g
m an u fact u rer m ay

b eg i n co m

m erci al l y m ark et i n g t h e d ru g . See 2 1 U.S.C.
s ec. 3 5 5(a); s ee al s o El i Li l ly , 4 9 6 U.S. at6 77 . “ In o rd er t o en co urag e p arag rap h IV ch al l en g es , th ereb y i n creas i ng th e av ai l ab i l it y o f l o w-co s t g en eri c dru g s, * * * [2 1 U.S.C. s ec. 3 5 5 (j)(5 )(B)(i v )] p ro v id es th atth e fi rs t co m p an y t o wi n FDA ap pro v al o f an ANDA co n t ai n i n g a p arag rap h IV cert i fi cat io n h as th e ri gh t t o s el l i t s dru g wi tho u tco m p et i ti o n fo r 1 8 0 d ay s .” Pu rep ac, 3 5 4 F.3 dat8 7 9 ;
s ee al so Tev a Ph arm s ., USA, In c. v . Leav i t t , 5 4 8 F.3 d1 0 3 , 1 0 4 -1 0 5 (D.C. Ci r. 2 0 0 8 ). “ M ark et in g ex cl u s i v i ty i s v al u ab l e, d es i g n edt o co m p en s at e m an u fact u rers fo r res earch an dd ev el o p m en t co s t s as wel l as th e ri s ko f l i t i g at i o n fro m p at en t

3 (...co n t in u ed ) (2 0 1 4). If t h e co u rtco n cl u d es th atth ere h as b een i nfri n g em en t , effect i v e FDA ap p ro v al wai t s fo r p at en tex p i rat i o n . See 2 1 U.S.C. s ec. 3 5 5(j)(5 )(B)(i i i )(II); s ee al s o 2 1 C.F.R. s ec. 3 1 4 .1 0 7 (b )(3 )(i i i ).- 1 3 -

h o l d ers .” Tev a Ph arm s., USA, In c., 5 4 8 F.3 dat1 0 4 ; s ee al s o Act av i s , 5 7 0 U.S. at 1 4 4 (“ In d eed , th e Gen eri c Ph arm aceu t i cal As s o ci at io n s ai d* * * th atth e ‘ v as t
m ajo ri ty o f p o t en t i al p ro fi t s fo r a g en eri c d ru g m an u fact urer m at eri al i ze du ri n g th e 1 8 0 -d ay ex cl u s i v i ty

p eri o d
. ’ ”); In re Li pi t or, 8 6 8 F.3 dat2 4 1
.

FINDINGS OF FACT M y l an i s a g ro up o f affi l i at ed co rp o rat i o n s th atjo i n i n t h e fi l i n g o f
co n so l i d at edFed eral i nco m e t ax retu rn s . M y l an , In c., a Pen n s y l v an i a co rp o rat i o n
an d th e co m

m o n p aren t o f t h atg ro up , m ai n tai n edi t s p ri n ci pal p l ace o f b u s i n es s i n Can on s b u rg , Pen n s y l v an i a, wh en i tt i m el y fi l edthe p et i t i o n s i n th es e co n s o l i d at ed
cas es . I. M y l an ’ s Leg al Ex p en s es M y l an m an u fact u res b ot h b ran d n am e an dg en eri c p h arm aceu t ical s . Duri n g th e y ears rel ev an tt o t h es e cas es , M y l an reg u l arl y s ub m it t edANDAs t o o b t ai n FDA ap pro v al fo r g en eri c v ers io n s o f b ran dn am e d ru gs , i n cl u di n g Cel eb rex , Lu n es t a, an dNex i u m . As n eces s ary t o wi n FDA ap p ro v al , M y lan s etfo rt h d et ai led i n fo rm at i o n t o es t ab l i sh th atth e g en eri c d ru g was b i o equ i v al en t t o th e b ran dn am e d ru g , th atth e g en eri c d ru g s h aredth e s am e act i v e co m po n en t s , an d th atth e m an u fact uri n g p ro ces s wo u l d p res erv e th e g en eri c d ru g ’ s i d en t i ty , s tren gt h , an d p u ri ty .- 1 4 -

Each ANDA al s o i n cl u d eda cert ifi cat i o n as t o an y p at en tl i s t edi n th e Oran g e Bo o kas co veri n g the b ran d n am e d ru g . Duri n g th e y ears rel ev an tt o th es e
cas es , M y l an reg ul arl y

i n cl ud edp arag rap h IV cert ifi cat i o ns , as s ert i ng th ato n e o r
m o re p at en t s co v eri n g th e res p ect i v e b ran dn am e d ru g were i n v al i do r wo u l dn o t b e i n fri n g edb y

M y l an ’ s g en eri c v ers i on . Al th o u g h M y l anu n d ers t oo d that p arag rap h IV cert i fi cat i on s o ft enres u l t edi n l i t i g at i o n , i tfu rth er reco g n i zedth at
s u ch cert i fi cat i o n s o ffered b o th th e earl i es to p p o rtu ni ty t o b ri n g i t s g en eri c
v ers i on s t o m ark etan dthe p os s i b i l i ty (i n s o m e cas es ) o f fi rs t -t o -fi l e ex cl u s i v i ty . Aft er fi l i n g ANDAs wi th p arag rap h IV cert i fi cat io n s, M y l an p rep aredan d
s en tfo rm al n o t i ce l et t ers t o th e b ran dn am e d ru g m an u fact u rers an d p at en t ees i m p l i cat edb y th e cert i fi cat i o n s . Th e l et t ers s etfo rth i n d et ai l M y lan ’ s
ex p lan at i o n s as t o th e i n v al i di ty o f t h e p at en t s ati s s u e o r th e reas o n s th atthe
m an u fact u re, u s e, o r s al e o f i t s g en eri c v ers i o n d i dn o t i n fri n ge s u ch p at en t s . M y l an al s o i n fo rm edthe FDA wh en i ts en tth es e n o t i ce l et t ers . Du ri n g 2 0 1 2 th ro u g h 2 0 1 4 , M y l an reg u l arl y d efen dedi t s el f ag ai n s t Sect i o n 2 7 1 (e)(2 ) s ui t s b ro u g h ti n res p o n s e t o ANDAs wi th p arag rap h IV cert ifi cat i o n s . Th e FDA was n o ta p art y t o th es e s ui t s . M y l an d idn o t i fy th e FDA i f a l aws u i twas b ro u gh twi th i n 4 5 d ay s o f t h e i s s uan ce o f t h e n o t i ce l et t er, i n- 1 5 -

co n si d erat io n o f t h e au t o m at i c 3 0 -m o n th s t ay m an d at edb y

2 1 U.S.C.
s ec. 3 5 5(j)(5 )(B)(i i i ). Th e FDA’ s s ci en t i fi c an dreg ul at o ry rev i ew o f M y lan ’ s ANDAs wi th p arag rap h IV cert i fi cat i on s p ro ceed edwi th o u t reg ardt o an y Sect i o n 2 7 1(e)(2 ) l i ti g at i o n . Ins o m e i n s t an ces du ri n g th e y ears ati s su e t h e 3 0 -m o n th s t ay ex p i red du ri n g th e p en d en cy o f t h e l i t i g at i o n , an dM y l an o b t ai nedFDA ap pro v al fo r t h e g en eri c d ru g ati s s u e b efo re th e s u it ’ s co n cl u s i o n . Wh en th ato ccu rred , M y l an
wo u l dco n t i nu e d efen d i n g th e Sect i o n 2 7 1 (e)(2 ) s u i t . Ontwo o ccas i o n s du ri n g th e rel ev an t y ears , M y l an el ect edt o l au n ch an ap p ro vedg en eri c d ru g “ atri s k”, i .e., aft er t h e ex p i rat io n o f th e 3 0-m o n th s t ay b u tb efo re t h e res o lu t i o n o f t h e l it i g at io n . Wh en M y l anwo n o r l o s ta Sect i on 2 7 1 (e)(2 ) s u i tdu ri n g the y ears ati s s u e, i t
n o t i fi ed th e FDA an dp ro v i d eda co p y o f t h e fi n al ju d g m en to r m an d at e. If M y lan
wo n , i t was en t i t l edt o l au n ch th e g en eri c dru g ati s s u e i m m ed i at el y upo n ap p ro v al b y th e FDA wi th o u t w ai t i n g fo r t h e ex p i rat io n o f th e p at en t s co v eri n g t h e b ran d
n am e d ru g . If M y l an l os t , th e FDA wo u ldd eem M y l an t o h av e co n v ert edi t s p arag rap h IV cert i fi cat i on (t h atth e p at en t s l i s t edi n th e Oran g e Bo o k were i n v al i d
o r were n o ti n fri n g ed ) i n t o a p arag rap h III cert i fi cat i on (t h atap p ro v al was s o u g h t fo r a p eri o db eg i n n i n g aft er t h e ex pi rat i o n o f s u ch p at en t s ). If M y l an l o stth e s u i t- 1 6 -

aft er t h e ANDA h ad b een ap p ro v ed , th e FDA wo u l dco n v ertth e ap pro v al t o a t en t at i v e ap p ro v al effect i v e aft er th e ex p i rat i o n o f t h e rel ev an tp at en ts . M y l an al s o i n fo rm edthe FDA o f o th er co urtact io n duri n g th e y ears ati s s u e. M y l an ap p ri s edth e FDA wh en i ten t eredi n t o s et t lem en t s t o res ol v e Sect i o n 2 7 1 (e)(2 ) s ui t s , co m m un i cat i n g th e t erm s o f t h e s et t l em en tag reem en t i n cl u d i n g an y

l i cen se p erm i t t i n g M y l an t o b eg i n s el l i n g i t s g en eri c d ru g b efo re t h e
ex p irat i o n o f t h e p at en t s co v eri n g th e b ran d n am e d ru g . An dM y l an i n fo rm edth e FDA wh en the co u rti s s uedo r v acat edp rel i m i n ary i n jun ct io n s p ro h i b i t in g th e
m ark et i n g o r s al e o f i t s g en eri c d ru gs b efo re p at en tex p irat i o n. M y l an i n cu rredl eg al fees o f $ 4 6 ,1 5 8 , 4 03 , $ 38 ,2 1 1 , 9 1 1 , an d $ 3 8 ,6 1 8 ,9 9 3 du ri n g 2 0 1 2 , 2 01 3 , an d2 0 1 4 , res p ect i v el y , t o p rep are n o t i ce l et t ers an dt o l i t i g at e th e Sect i o n 2 7 1 (e)(2 ) s u it s . Duri n g t h e y ears ati ss u e M y l an rep ort edl eg al
ex p en s es wi th res p ectt o ap p ro x i m at el y 1 2 0 s u it s i n v o lv i n g ANDAs wi th p arag rap h IV cert i fi cat i on s an d1 5 ad d i t io n al ANDAs wi th p arag rap h IV cert ifi cat i o n s fo r wh i ch s u i ts h adn o ty etb een fi l ed
. II. IRS Ex am i n at io n an dTax Co u rtPro ceed i n g s M y l an t i m el y

fi leda co n s o l i d at edFo rm 1 1 2 0 , U.S. Co rp o rat i o n In co m e Tax Retu rn , fo r each o f i t s 2 0 1 2 , 2 01 3 , an d2 0 1 4 t ax ab l e y ears . Onth o s e retu rn s M y l an d edu ct ed$ 4 6 ,9 91 ,1 72 , $ 3 9 ,6 8 4 ,4 8 3 , an d $ 4 4 ,0 6 0 , 1 8 0 , res p ect i v el y , fo r- 1 7 -

l eg al fees an dex p en s es i tb ro ad l y at tri b u t edt o th e l i t i gat i o n o f Sect i o n 2 7 1 (e)(2 )
s u i t s du ri n g th o se y ears . M y l an ’ s d edu ct io n s fo r t h e y ears ati s s u e b ro k e d o wni n to th e fo l l o w i n g ex p en s e cat eg o ri es : (1 ) t h e l eg al fees d es cri b ed ab o v e t h atM y l an i n cu rredt o p rep are p arag rap h IV n o t i ce l et t ers an d d efen d Sect i o n 2 7 1 (e)(2 ) s u i t s du ri n g 2 0 1 2 th ro u g h 2 0 1 4 ; (2 ) l eg al fees o f $ 8 3 2,7 6 9 , $ 1 ,4 7 2 , 5 7 2 , an d $ 3 ,6 6 9 ,3 9 7 , res p ect i v el y , wh i ch M y l an i n cu rred wi th res p ect t o g en eri c d ru g s (a) fo r wh i ch n o Sect io n 2 7 1 (e)(2 ) s u i twas ev er b ro u g h t , (b ) fo r wh i ch Sect i o n 2 7 1 (e)(2 ) s ui t s were b ro u g h tb u t d i s p os edo f b efo re t h e res p ect i v e y ear fo r wh i ch th e fees were cl ai m ed , an d(c) fo r wh i ch Sect i o n 2 7 1 (e)(2 ) s u i t s were b ro u gh t (o r jo i n edb y

M y l an ) fo l l o wi n g t h e res p ect i ve y ear fo r wh i ch th e fees were cl ai m ed ; an d(3 ) l eg al fees o f $ 1 ,7 71 ,7 9 0 wh ich M y l an i n cu rredi n 2 0 1 4 wi th
res p ectt o d ru gs thath adal read y b een ap pro v edb y

th e FDA an dco m

m erci al l y l au n ch ed
. Th e IRS ex am i n ed M y l an ’ s 2 0 12 th ro u g h 2 0 1 4 retu rn s an dd et erm i n edth at , wi th th e ex cep t i on o f the t h ird cat eg o ry o f ex p en s e (i .e., th e am o un t s i n cu rredfo r p rev i o u s l y ap p ro v edan dl au n ch edco pi es ), al l o f t h e fo reg o i n g l eg al ex p en s es
were n o n d educt i b l e cap i t al ex pen d i tu res req u i redt o b e cap i tal i zedu n d er- 1 8 -

s ect i on 2 6 3 (a) an ds ub

jectt o am o rt i zat i o n u n d er s ect i o n 1 9 7. Itco n s equ en t l y d i s al lo wedM y l an ’ s cl ai m ed d edu ct i o n s , s av e fo r t h e $ 1 ,7 7 1,7 9 0 cl ai m edfo r 2 01 4
. Th e IRS t h ereaft er i s s u edn o ti ces o f d efi ci en cy fo r each o f M y lan ’ s 2 0 1 2 , 2 0 1 3 , an d2 0 1 4 t ax ab l e y ears d et erm i n i n g d efi ci en ci es o f $ 1 6 , 4 3 0 ,9 4 7 , $ 1 2 ,6 1 8 ,6 9 5 , an d $ 2 0,9 8 8 ,6 5 7 , res p ect i v el y . M y l anfi l edt i m el y p et i t i o n s wi th th i s Co u rtfo r red et erm i n at i o n o f t h e IRS’ d et erm i n at i o n s fo r i t s 2 0 1 2 th ro u g h 2 0 1 4 t ax ab l e y ears . W e co n s o l i d at edth e cas es , an da t ri al was h el di n W as h i n g t o n , D.C. At tri al M y l an p u t o n factwi tn es ses , an d b o th p art i es p res en t edex p ert t es t i m o ny reg ard in g i n t ern al FDA p ro ces ses wri tl arg e an d , m o re s p eci fi cal l y , th e ty p i cal co u rs e o f d eal i n g b et ween an ANDA ap p l i can tan d the FDA du ri n g t h e
s ub m i s si o n p ro ces s fo r an ANDA wi th a p arag rap h IV cert i fi cat i o n. 4 OPINION Th e Co m m is s i o n er’ s d et erm i n at i o n s i n a n o t i ce o f d efi ci en cy are p res u m ed
co rrect , an dth e t ax p ay er b ears th e b u rd en o f p ro v i n g t h em erro neo us . Ru l e 1 4 2 (a); W el ch v . Hel veri n g , 2 9 0 U.S. 1 1 1 , 1 1 5 (1 93 3 ). “ In ex p lo ri n g th e rel at i o n s h i p b et ween d edu ct i on s an dcap i t al ex p en d i tu res ,” we are m i n d fu l o f t h e

4 A t o t al o f s i x ex p ertwi tn es s es t es t i fi edattri al , wi th each p art y o fferi n g th ree ex p ert s . Th e Co urtad m i t t edal l th e ex p ert wi tn es s rep o rt s o ffered , i n cl u d i n g th e reb u t t al rep o rt s . Al tho u g h th e ex p ertwi tn es s es t es t i fi edex t en s i v el y attri al , th ei r t es t i m o n y

i s n o tn eces s ary

fo r t h e p urp o s es o f d eci di n g thes e cas es .- 1 9 -

“ fam i li ar ru l e * * * th at th e b u rd en o f cl earl y s ho wi n g th e ri g htt o th e cl ai m ed d educt i o n i s o n th e t ax p ay er.” INDOPCO, In c. v . Co m m i s s io n er, 5 0 3 U.S. 7 9 , 8 4 (1 9 9 2) (q u o ti n g In t ers t at e Tran s i tLi n es v . Co m m i s si on er, 3 1 9 U.S. 5 9 0 , 5 9 3 (1 9 4 3)). I. Dedu ct i b i l i ty

Vers u s Cap i t al i zat i o n A. Gen eral Pri n ci p l es Sect io n 1 6 2 (a) al l o ws a d edu ct i o n fo r “ al l th e o rd i naryan d n eces s ary
ex p en s es p ai d o r i n cu rreddu ri n g the t ax ab l e y ear i n carry in g o n an y trad e o r b u s i n es s ”. 5 By

co n tras t , s ect i o n 2 6 3 (a) p ro v i d es th at “ [n ] o d edu ct i o n s h al l b e al l o wed ” fo r a cap i tal ex p en d i tu re. Deduct i o n s are ex cep t io n s t o th e “ n o rm ” o f cap i t al i zat io n . See INDOPCO, In c. v . Co m m i s s i o n er, 5 0 3 U.S. at8 4 . Wh ere
s ect i on 1 6 2 an d s ect i o n 2 6 3 each ap p l y t o a g i v en ex p en d i tu re, th e cap i t al i zat i o n req u i rem en tco n tro ls an dfu n ct i o n s t o b ar t h e d edu ct i on . See s ec. 1 6 1 ; s ee al s o Co m m i s s i o n er v . Id ah o Po wer Co ., 4 1 8 U.S. 1 , 1 7 -1 8 (1 9 7 4 ). Th e “ p ri m ary

effect ” o f a p aym en t ’ s cl as s i fi cat i o n as a d edu ct i b l e b us i n es s
ex p en s e o r n o n d educt i b l e cap i tal ex p en d i tu re i s s een i n th e t i m in g o f t h e

5 Anex p en s e i s “ o rd i n ary ” i f i t i s cu st o m ary o r u su al wi th i n a p art i cu l ar trad e, b u s i nes s , o r i n du s try o r rel at es t o a co m

m o n o r freq u en t tran s act i o n i n th e ty p e o f b u s i n es s i nv o l v ed . See Dep ut y v . du Po n t , 3 0 8 U.S. 4 8 8, 4 9 5 (1 9 4 0 ). An ex p en s e i s “ n eces s ary ” i f i t i s ap p ro p ri at e an dh el p fu l t o t h e o p erat i o n o f t h e t ax p ay er’ s b u s i n es s . See Co m m i s s i o n er v . Tel l ier, 3 8 3 U.S. 6 8 7 , 6 8 9 (1 96 6 ).- 2 0 -

t ax p ay er’ s co s treco v ery . INDOPCO, In c. v . Co m m i ss i o ner, 5 03 U.S. at8 3
. Wh ereas a d edu ct io n fo r an o rd i n ary an dn eces saryb u s i n es s ex pen di tu re m ay b e t ak en i n th e cu rren ty ear an d y i el ds an i m m ed iat e co rres p o nd i n g redu ct i o n i n t ax ab l e i n co m e, a cap it al ex p en d i tu re t y p i cal l y res ul t s i n reco v ery

o f a t ax pay er’ s
ex p en d i tu re o v er a l o n g er p eri o dth ro ug h am o rt i zat io n an dd ep reci at i o n d educt i o n s . See Il l
. To o l W o rk s , In c. v . Co m m i s s i on er, 3 5 5 F.3 d 9 9 7 , 1 0 0 0 (7 t h Ci r. 2 0 04 ), aff’ g 1 1 7 T.C. 3 9 (2 0 01 ); PNC Ban co rp , In c. v . Co m m is si o n er, 2 1 2 F.3 d8 2 2 , 8 2 7 (3 dCi r. 2 0 00 ) (ci t i n g INDOPCO, In c. v . Co m m i s s i on er, 5 0 3 U.S. at8 3 -8 4 ), rev ’ g 1 10 T.C. 3 4 9 (1 9 9 8 ). Sect io n 2 63 (a) t h u s “prev en t [s ] a t ax p ay er fro m u t i l izi n g cu rren tl y

a d edu ct i o n p ro p erl y at tri b u tab l e, t h ro u g h am o rt i zat i o n , t o l at er t ax y ears wh en th e cap i t al as s etb eco m es i nco m e p ro du ci n g .” Co m m i s s i o n er
v . Id ah o Po wer Co ., 4 1 8 U.S. at1 6
. Wh et h er a g i v enex pen d i tu re i s d edu ct i b l e u n d er s ect i o n 1 6 2 o r m u s ti n s t ead b e cap i t al i zedu n d er s ect i o n 2 6 3 (a) tu rn s o n th e p art icu l ar fact s o f each cas e. See INDOPCO, In c. v . Co m

m i s s i o ner, 5 0 3 U.S. at8 6; s ee al so San t a Fe Pac. Go l dCo
. & Sub s . v . Co m

m i s s io n er, 1 3 2 T.C. 2 4 0 , 2 6 2 (2 0 0 9 ); FM R Co rp . & Sub s . v . Co m m i s s i o n er, 1 1 0 T.C. 4 0 2 , 4 1 5 (1 9 9 8); No rwes tCo rp . & Sub s . v . Co m m i s s i o n er, 1 0 8 T.C. 2 6 5 , 2 8 0 (1 9 9 7). An ex p en di tu re, n o m at t er i t s ty p e, m ay b e d edu ct i b l e i n o ne s et t i ng b u tn ev ert h el es s req u i redt o b e cap i t al i zedi n an o th er.- 2 1 -

See Ly ch u k v . Co m

m i s s i o n er, 1 1 6 T.C. 3 74 , 3 88 (2 0 01 ); s ee al so Am . St o res Co
. & Sub s . v . Co m

m i s s io n er, 1 1 4 T.C. 4 5 8 , 4 6 9 (2 0 0 0 ) (“ Si m p l y b ecau s e o th er cas es h av e al l o weda cu rren td edu ct io n fo r s i m i lar ex p en s es i n d ifferen tco n tex t s d o es
n o treq u i re t h e s am e res u l t* * * [i n an o th er cas e] .”). B. Cap i t al izat i o n o f In t an g ib l es Anex p en di tu re g en eral l y m u s tb e cap i t al i zedwh ere i t i s d et erm i n edth atth e
ex p en d i tu re ei th er: (1 ) creat es o r en h an ces a s ep arat e an dd is t in ctas s et , o r (2 ) o th erwi s e g en erat es s i g n i fi can tb en efi t s fo r t h e t ax p ay er ex t en di n g b ey o n dth e
cu rren tt ax ab l e y ear. San ta Fe Pac. Go l dCo . v . Co m m i s s i on er, 1 3 2 T.C. at2 6 2 ;
s ee al so INDOPCO, In c. v . Co m m i s si o n er, 5 0 3 U.S. at 8 7; Li nco l n Sav . & Lo an As s ’ n v . Co m

m is s i o n er, 4 0 3 U.S. 3 4 5 , 3 5 4 (1 9 7 1 ). Inres p o n s e t o d i ffi cu l ti es i n ad m i n is t eri n g th e s ig n i fi can t fu tu re b en efi ts s t an d ardi n th e co n t ex t o f i n tan g i b l e
as s et s, the IRS an d t h e Dep art m en to f t he Treas u ry p ro p os edreg u l at i o n s t h at

“ d efi n edth e ex cl u s i v e s co p e o f t h e s i g n i fi can tfu tu re b en efi tt es tth ro u g h th e
s p eci fi c cat eg o ri es o f i n t an gi b l e as s et s fo r wh i ch cap i t al i zat i o n i s req u i red ”. 6 7 Fed
. Reg . 7 7 7 0 2 (Dec. 1 9 , 2 0 0 2 ). As ad o p t ed , s ect i o n 1 .2 6 3 (a)-4 (b )(1 ), In co m e Tax Reg s ., requi res th e cap i t al izat i o n o f am o un t s p ai d , i n t er al i a: (1 ) t o acq u i re an
ex i s t in g i n t an g i b le; (2 ) t o creat e cert ai n ty p es o f i n t an g ib l es i d en t i fi edi n s ect i o n 1 .2 63 (a)-4 (d ), In co m e Tax Reg s .; (3 ) t o creat e o r en h an ce v ari o u s “ s ep arat e an d- 2 2 -

d i s t i n ct ” i n t an g i b l es ; an d(4 ) t o creat e o r en h an ce a “ fu tu re b en efi t” i den t i fi edi n
s ub s equ en tg u id an ce p ub li s h edb y th e IRS. 1
. Rel ev an tIn t an g i bl es Fo r i t s p art , s ect i on 1 .2 6 3 (a)-4 (d )(5 ), (7 ), an d (9 ), In co m e Tax Reg s ., en u m erat es cert ai n “ creat edi n tan g i b l es ”, i n cl u d in g “ ri g ht s o b t ai nedfro m a g o v ern m en t al ag en cy ”, co n tract t erm i n at i o n fees , an dam o un t s p ai dt o an o th er t o d efen d o r p erfect t i t l e t o i n tan g i b l e p ro p ert y . 6 W i th res p ect t o ri g h t s o bt ai n edfro m a g o v ern m en tal ag en cy , s ect io n 1 .2 6 3 (a)-4 (d )(5 )(I), In co m e Tax Reg s ., s p eci fi es :

“ A t ax p ay er m

u s tcap i t al ize am o u n t s p ai dt o a g o v ern m en t al ag en cy t o o bt ai n , ren ew, ren eg o ti at e, o r up g rad e i t s ri g h t s u n der a t rad em ark , trad e n am e, co p yri g h t , l i cen se, p erm i t, fran ch i s e, o r o th er s im i l ar ri g h tg ran t edb y th atg o v ern m en t al ag en cy .” Wh et h er an am o u n ti s p ai dt o creat e an i n t an g ib l e u n d er p arag rap h (d ) i s d et erm i n edo n t h e b as i s o f “ al l o f t h e fact s an dci rcu m s t an ces , d i sreg ard i n g

6 A s p eci al 1 2 -m o nt h ru l e ap p l i es t o th e creat edi n t an g i b les i d en t i fi edi n s ec. 1 .2 6 3(a)-4 (d ), In co m e Tax Reg s . Pu rs uan tt o th atru l e, “ a t ax p ay er i s n o t req u i redt o cap i t al i ze u n der t h i s s ect i o n am o u n t s p ai dt o creat e (o r t o faci l it at e t h e creat i o n o f) an y

ri g h to r b en efi tfo r th e t ax pay er t h atd oes n o t ex t en db ey o n dth e earl ier o f--(I) 1 2 m o n th s aft er t h e fi rs td at e o n wh i ch th e t ax p ay er real i zes th e ri g h t o r b en efi t ; o r (i i) Th e en do f t h e t ax ab l e y ear fo l lo wi n g th e t ax ab le y ear i n wh i ch th e p aym en ti s m ad e.” Id . p ara. (f)(1 ). Th e ru l e i s s ub jectt o v ari o u s ex cep t i o n s , i n cl u d i n g fo r “ am o u n t s p ai dt o creat e (o r faci l i t at e t h e creat i o n o f) an i nt an g i b l e th atco n s t i tu t es an am o rt i zab l e s ect i o n 1 9 7 i nt an g i b l e wi th i n th e m ean i n g o f s ect i on 1 9 7 (c).” Id . s ub p ara. (3 ).- 2 3 -

d i s t i n ct i o n s b et ween the l ab el s u s edi n th i s p arag rap h (d ) t o d es cri be t h e i n t an g i b l e
an d th e l ab el s u s edb y

th e t ax p ay er an do th er p art i es t o th e t ran s act i o n .” Id
. s ub p ara. (1 ). As al s o g erm an e t o th es e cas es , s ect i o n 1 .2 63 (a)-4 (d )(9 )(I), In co m e Tax Reg s., p ro v i des thata “ t ax p ay er m u s tcap i t al i ze am o u n ts p ai dt o an ot h er p art y t o d efen d o r p erfect t i t l e t o i n tan g i b l e p ro p ert y i f t h ato ther p arty

ch al l en g es th e t ax p ay er’ s t i t le t o th e i n t an gi bl e p ro pert y .” As d es cri b edi n th e p ream b le t o th e p ro p os edreg u l at i on s , “ [t ] hi s i s co n s i s t en twi th ex i s t i n g reg u l at i o ns ” an d“ i s n o t i n t en d edt o req u ire cap i tal i zat io n o f am o u n ts p ai d t o p ro t ectth e p ro p ert y ag ai n s t i n fri n g em en tan d t o reco v er p ro fi t s an d d am ag es as a res ul t o f i n fri n g em en t .” 6 7 Fed
. Reg . 7 7 7 0 5 (Dec. 1 9 , 2 0 0 2 ). “ As u n der cu rren t l aw, th es e co st s are g en eral l y d educt i b l e.” Id . (ci t i ng Urqu h artv . Co m m i ss i o n er, 2 1 5 F.2 d1 7 (3 dCi r. 1 95 4 ),
rev ’ g 2 0 T.C. 9 4 4 (1 9 5 3 )); s ee al s o T.D. 9 10 7 , 2 0 0 4 -1 C.B. 4 47 , 4 50 (“ Th e fi n al reg u l at i o n s ret ai n th e ru le co nt ai n ed i n th e p ro p o s edreg ul at io n s.”).

2
. Faci li t at i v e Co s t s Th e d i rectco s t s o f creat in g i n t an g i b l es are n o tth e o nl y co s t s th atm

u s tb e cap i t al i zedu n der s ect i o n 1 .2 63 (a)-4 , In co m e Tax Reg s . Tax p ay ers are fu rt h er req u i redt o cap i t al i ze an y am o un t s “p ai d t o faci l i t at e * * * an acq u i s i ti o n o r creat i o n” o f, am o n g o th er th i n g s , an i nt an g i b l e d es cri b edi n p arag rap h (d ). Id
.- 2 4 -

p ara. (b )(1 )(v ). Th i s p ro v i s i o n “ reco g n i zes th atcap i t al i zat io n i s req u i redn o to n l y fo r t h e co s t o f an as s eti t s el f, b u tfo r the an ci ll ary ex p en d i tu res i n cu rredi n acq u iri n g , creat i n g , o r en h an ci ng th e i n t an gi b l e as s et .” 6 7 Fed . Reg . 7 7 7 0 5 (ci t i n g W o o dwardv . Co m

m i s s i o n er, 3 9 7 U.S. 5 7 2 (1 9 7 0 )).

“ [A] n am o u n ti s p ai d t o faci l i t at e t he acq u i s it i o n o r creat i o n o f an i n t an g i b l e (t he t ran sact io n ) i f t h e am o un ti s p ai di n th e p ro ces s o f i nv es t i g at in g o r o therwi s e p u rs u i n g th e t ran s act i o n .” Sec. 1 .2 6 3 (a)-4 (e)(1 )(I), In co m e Tax Reg s . Wh et h er an
am ou n ti s “ p ai di n th e p ro ces s o f i nv es t i g at i n g o r o th erwi s e p u rs u i n g” a g i v en tran s act io n “ i s d et erm i n ed* * * [o n th e b as i s o f] al l o f t h e fact s an d ci rcu m s t an ces . ” Id
. “ [T] h e fact th atth e am o u n t wo u l d(o r wo u l dn o t ) h av e b een p ai db utfo r t h e t ran s act i o n i s rel ev an t , b u t i s n o td et erm i n at i v e.” Id . Fo r p u rp o s es
o f t h i s i n qu i ry , “ the t erm

tran s act i o n m ean s al l o f t h e fact u al el em en t s co m p ri s i n g
an acq u i si t i o n o r creat i o n o f an i n t an g i b l e an di n cl u d es a s eri es o f s t ep s carri edo u t
as p arto f a s i n g le p l an .” Id . s ub p ara. (3 ). C. Li t i g at i o n Ex p en s es Th e d edu ct i b i l it y

o f a l eg al ex p en s e g en eral ly d ep en d s up o n th e o ri g i n an d ch aract er o f t h e cl ai m

wi th res p ect t o wh i ch th e ex pen se was i n cu rred
. See Un i t ed St at es v . Hi l to n Ho t el s Co rp ., 3 9 7 U.S. 5 8 0 , 5 8 3 (1 9 7 0); W o od wardv . Co m m i s s i o n er, 3 9 7 U.S. at5 7 7-5 7 8 ; Un i t edSt at es v . Gi l m o re, 3 7 2 U.S. 3 9 , 4 8 -4 9- 2 5 -

(1 9 6 3); s ee al so W el l p o in t , In c. v . Co m m is s i o n er, 5 9 9 F.3 d6 4 1 , 6 4 7 (7 th Ci r. 2 0 1 0 ), aff’ g T.C. M em o . 2 0 0 8 -2 3 6; NewarkM orn i n g Led g er Co
. v . Un i t edSt at es , 5 3 9 F.2 d9 2 9, 9 3 5 (3 dCi r. 1 9 7 6 ). Un d er t h i s “ o ri g in o f t h e cl ai m ” t es t , “ th e
s ub s t an ce o f t h e u n d erl y i n g cl ai m o r t ran s act io n o u to f wh i ch th e ex pen di tu re i n
co n tro v ers y

aro s e g o vern s wh et h er t h e i t em i s a d edu ct i b l e ex p en s e o r a cap i t al
ex p en d i tu re, reg ard l es s o f t h e m o ti v es o f t he p ay o r o r t h e co n s equ en ces th atm ay
res u l t fro m

th e fai l u re t o d efeat th e cl ai m .” San t a Fe Pac. Go l dCo . v . Co m m i s s i o n er, 1 3 2 T.C. at2 6 4-2 6 5 ; s ee al s o W o od wardv . Co m m i s s io n er, 3 9 7 U.S. at5 7 8 . “ T h u s , l eg al ex p en s es d i rect l y co nn ect edwi th (o r p ert ai n i n g t o ) t h e t ax p ay er’ s trad e o r b u s i n es s are d edu ct i b le u n d er Sect i o n 1 6 2 as o rd i naryan d
n eces s ary b u s i n es s ex p en ses ”, wh i l e “ ex p en s es ari s i n g o u t o f t h e acq u i s i t i o n , i m p ro v em en to r o wn ers h ip o f p ro p ert y are cap i t al ex pen d itu res u n d er Sect i o n 2 6 3 (a) an dare n o t cu rren t l y d educt i bl e.” M ead e Em o ry et al ., “ Leg al Ex p en s es o f Pat en t Defen s e Hel dDedu ct i b l e”, 7 0 J . Tax ’ n 1 8 0 (1 9 8 9 ); s ee al s o Am . St o res Co . v . Co m

m i s s i on er, 1 1 4 T.C. at4 6 8 (ci t i n g Co m m i ss i o n er v . Hei n i n ger, 3 2 0 U.S. 4 6 7 (1 9 4 3 ), Co m m is si o n er v . Tel l i er, 3 8 3 U.S. 6 8 7 , 6 8 9 -6 9 0 (1 9 6 6), an dINDOPCO, In c., v . Co m m is s i o n er, 5 0 3 U.S. at8 3).- 2 6 -

Pat en tl aw h as l o n g d i s t i n g ui s h eds u i t s fo r t h e d efen s e o f t i t le t o i n t el l ectu al p ro p erty fro m p at en t i n fri ng em en t l i t i g at i on . 7 Th e fo rm er i n v o l v es th e d i s po s i t io n
o r acq u i s i t i o n o f a cap i t al as s et , an dex p en s es i n l i t i g at i n g s u ch a s ui th av e b een treat ed as cap i t al --ev en befo re t h e Sup rem e Co u rtem b raced th e o ri g i n o f t he cl ai m t es t . See, e.g ., Es t at e o f Bai er v . Co m m is si o n er, 5 3 3 F.2 d 1 1 7 , 1 20 (3 dCi r. 1 9 7 6 ) (h o l d i n g th atl i t ig at i o n ex p en s es i n cu rredi n ci den t t o a d i s p u t e o ver t h e t erm s o f a d i s p o s i t i on are cap i t al ), aff’ g 6 3 T.C. 5 13 (1 9 7 5 ); Urqu hart v . Co m m i s si o n er, 2 1 5 F.2 dat 1 9-2 0; Safet y Tub e Co rp . v . Co m m i s s io n er, 1 6 8 F.2 d7 8 7 (6 th Ci r. 1 9 4 8 ) (req ui ri n g l eg al fees t o b e cap i tal i zedwh ere co n tro vers y i n v o l vedt i t l e an d
o wn ers hi p o f a p at en t ), aff’ g 8 T.C. 7 5 7 (1 9 47 ). Pat en ti n fri ng em en t l i t i gat i o n i s a d i fferen tcreat u re al t o g et h er, s o u n d i n g i n t o rt . See Sch i l l i n g er v . Un i t edSt at es , 1 5 5 U.S. 1 6 3 , 1 6 9 (1 89 4 ); Gi es eck e+Dev ri en tGm

bH v . Un i t ed St at es , 1 5 0 Fed . Cl . 3 3 0 , 3 4 4 (2 0 2 0 ). Su ch

“ l i t i gat io n i s a far cryfro m rem o v i n g a cl o udo f t i t l e, o r d efen di n g o wn ers h i p o f p ro p erty .” Urqu h artv . Co m m is s i o n er, 2 15 F.2 d at 2 0 . Us u al l y “ wh ata p at en t

7 Wh il e reco g n i zi n g th e n o np reced en t i al n atu re o f m o s t fo rm s o f IRS ad m i n is trat i v e g u id an ce, s ee s ec. 6 1 1 0 (k )(3 ), we n o t e t h atth e IRS h as reco g n i zed th i s d i st i n ct i o n as wel l , s ee, e.g ., 6 7 Fed . Reg . 7 7 7 05 (Dec. 1 9 , 2 0 02 ) (ci ti n g Urquh artv . Co m

m i s si o ner, 2 1 5 F.2 d1 7 (3 dCi r. 1 9 54 ), rev ’ g 2 0 T.C. 9 4 4 (1 9 5 3 )); Pri v . Ltr. Ru l . 2 0 1 5 3 60 0 6 (Sep t . 4 , 2 0 1 5); Fi el dServ . Adv i s ory 1 9 9 92 5 0 1 2 (J u n e 2 5 , 1 9 9 9 ) (“ [A] n accep t an ce b y th e Serv i ce o f Urqu hart h as d ev el o p ed .”); Tech
. Ad v . M em . 8 8 3 1 0 0 1 (Ap r. 8 , 1 9 8 8 ).- 2 7 -

o wn er l o ses fro m

i n fri n g em en ti s the acq u is i ti o n o f ‘ a ju s t an dd es erv ed g ai n ’ fro m th e ex p l o i t at i o n o f t h e i n v en t i o n em b o d i ed i n h i s p at en t .” M at h ey v . Co m m i s s i o n er, 1 7 7 F.2 d2 5 9 , 2 6 3 (1 s t Ci r. 1 9 4 9 ) (qu o t i n g 3 W al k er o n Pat en t s (Del l er’ s Ed .) § 2 81 ), aff’ g 1 0 T.C. 1 0 9 9 (1 9 4 8 ). Th erefo re, “ an awardo f d am ag es i n p at en t[i n fri n gem en t ] l i t i g at io n i s o rd i nari l y an awardo f co m pen s at i o n fo r g ai n s
o r p ro fi t s l o s tb y

th e p at en to wn er an dh en ce i s t ax ab l e t o h im as i nco m e i n th e y ear recei v ed .” Id
. As th e U.S. Co u rto f Ap p eal s fo r t he Th i rdCi rcu i t , t o wh i ch an ap p eal i n th es e cas es wo u l dl i e ab s en ta s t i p u l at i o n t o th e co n trary , s ee s ec. 7 4 8 2 (b )(1 )(B), h as o bs erv ed , l i t i g at i on ex p en s es fo r t ax p ay ers “ en g ag edi n th e b u s in es s o f
ex p lo i t i n g an d l i cen s i ng p at en t s * * * are p ecu l i arl y n orm al ” t o th ei r b u s i n es s , Urquh artv . Co m

m i s si o ner, 2 1 5 F.2 dat1 9
. “ [F] o r t ax p ay ers en g ag edi n th e t rad e
o r b u si n es s o f creat i n g an dl i cen s i n g i n t an g i b l e as s et s , th e co s t s i n cu rredi n p ro s ecu ti n g an act i on fo r * * * i n fri n g em en twi ll m os tl i k el y b e d edu ct i b l e as a b u s i n es s ex p en s e.” Ph i l l i p F. Po s t l ewai t e etal ., Fed eral In co m e Tax at i o n o f In t el lect u al Pro p ert i es & In tan g i b l e As s et s , p ara. 1 .0 3 (2 0 2 1 ), 1 9 9 8 W L 1 0 3 8 6 6 5
. M o reo v er, co s ts i ncu rredb y a b u s i n es s t o d efen d ag ai ns tt o rtcl ai m s g en eral l y h av e b een h el dd edu ct i b l e fo r t he cu rren tt ax ab l e y ear. See, e.g ., Ko rn h au s er v . Un i t edSt at es , 2 7 6 U.S. 1 4 5, 1 5 3 (1 9 2 8). Bo th we an do u r- 2 8 -

p red eces s o r h av e p erm i tt edthe d edu ct i o n o f co st s i ncu rredi n d efen d i n g p at en t i n fri n g em en ts u i t s . See F. M ey er & Bro . Co . v . Co m m i s s i o ner, 4 B.T.A. 4 8 1 , 4 8 2 (1 9 2 6) (h o l d i n g th atam ou n tp ai db y d efen d an ti n p at en ti n fri n g em en ts u i tfo r an
acco u n t in g was an o rd i n ary an dn eces s ary

ex p en s e); Ad dres s o grap h -M u l t ig rap h Co rp . v . Co m

m i ss i o n er, a M em o ran du m Op in i o n o f t h is Co u rt d at edFeb . 5 , 1 9 4 5 , 4 T.C.M . (CCH) 1 4 7 , 1 6 6 (1 9 45 ) (up h o ld in g treat m en to f am o u nt s i n cu rredi n d efen d in g p at en ti n fri n g em en t s u i t s as o rd i n ary an dn eces s ary

b u s i n es s ex p en s es ). Th e d edu ct i b i l it y

o f th es e ex pen s es i s co n s i s t en twi th th e t reat m en to f d am ag es p ai di n th e wak e o f s u ch l i ti g at i o n . Sch n ad i g Co rp . v . Gai n es M fg . Co ., 6 2 0 F.2 d 1 1 6 6 , 1 1 6 9 (6 th Ci r. 1 9 8 0 ) (“ Wh en an i n fri ng er i s req u i redt o p ay d am ag es t o a d es i g n p at en t ee, t h e am o u n t s o p ai d i s d edu ct i b l e fro m h i s i n co m e t ax .”). II. An al y s i s In th es e cas es , th e p art i es d i s p u t e wh et h er the l eg al fees ati s s u e were i n cu rredt o faci l it at e t h e acq u i s i t i o n o f a ri g h to b t ai n edfro m a Go vern m en t ag en cy . W e wi l l b eg in b y i d en t i fy i n g th e u n derl y i n g tran s act i o n , i .e., th e acq u is i t io n o f t h e ri g ht , b efo re d et erm i n i n g wh et h er t h e res p ect i v e fees were p ai d i n the p ro ces s o f i n v es t i g at i n g o r o th erwi se p u rs u in g th attran s act i o n .- 2 9 -

A. Th e Tran sact io n Th e p art i es b efo re u s b o th d es cri b e t h e rel ev an ttran s act i o n as the acq u is i t io n o f an FDA-ap p ro v edANDA wi th a p arag rap h IV cert i fi cat io n . Ho wev er, th e p art i es as cri b e v ery d i fferen tm ean i n g s t o th i s g en eral fo rm u l at i o n . M y l an as s ert s th atth e acq u is i ti o n o f an FDA-ap p ro v ed ANDA wi th a p arag rap h IV cert i fi cat i on o ccu rs wh en th e FDA co m p l et es i t s s ci en t i fi c an d t ech n i cal rev i ew an di ss ues ei th er a t en t at iv e o r fi n al ap p ro v al l et t er. Th e Co m m i s s i o n er as sert s th atth e acq u is i t i o n o f an FDA-ap pro v edANDA wi th a p arag rap h IV cert i fi cat i on refers t o o b t ai n i n g effect i v e ap pro v al o f anANDA wi t h a p arag rap h IV cert ifi cat i o n . Th e Co m m is s i o n er’ s i nt erp ret at i o n i s t h e m o re p ers u as i v e. Sect i o n 1 .2 6 3 (a)-4 (b )(i )(v ), In co m e Tax Reg s . , requ ires cap i t al i zat i on o f am o u n t s p ai dt o faci l i t at e t h e acq u is i t io n o r creat i o n o f an i n t an gi b l e. As rel ev an t h ere, creat ed i nt an g i b l es i n cl u d e “ cert ai n ri g h ts o b tai n edfro m a g ov ern m en t al ag en cy ”,
s u ch as “ ri g h t s u n d er a t rad em ark , trad e n am e, co p yri g h t , l i cen se, p erm i t , fran ch i s e, o r o th er s i m i l ar ri g h tg ran t edb y th atg o v ern m en tal ag en cy . ” Id
. p ara. (d )(5 )(i ). 8

8 Nei th er p art y

co n t en d s t h atFDA-ap p ro v edANDAs are s ub jectt o th e 1 2 -m o n th ru l e o f s ec. 1 .2 6 3 (a)-4 (f), In co m e Tax Reg s . W e t h erefo re d o n o t (co n ti n u ed ...)- 3 0 -

Al th ou g h the “ FDA wi l l ap p ro v e an * * * [ANDA] an ds en d t h e ap p l i can t
an ap pro v al l et t er” as l o n g as i ts at i s fi es th e s ci en t i fi c an d t ech ni cal req u i rem en t s
s etfo rt h i n 2 1 C.F.R. s ec. 3 14 .1 2 7 , s ee 2 1 C.F.R. s ec. 3 1 4 .1 0 5 (d ); s ee al s o 2 1 U.S.C. s ec. 3 5 5(j)(4 ), th i s ap pro v al d o es n o tco n fer an y ri g h t s o n an ap p li can tu n t i l i t beco m es “ effect i v e”, s ee 2 1 U.S.C. s ec. 3 5 5 (j)(5 )(B); 2 1 C.F.R. s ec. 3 1 4 .1 0 7 (a). On l y atth atp o i n td o es th e ri gh tat t ach , wh i ch th en al l o ws fo r a g en eri c dru g t o b e

“ i n tro duced o r d el i v eredfo r i n tro du ct i on i n to i n t ers t at e co m m erce”. 2 1 C.F.R.
s ec. 3 1 4.1 0 7 (a); s ee al s o 2 1 U.S.C. s ec. 3 55 (a) (“No p ers o n s h al l i nt ro duce o r d el i v er fo r i n tro du ct i o n i n t o i n ters t at e co m m erce an y

n ew dru g, u n les s an ap p ro v al
o f an ap p l i cat io n fi l edp u rs u an tt o s ub s ect i o n (b ) o r (j) o f t h i s s ect i o n i s effect i v e wi th res p ect t o s u ch dru g . ”). M y l an h as n o t s ho wn , an dwe h av e n o tfo u nd , an y au th ori ty d em on s trat i n g th atap p ro v al b efo re i tb eco m es effect i v e co n fers ri g h ts equ i v al en t t o “ ri g h t s u n d er a t rad em ark , trad e n am e, co p yri g h t, l i cen s e, p erm i t , fran ch is e, o r o th er s i m i l ar ri gh t g ran t edb y

th atg ov ern m en t al ag en cy .” Sec. 1 .2 6 3 (a)-4 (d )(5 )(i ), In co m e Tax Reg s. W e acco rd i n g ly

ad o p tthe Co m

m i s s i o n er’ s i n t erp ret at io n o f th e t ran s act i o n .

8 (...co n t in u ed ) ad dres s th e ap p l icat i o n v el n o n o f t h atru le t o th es e cas es .- 3 1 -

B. Rel ev an tLeg al Fees 1
. Parag rap h IV No t i ce Let ters W e n ex tco ns i der t h e p ro p er ch aract eri zat i o n o f t h e l eg al fees M y l an i n cu rreddu ri n g 2 0 1 2 th ro u g h 20 1 4 t o p rep are n o t i ce l et t ers rel at in g t o i ts fi l i n g o f ANDAs wi th p arag rap h IV cert i fi cat io n s . Anap p l i can tfo r an ANDA wi th a p arag rap h IV cert i fi cat i on “ s h al l g i ve n o t i ce” t o “ each o wn er o f t h e p at en tth ati s th e s ub jecto f t h e cert i fi cat i o n ” an d th e h o l d er o f t h e NDA wi th res p ect t o th e b ran dn am e d ru g co v eredb y s u ch p at en t s . 2 1 U.S.C. s ec. 3 5 5 (j)(2 )(B)(i i i). Th e
n o t i ce i s req u i redt o i n fo rm th e reci p i en t s o f t h e ANDA s ub m i s s i o n an d t o ex p l ai n i n d et ai l “ th e fact u al an dl eg al b as i s o f t h e o p i n i o n o f t he ap p li can t th atth e p at en t i s i nv al i do r wi l l n o tb e i n fri ng ed .” Id
. cl . (i v ). Aft er p ro v id i n g t h atn o ti ce, th e ap p li can ti s req u i redt o s ub m i tan am en d m en t t o i t s ANDA refl ect i n g th at th e
n o t i ce h adb een g iv en . See 2 1 C.F.R. s ec. 3 1 4 .9 5 (b ). Th i s n o t i ce req u i rem en t i s al so a p art o f th e ANDA i t s el f. Un d er 2 1 U.S.C.
s ec. 3 5 5(j)(2 )(B)(i ), the ap p l i can tth at m ak es a p arag rap h IV cert i fi cat i o n “ s h al l i n cl u d e” i n i t s ANDA a s tat em en tth atthe ap p li can t “ w i l l g i v e n o t i ce” as o u t l i n ed i n 2 1 U.S.C. s ec. 3 5 5 (j)(2 )(B). An dfai l u re t o p ro vi d e s u ch n o t i ce h as t an gi b l e
co n seq u en ces as “ cert i fi cat io n s b eco m e effect i v e o nl y up o n n o t i fi cat i o n.” Pu rep ac, 3 5 4 F.3 dat8 9 0
.- 3 2 -

Th e n o t i ce d es cri bedab ov e t h u s i s a req u ireds t ep i n s ecu ri n g an FDA-ap p ro v edANDA fo r t h o se ap p li can t s t hatm ak e a p arag rap h IV cert i fi cat i o n. Sec. 1 .2 6 3 (a)-4 (e)(3 ), In co m e Tax Reg s . Al th o u g h M y l an arg u es th at th e n o t i ce
s erv es t o faci l i t at e p at en t l i t i gat i o n , Co n g res s h as m ad e t he n o t i ce a p rereq u i s i t e fo r ANDA ap p ro v al . Co n s equ en t l y , th e l eg al ex p en s es M y lan i n cu rredt o p rep are,
as s em b l e, an d tran s m i ts u ch no t i ce l et t ers co n s t i tut e am o u n t s i n cu rred

“ i n ves t ig at in g o r o therwi s e p u rs u i n g ” t he t ran s act i on o f creat i ng FDA-ap p ro v ed ANDAs , i d . s ub p ara. (1 )(i ), an dm u stb e cap it al i zed , s ee al s o i d . p ara. (l ), Ex am p l e (1 ) (co n cl u d in g th atp aym en ts t o o u ts i d e co u n s el t o p rep are l icen s e ap p l icat i o n faci li t at edth e creat io n o f ani n tan g ib l e).

2
. Sect io n 2 7 1 (e)(2 ) Li t i g at i on Ex p en s es W e reach a d i fferen t co n cl us i on wi th res p ectt o M y l an ’ s Sect i o n 2 7 1 (e)(2 ) l i ti g at i o n ex p en s es i n cu rredduri n g t h e y ears ati s s ue. In th e Hat ch -W ax m an Act , Co n g res s s o u g htt o en co u rag e t h e en try o f l o w -co s tg en eri c d ru g s i n t o th e
m ark etp l ace wh il e s o ft en i n g t h e ri skt o co s t -i n ten s i v e i n n o vat i on b y g i v i n g b ran d
n am e d ru g m anu fact u rers th e o p p o rtu n i ty t o av ai l them s el v es o f p at en tl aw p ro t ect i o n s b efo re s u s t ai n i n g d am ag es . Am o n g o th er ch an g es m ad e t o acco m p li s h th es e o b ject i v es , th e Hat ch -W ax m an Actm o v edup th e t i m el in e o f p at en tl i t i g at i o n wi th res p ect t o g en eri c co p i es o f b ran dn am e d ru g s s ub jectt o a p at en t l i s t edi n th e- 3 3 -

Oran g e Bo o k . Al th o u g h t h e fi l i n g o f an ANDA wi th a p arag rap h IV cert i fi cat i o n tri g g ers th e o p p ortu n i ty

fo r p at en tl i t i g at i o n as wel l as th e FDA rev i ew p ro ces s , th i s s t atu t o ry

d es i g n d o es n o ttran s fo rm p at en tl i t i g at i o n i nt o a s t ep i n th e ANDA ap p ro v al p ro ces s . Th e p at en tl i t i g at i on ex p en s es ati s s u e acco rd i n g l y are n o t
s ub jectt o cap i t al i zat i o n .

a. Hat ch -W ax m an Reg i m e W e s t artb y

co ns i d eri n g t h e ANDA ap p ro val p ro ces s . Th e FDA rev i ews an ANDA t o en s u re t h atcert ai n s afet y s t an d ard s are m et an dth atth e g en eri c co p y h as th e s am e act iv e i n g red i en ts as , an di s “b i o equ i v al en t ” t o , th e ap p ro v edb ran dn am e dru g . See 2 1 U.S.C. s ec. 3 5 5 (j)(2 )(A), (4 ); s ee al s o Act av i s, 5 7 0 U.S. at1 4 2 ; Caraco , 5 6 6 U.S. at4 0 4 -4 0 5
. Acco rd i n g t o 2 1 U.S.C. s ec. 3 5 5 (j)(4 ), th e FDA

“ s h al l ap pro v e” an ANDA un l es s i tfai l s t o s at i s fy cert ai n t ech n ical req u i rem en t s
en u m erat edi n t h e s tatu t e an dacco m p an y i n g reg ul at io n s , i n cl u d i n g fai l ure t o s h o w th atth e g en eri c h as th e s am e act i v e i n g red i en t s as th e b ran d n am e d ru g , fai l u re t o
s h o w b i o equ i v al en ce b et ween th e d ru g s , fai l u re t o es t ab li s h t h atth e p ro du ct i o n
m et h o ds wo u l dp res erv e t h e g en eri c’ s i d en t i ty , s tren g th , qu al it y , an d p uri ty , an d fai l u re t o s ho w p ro p er l ab el i ng . See al s o 2 1 C.F.R. s ecs . 3 1 4 .1 0 5(d ), 3 14 .1 2 7
. Th e o u t co m e o f a Sect io n 2 71 (e)(2 ) s u i t h as n o b eari n g o n th e FDA’ s s afet y
an d b i oeq u i v al en ce rev i ew. Th e FDA co n t i n u es i t s rev i ew p ro ces s duri n g th e- 3 4 -

p en den cy o f t h e p at en ti nfri n g em en ts u i tan d m ay i s s ue a t en t at iv e o r fi n al ap p ro v al b efo re t h e s u i t i s res o l v ed . Th e FDA d o es n otan al y ze p at en ti s s u es as p arto f i ts rev i ew, an d n ei th er t h e s t atu t e n o r reg u lat i o n s s u g g es tthatp at en ti s s u es
m i g h tb l o ckap p ro v al o f an ANDA. An d wi n n i n g a p at en t l i t i g at i on s u itd o es n o t
en s u re th atth e g en eri c d ru g m an u fact u rer wi ll recei v e ap p ro v al , as th e FDA can d i s ap p ro v e an ANDA fo r n otm eet i n g s afet y an db i oeq u iv al en ce s t an d ard s . 2 1 U.S.C. s ec. 3 5 5 (j)(4 )(F). A rev i ew o f t h e p at en tl i t i g at i o n fram ewo rki m p lem en t edb y

th e Hat ch -W ax m an Actl i kewi s e fai l s t o s u g ges tth ats u ch l i t i gat i o n i s an el em en to f th e ap p ro v al p ro ces s fo r ANDAs wi th p arag rap h IV cert i fi cat io n s . “ [T] o g u ard ag ai n s ti n fri n g em en t o f p at en t s rel at i ng t o * * * [b ran dn am e] dru g s ”, El i Li l l y , 4 9 6 U.S. at6 76 -6 7 7 , Co n gres s d ev i s eda s y s t em wh ere a cert i fi cat i o n th ata p at en t
co v eri n g th e b ran d n am e d ru g i s i n v al i do r n ot i nfri n g ed “ au t o m at i cal l y co u n t s as p at en ti n fri n g em en t ”, Act av i s, 5 7 0 U.S. at1 4 3 . Th e n ew cau s e o f act i on
em bo d i edi n Sect io n 2 71 (e)(2 ) was a d i rect res p on s e t o Co n gres s ’ d eci s i o n t o en d th e p ro h i b i t i o n o n u s e o f b ran dn am e p h arm aceu t i cal s fo r res earch an d d ev el o p m en tb efo re t h e ex p i rat i o n o f p at en t s co v eri n g s u ch p harm aceu t i cal s . See- 3 5 -

3 5 U.S.C. s ec. 2 7 1 (e)(1 ). 9 Th e t ech n ical acto f i nfri n g em en t p ro v i d edan earl i er tri g g er fo r a p at en ts u i t“ s o t h atco u rt s co u l d p ro m p t ly res o l ve i nfri n gem en tan d
v al i d i ty d i s p u t es b efo re t h e ANDA ap p l i can th aden g ag edi n th e t rad i t i o n al
s t atu to ri l y

d efi n edact s o f i n fri n g em en t .” As traZen eca Ph arm s . LP v . Ap o t ex Co rp ., 6 6 9 F.3 d1 37 0 , 1 3 7 7 (Fed
. Ci r. 2 0 1 2 ); s ee al s o Bri s t o l -M y ers Squ ib b Co . v . Ro y ce Lab s., In c., 6 9 F.3 d1 1 3 0 , 1 1 35 (Fed
. Ci r. 1 9 9 5 ) (h o l d i ng th at a Sect i o n 2 7 1 (e)(2 ) s ui tm ak es “ i tp o s s i b le fo r a p at en to wn er t o h av e t h e co u rt d et erm i n e wh eth er, i f a p art i cu l ar d ru g were p u t o n th e m ark et , i two u l d i n fri n g e th e rel ev an tp at en t ”). Al th ou g h the Hat ch -W ax m an Actm o v edup th e t im i n g o f p at en t l i t i g at i o n , i t s ch aract er rem ai nedu n ch an g ed . “ No twi th s t an d i ng th [e] d efi n ed acto f i n fri n g em en t , a d i s tri ctco u rt ’ s i n qu iry i n a s u i tb ro u gh tu n d er § 2 71 (e)(2 ) i s th e
s am e as iti s i n an y

o th er i n fri ng em en t s u i t , v i z., wh et h er t h e p at en ti n qu es t i o n i s

‘ in v al i d or wi l l n o tb e i n fri ng edb y the m an u factu re, u s e, o r s al e o f t h e d ru g fo r wh i ch th e * * * [ANDA] i s s ub m i t t ed .’ ” Gl ax o , 1 1 0 F.3 d at1 5 6 9 (qu o ti n g 2 1

9 “ Fo r th os e wh o co n s i d er l eg i s l at i v e h i s t o ry rel ev an t,” W arg er v . Sh au ers , 5 7 4 U.S. 4 0 , 4 8 (2 0 1 4 ), i n i t s rep o rto n t h e b il l p ro p o si n g wh atb ecam e th e Hat ch
W ax m an Act , th e Ho u se En erg y & Co m m erce Co m

m it t ee s t at edth at “ [t ] h e p u rp os e o f s ect i o n s 2 7 1 (e)(1 ) an d(2 ) i s t o es t ab l is h thatex p eri m en t at i o n wi th a p at en t eddru g p ro duct , wh en the p urp o s e i s t o p rep are fo r co m m erci al act i v i ty wh i ch wi l l b eg i n aft er a v al i dp at en tex p i res , i s n o ta p at en t i n fri n g em en t ”, H.R. Rep t. No . 9 8 -8 5 7 (Part 1 ), at4 5 (1 9 8 4 ), 1 9 8 4 U.S.C.C.A.N. 2 6 4 7 , 2 6 7 8.- 3 6 -

U.S.C. s ec. 3 5 5(j)(2 )(A)(v i i )(IV)); s ee al s o Al co n Res earch Lt d
. v . Barr Lab s ., In c., 7 4 5 F.3 d1 1 80 , 1 1 8 6 (Fed . Ci r. 2 0 1 4 ); Ab bo t t Lab s . v . To rPh arm , In c., 3 0 0 F.3 d1 3 6 7 , 1 3 7 3 (Fed
. Ci r. 2 0 0 2 ). 1 0 “ Th e o n ly d i fferen ce i n act i o n s b ro u g h tu n d er § 2 71 (e)(2 ) i s th atthe al leg ed l y i n fri n g i n g dru g h as n o ty etb een m ark et edan d th erefo re t h e qu es t i on o f i nfri n g em en tm u s tfo cu s o n wh atth e ANDA ap p l i can t wi l l l ik el y

m ark eti f i t s ap p l i cat i o n i s ap p ro v ed , an actth at h as n o ty eto ccu rred .” Gl ax o , 1 1 0 F.3 dat 1 5 6 9
. Th e Co m m is s i o n er co u n t ers th ata Sect io n 2 71 (e)(2 ) s ui t i s a s tep i n
o b t ai n i n g effect i v e ap p ro v al o f an ANDA wi th a p arag rap h IV cert i fi cat i o n . He
as s ert s th atth e Hat ch -W ax m an reg i m e i n cen t i v i zedthe fi l i n g o f ANDAs wi th p arag rap h IV cert i fi cat i on s b y th e p ro s pect o f m ark eten try b efo re p at en t
ex p irat i o n an dl ucrat i v e fi rs t -t o-fi l e ex cl u s i vi ty an dth atSect i o n 2 7 1 (e)(2 ) s u i t s i n el u ct ab l y

fo l l owed
. W e are n o tp ers u ad ed . Al th o ug h Co n g res s erect ed a fram ewo rk

th atp ro m o t es th e p ro m

p tres o l u t i on o f p at en t i ss u es , aai Ph arm a, 2 9 6 F.3 dat 2 32 , th e Co m

m i s s io n er fai l s t o d em on s trat e h o w en co u rag in g earl y an d

1 0 Ag ai n , fo r t h o se wh o wi s h t o co n s i d er l eg i s l at i v e h is to ry , th e Ho us e En erg y & Co m m erce Co m

m i t t ee n o t edi n i ts rep o rt th at“ [t ] h e p ro v i s i o n s o f t h i s b i l l rel at i n g t o th e l it ig at i o n o f d i s p u t es i n v o l v i ng p at en tv al i d i ty an di nfri n g em en t are n o ti n t en d ed t o m o d i fy ex i s t i n g p at en tl aw wi th res pect t o th e b u rd en o f p ro o f an d th e n atu re o f t h e p ro o f t o b e co n s id eredb y th e co u rt s i n d et erm i n i n g wh et h er a p at en ti s v al i do r i n fri n g ed .” H.R. Rep t . No . 9 8-8 5 7 (Part 1 ), s up ra at2 8 , 1 9 8 4 U.S.C.C.A.N. at2 6 61
.- 3 7 -

ex p ed i t i o u s p at en t l i t i g at i o n s h o ws th ats u ch l it i gat i on i s an el em en to f acq u i ri n g effect i v e FDA ap p ro v al o f an ANDA wi th a p arag rap h IV cert i fi cat i o n. Th e Co m m is s i o n er al s o p o i nt s t o s t atu t o ry p ro vi s i o n s l i n k i n g th e effect i v e d at e o f ap p ro v al t o t h e o u t co m e o f Sect i on 2 7 1 (e)(2 ) s u i t s as s up p o rt i n g h i s v i ew. As an i ni t i al m at t er, we n ot e thata Sect i o n 2 7 1 (e)(2 ) s u i ti s n otreq u i redt o o b t ai n effect i v e ap p ro v al o f an ANDA wi th a p arag rap h IV cert i fi cat i o n , s ee 2 1 U.S.C.
s ec. 3 5 5(j)(5 )(B)(i i i ), an dth ata b ran d n am e d ru g m an u fact urer i s u nd er n o
o b l i g at i o n t o i n i t i at e s uch a s ui ti n res p on s e t o an ANDA wi th a p arag rap h IV cert ifi cat i o n . Bo th o f t h es e p o i n t s b el i e t h e i d ea th at a Sect i o n 2 7 1 (e)(2 ) s u i ti s a
s t ep i n o b t ai n i n g an effect i v e FDA ap pro v al
. Ti t l e 2 1 s ec. 3 5 5 (j)(5 )(B)(i i i ), o n wh i ch th e Co m m i ss i o ner rel i es , d o es n ot
s u g g es ta d i fferen tres u l t . Wh ere “ th e co u rt s d eci d e t h e m at t er wi th i n * * * [t h e 3 0 -m o n th s t ay ] p eri o d , th e FDA fo l l o ws th atd et erm i n at i o n ; i f t h ey d o n o t , th e FDA m ay g o fo rwardan dg i ve ap p ro v al t o m ark etth e g en eri c p ro du ct .” Act av is , 5 7 0 U.S. at1 43 . Ti t le 2 1 s ec. 3 5 5 (j)(5 )(B)(i ii ) t h u s t i es the effect i ve d at e t o th e
o u t co m e o f a Sect i o n 2 7 1(e)(2 ) s u i t . Co n gres s ’ d eci s i o n t o co o rd i n at e effect i v e FDA ap p ro v al wi th the o u t co m e
o f a Sect i o n 2 7 1 (e)(2 ) s ui t d o es n o tco n v ert s uch l i t i g at i o n i nt o a l i n ki n th e ANDA ap p ro v al ch ai n . To th e co n trary , a Sect i o n 2 7 1 (e)(2 ) s u i t s erv es th e s am e- 3 8 -

fu n ct i o n as a n o rm al p at en t i n fri n g em en t s u i tu n d er 3 5 U.S.C. s ec. 2 7 1(a), n am el y , al l o wi n g p at en th o l d ers th e o p p o rtu n i ty t o v i n d i cat e t h ei r i n tel l ectu al p ro p ert y ri gh t s. M o reo ver, t h e p ri m ary rel i ef av ai l ab le i n a Sect i o n 2 7 1(e)(2 ) s u i t , i .e., p ro h ib i t i ng i n tro du ct i o n o f t h e i n fri n g i n g p ro ducti n t o th e m ark etu n t i l ex p i rat i o n
o f t h e ap p l icab l e p at en t , i s th e s am e rel i ef av ai lab l e i n a n o rm al p at en t i n fri n g em en ts u i t(t h ro u g h an i n jun ct i o n), o n l y

t ai l o redfo r t h e u n i qu e co n t ex t wh ere t h e i n fri n g in g p ro du cth as n o ty etb een i n tro du cedi n to th e m ark et . See 3 5 U.S.C. s ec. 2 7 1 (e)(4 )(A). 1 1 Th e s tatu t ory co o rd i n at i o n b et ween th e o u t co m e o f Sect i o n 2 7 1 (e)(2 ) l i t i g at i o n an dFDA effect i v e ap p ro val en s u res th atth e FDA d o es
n o tru n afo u l o f a Di s tri ctCo u rt ’ s res o l u t i o n o f t h e i n t el l ectu al p ro p ert y ri g h t s o f th e p art i es wh end eci d i n g wh et h er t o g ran tap p ro v al . See Caraco , 5 66 U.S. at4 0 5 (“ [T] h e FDA can no tau tho ri ze a g en eri c d ru g th at wo u l di n fri n ge a p at en t [.] ”). Sect io n 2 7 1 (e)(2 ) l i t i g at i o n i s a v eh i cl e b ui l tfo r t h e p at en th o ld er. Iti s th e p at en th o l d er t h ath as th e ch o i ce t o b ri n g l it i g at i on wi th i n 4 5 d ay s o f n o t i ce, wi t h th e co n s equ en ces d es cri b edi n 2 1 U.S.C. s ec. 3 5 5(j)(5 )(B)(i i i ). Th e l eg al ex p en s es

1 1 W e n o te t h at th is p oi n twas m ad e b y Rep res en t at i v e Hen ry W ax m an b efo re t h e en act m en t o f t h e Hat ch -W ax m an Act , fo r th o s e wh o fi n ds u ch s t at em en t s wo rt h co n s i d eri ng . See 1 3 0 Co n g. Rec. 2 44 2 7 (1 9 8 4 ) (s t at em en to f Rep
. Hen ry

W ax m an ). M r. W ax m an o b serv edth at , u n d er t h en -cu rren tp at en tl aw, “ i f s o m eo n e m ark et s a co m pet i t i v e p ro du ct , * * * [b ran d n am e d ru g m anu fact u res ] can g o t o co urtan d s ue fo r an i n jun ct i o n , o r th ey

can s u e fo r treb l e d am ag es fo r i n fri n g em en to f t h atp at en t .” Id
.- 3 9 -

i n cu rredi n d efen d i n g s u ch s u i t s rel at e t o d et erm i n i n g th e p at en t h o l d ers ’ i n t el l ectu al p ro p ert y

ri gh t s wi th res p ectt o b ran d n am e d ru g s . Ab s en tth e fi l i n g o f
s u ch a s ui tb y

a p at en th ol d er, t h e g en eri c d ru g m an u factu rer i s u n d er n o
o b l i g at i o n t o d em o n s trat e t hata p at en t i s i n v al i do r n o ti n fri n g ed t o o b t ai n FDA ap p ro v al . Ino th er wo rd s , a p at en to n a b ran dn am e d ru g p res en t s n o i m p ed i m en t t o FDA ap p ro v al o f a g en eri c v ers i o n u n l es s th e p at en th o l d er d eci d es t o t ak e ad v an t ag e o f th e m ech an i s m Co n g res s p ro v i d ed fo r an earl y ad ju d i cat i o n o f t h e p at en th o l d er’ s ri g h t s . 1 2 W e can n o tco n cl u d e t hats u ch l i t i g at i o n --co n tro l l edb y
an d p ri m ari l y

b en efi t i n g p at en th o ld ers --i s a s t ep i n th e FDA ap p ro v al p ro ces s fo r th e g en eri c d ru g . As a fi n al m at ter, s ect i o n 1 .2 6 3 (a)-4 (e)(1 )(i ), In co m e Tax Reg s ., i d en t i fi es

“ th e factth atth e am o u n two u l d(o r wo u l dn o t ) h av e b een p ai db u tfo r th e

1 2 Ou r v iew o n th i s p o i n t i s co n s i s t en twi th th at ex p res s edb y Rep res en t at i ve W ax m an , ag ai n fo r t h o s e wh o co n s i d er s u ch s t at em en t s . Inres p o n d i n g t o an o b ject i on t o th e 3 0 -m o n th s t ay , M r. W ax m an n o t edth at“ [t ] h e fact s o f l i fe are t h at a g en eri c d ru g m anufact u rer wi l l awai t , as a p ract i cal m at t er, u n t i l the d eci s i o n o f a co u rto n a p at en tch al l en g e b efo re t h at m an ufact urer m ark et s a g en eri c d ru g .” 1 3 0 Co n g . Rec. 2 4 42 7 . He co n t i n u edth at“ [t ] h e 3 0 -m o nt h p eri o di s o n e t hatg av e fu rt her as s u ran ce t o th e b ran d -n am e d ru g m an u fact u rer t h atth e g en eri c dru g m an u fact u rer wo u l dn o tp uth i s co m p et i to r o n th [e] m ark etu n t il th at co urt d eci s i o n cam e th ro u g h .” Id . M r. W ax m an d i d n o t s ug g es tei th er t h at the p at en t l i ti g at i o n i s co n nect edwi th o b tai n i n g FDA ap p ro val , o r t h atth e 3 0-m o n th s t ay was m o re t h anreas s u ran ce t o b ran d n am e d ru g m an u factu rers i n t h e p at en t co n tex t .- 4 0 -

tran s act io n ” as a rel ev an t , al th o u g h n o td i s po s it i ve, fact o r i n ev al u at i n g wh et h er an
ex p en s e faci li t at es a t ran s act i o n . Ona s u rface l ev el , th is fact o r ap p ears t o wei g h i n fav o r o f t h e Co m

m i ss i o n er’ s p o s i t i on : ab s en t th e t ran s act i o n t o o b t ai n FDA ap p ro v al , the g en eri c d ru g m an u fact u rer wo u l dn o tm ak e a p arag rap h IV cert ifi cat i o n , th e p at en th o l d er wo u l dn oti n i t i at e a Sect i o n 2 7 1 (e)(2 ) s u i t, an dth e g en eri c d ru g m an u fact u rer wo u l dn oti n cu r l i t i g at i o n ex p en s es d efen d i n g th ats ui t . No n et h el es s “ a d i s tri ctco urt ’ s i n qu i ry i n a s u i tb ro u g h tu n d er § 2 7 1 (e)(2 ) i s th e
s am e as is i n an y

o th er i n fri n g em en ts u i t ”. Gl ax o , 1 1 0 F.3 dat1 56 9
. Ev en ab s en t th e t ran s act i o n , th e p at en th o l d er wo u l dd o ubt l es s s eekt o d efen di t s i n t el l ectu al p ro p erty ag ai n s t a p o t en t ial i n fri n g er, an d th e g en eri c m an ufact urer wo u l di n cu r th e s am e l i t i g at i o n co s t s i n d efen d i n g s uch s u i t . W e are n o tp ers u ad ed thatth e l i ti g at i o n ex p en s es wo ul dn o t h av e b een i n cu rredb u tfo r t h e t ran s act i on . 1 3 In s u m m ary , th e Hat ch -W ax m an Actm ad e co o rd i n at edch an g es t o s ev eral
areas o f l aw, i ncl u d i ng th e FDA ap p ro val p ro ces s an dp at en tl aw, t o s erv e i t s g o al s
o f en co u rag i n g th e en try

o f l o w-co s t g en eri c d ru g s i n t o th e m ark etp l ace wh i l e affo rd i ng p at en tp ro t ect i o ns t o b ran d n am e dru g m an ufact urers . See, e.g
. , Inre

1 3 Ag ai n , fo r t h o se wh o wi s h t o co n s i d er M r. W ax m an ’ s v i ews o n th is p o i n t, h e n o t edth at u n d er th en -cu rren tp at en t l aw, “ i f s om eo ne m ark et s a co m p et i t i v e p ro duct , * * * [b ran dn am e d ru g m an u fact urers ] can g o t o co urtan ds u e fo r an i n jun ct i o n , o r t h ey

can s u e fo r t reb l e d am ag es fo r i n fri n g em en to f t h atp at en t .” 1 3 0 Co n g . Rec. 2 4 42 7
.- 4 1 -

Li p i t or, 8 6 8 F.3 d at2 4 0 ; Am
. Bi o s ci en ce, 2 6 9 F.3 dat1 0 7 9 . Des p i t e t h e
co o rd i n at i o n d ev i sedb y

Co n g res s , Sect i o n 2 7 1 (e)(2 ) l i t i g at i o n i s n o ta s tep i n
o b t ai n i n g effect i v e FDA ap p ro v al o f an ANDA wi th a p arag rap h IV cert i fi cat i o n . Acco rd in g ly , ex p en s es M y lan i n cu rredi n d efen d i ng Sect i o n 2 7 1 (e)(2 ) s u i t s were
n o t“p ai dt o faci l i t at e” t he t ran s act i o n an dare n o t req u iredt o b e cap i t al i zed
.

b
. Ori g i n o f t h e Cl ai m Th e o ri g i n o f t h e cl ai m

t es tl i k ewi s e i n di cat es thatSect io n 2 7 1 (e)(2 ) l i ti g at i o n ex p en s es s h ou ldb e t reat edas d edu ct i b l e o rd i naryan d n eces s ary b u s i n es s
ex p en s es . Un d er t h i s t es t, we i n qu i re “ wh et h er t h e o ri g i n o f t h e cl ai m l i t i g at edi s i n the p ro ces s o f acq u i si t i on ”, en h an cem en t , o r o th er d i s p os i t i o n o f a cap i t al as s et . W o o dwardv . Co m

m i s s i o n er, 3 9 7 U.S. at5 7 7 ; s ee al s o San t a Fe Pac. Go ldCo . v . Co m m i s s i o n er, 1 3 2 T.C. at2 6 4-2 6 5
. Th e l eg al ex p en s es ati s s u e aro s e o ut o f act i o n s i n it i at edb y p at en th o l d ers t o p ro t ectth ei r i n t el l ectu al p ro p ert y fro m i n fri n g em en tan dex pl o it at i o n . See, e.g ., Gl ax o , 1 1 0 F.3 dat 1 5 6 9 (“ [A] d i s tri ctco urt ’ s i n qui ry i n a s u i t b ro u g h tu n d er § 2 71 (e)(2 ) i s th e s am e as i ti s i n an y o th er i n fri n g em en ts u i t , v i z., wh et h er t h e p at en ti n qu es t i o n i s ‘ i nv al i do r wi l l n otb e i n fri n g edb y the m an u factu re, u s e, o r
s al e o f t he d ru g fo r wh i ch th e * * * [ANDA] i s s ubm i t t ed .’ ” (q u o ti n g 2 1 U.S.C.
s ec. 3 5 5(j)(2 )(A)(v i i )(IV))). Pat en ti n fri n g em en ts u i t s are creat u res o f t o rt ,- 4 2 -

Sch il l i n ger, 1 5 5 U.S. at 1 6 9 ; Gi es eck e+Dev ri en tGm b H , 1 50 Fed . Cl
. at3 4 4 , wi t h
an ai m o f p rev en ti n g an d reco v eri n g d am ag es t o t h e p at en th ol d er’ s b u s i n es s o f
ex p lo i t i n g i t s p at en t , s ee Urq u h artv . Co m m i ss i o n er, 2 1 5 F.2 dat 2 0. Th e U.S. Co urt of Ap p eal s fo r t h e Th irdCi rcu i th as p rev i o u s l y ex p l ai n ed th e p ro p er t reat m en to f ex p en s es i n cu rredi n l i t i g at i n g an i n fri n g em en t s ui t . See i d . at1 8 -1 9 . Inth atcas e th e t ax p ay ers at t em p t ed t o d edu ct v ari o u s l eg al ex p en s es
as s o ci at ed wi th p at en t i n fri ng em en tl i t ig at io n , an dth e IRS d i s al l o wedthe d educt i o n s o n th e g ro u n d th atth ey were cap it al ex p en d i tu res fo r t h e p ro t ect i o n o r p erfect io n o f p ro pert y

ri g h t s . Id . W e s u s t ai n edth e IRS’ d et erm i n at i o n . Urqu h art
v . Co m m i s s i o n er, 2 0 T.C. 9 4 4. Th e Th i rdCi rcu itd i sag reed , p o in ti n g o u tth at p at en ti n fri n g em en t“ l i t i g at io n i s a far cryfro m rem o vi n g a cl o udo f t i t l e, o r d efen d in g o wn ers h i p o f p ro p ert y . ” Urqu h art v . Co m m i s s io n er, 2 1 5 F.2 dat2 0 . It
reas on edth atth e l i t i g at io n i ns t ead“ aro s e o uto f an drel at edd i rect l y t o th e
ex p lo i t at io n o f the i n v en t i o n em b od i ed i n the p at en t ” an d th u s h el d t h atthe l i ti g at i o n ex p en s es were i n cu rredn o tt o d efen do r p ro t ectt it l e b utrat h er, “ t o p rev en t (an dreco v er) d am ag e t o th ei r b u s i n es s , thati s , t o p ro t ect , co n s erv e an d
m ai n t ai n th ei r b u si n es s p ro fi t s . ” Id
. 1 4 Th e Dep art m en to f t he Treas u ry ex p l i ci t l y

1 4 Al th o u g h Urqu h artp reced edW o od wardv . Co m m i s s io n er, 3 9 7 U.S. 5 7 2 (1 9 7 0), b y

n earl y 2 0 y ears , we n o t e t h at th e Th i rdCi rcu i t ’ s an al y s i s o f t h e (co n ti n u ed ...)- 4 3 -

en d ors edth e Th i rdCi rcu i t ’ s h o l d i n g i n Urqu h arti n t h e p ream b l e t o i t s p ro p o s ed reg u l at i o n s o n th e cap i t al i zat i on o f i n tan g i b l e as s et s . See 6 7 Fed . Reg . 7 7 7 0 5 (n o t i ng th atth e p ro p o s edreg u lat i o n was co n s i st en twi th “ ex is t i n g reg u lat i on s ” an d

“ cu rren tl aw” an d“ i s n o ti n t en d edt o req ui re cap it al i zat i o n o f am o u n t s p ai dt o p ro t ectth e p ro p ert y

ag ai n s ti nfri n gem en t”). Th e l i ti g at i o n ex p en s es ati ss u e h ere l ik ewi s e aro s e o u t o f p at en t i n fri n g em en tcl ai m s. See San t a Fe Pac. Go ldCo
. v . Co m m i s s i o n er, 1 3 2 T.C. at2 6 4 -2 6 5 (“ [T] h e s ub s t an ce o f t h e u n d erl y i n g cl ai m o r t ran s act i o n o u to f wh i ch th e ex p en d i tu re i n co nt ro v ers y aro s e g o v ern s wh et h er t h e i t em i s a d educt i bl e
ex p en s e o r a cap i t al ex p en di tu re[.] ” (Em p h as i s ad d ed .)). Un d er t h e reas o n i n g o f Urquh art , th e l i t i g at i on ex p en s es o f t h e p at en t h o l d ers th ati n it i at edi nfri n gem en t
s u i t s ag ai n s tM y l an s eem cl earl y d edu ct i bl e. W e s ee n o reas o n th atM y l an s h o u l dface d i fferen ttreat m en t . Ex pen s es i n cu rredi n d efen d i n g p at en ti n fri n g em en tcl ai m s h av e b een fo u n d d edu ct i b l e i n th e p as t . See F. M ey er & Bro . Co . v . Co m m i s s i o n er, 4 B.T.A. at4 8 2; Ad dres so g rap h -M u l t i g rap h Co rp . v . Co m m i ss i o ner, 4 T.C.M . (CCH) at 1 6 6
. Al th o u g h Sect io n 2 71 (e)(2 ) l i t ig at i o n u s u al l y o ccu rs b efo re m ark et in g an ds al e o f

1 4 (...co n t i nu ed ) l i ti g at i o n ex p en s es p ercep t i v el y an t i ci p at edth e o ri g i n o f t h e cl ai m t es t thatth e Sup rem e Co u rtad o p t ed
.- 4 4 -

th e g en eri c d ru g , th e p u rp o s e o f t h e s u itrem ai n s t o p ro t ectfu tu re b us i n es s p ro fi ts . 1 5 Cf. Urqu h art , 2 1 5 F.2 dat2 0; M at h ey v . Co m m i s s i o n er, 1 7 7 F.2 dat2 6 3
. W e co n cl u d e t h at th e l i t i g at i on ex p en s es thatM y l an i n cu rredi n d efen d i n g Sect i o n 2 7 1 (e)(2 ) s ui t s aro s e o u to f t he o rd i n ary an dn eces s ary act iv i t i es o f i t s g en eri c d ru g b u s i n es s an dacco rd i n g l y are d edu ct ib l e. See Am . St o res Co . v . Co m m i s s i o n er, 1 1 4 T.C. at4 6 8. In s h o rt , th e Co m

m i s s io ner fai l s t o co n v i n ce u s thatth e s ubs t an ce o f t h e
u n d erl y i n g cl ai m

ari s es o uto f t h e acq u i s it i on , o wn ers hi p , o r i m p ro v em en to f p ro p erty as m i g ht s up p o rtthe cap i t al i zat i on o f M y l an ’ s Sect i on 2 7 1 (e)(2 ) l i ti g at i o n ex p en s es . In d eed , we s tru g g le t o s ee t h e n atu re o f t h e p ro p ert y ri g h tth at th e Co m m i s s i o n er h as i n m i n d . Al th o u g h a g en eri c d ru g m an ufact urer m u s tas s ert i n an ANDA wi th a p arag rap h IV cert i fi cat i o n t h atl i s t edp at en t s co v eri n g th e b ran dn am e d ru g are i n v al i d o r n o ti n fri n g edb y th e g en eri c v ers i o n , th e
m an u fact u rer i s n o treq u i redt o u n d ert ak e affi rm at i v e l i t i g at i o n t o es t ab l is h t h at p o i n tas a co n d i t i o n o f en t eri n g i t s g en eri c o n th e m ark et . Itth u s d o es n o tap p ear

1 5 Wh ere a g en eri c d ru g h as b een l au n ch ed“ atri sk ,” i .e., aft er t he co n cl u si o n o f t h e 3 0 -m o n th s t ay

b u tb efo re t h e res o lu t i o n o f t h e l it i gat i o n , th e p l ai n t i ff i n th e Sect i o n 2 7 1 (e)(2 ) s ui tm ay s eekd am ag es as i n a n o rm al i n fri n g em en ts u i t . See 3 5 U.S.C. s ec. 2 7 1(e)(4 )(C). As ex p l ai n ed , s u ch i nfri n g em en td am ag es h av e b een treat ed as d edu ct ib le b u si n es s ex p en s es o f th e i n fri n g i n g p arty . See Sch nad i g Co rp . v . Gai n es M fg . Co ., 6 2 0 F.2 d 1 1 6 6 , 1 1 6 9 (6 th Ci r. 1 9 8 0 ).- 4 5 -

th atSect i o n 2 7 1 (e)(2 ) l i t i g at i o n rel at es t o th e acq u i si ti o n o r en h an cem en to f an y ri gh t o f a g en eri c d ru g m an u factu rer, s u ch th atth e ex p en s es i n cu rredi n th at l i ti g at i o n m

u s t b e cap it al i zed . Th i s l i t i g at i o n i n s t ead g i v es th e b ran d n am e d ru g
m an u fact u rer a ch an ce t o p ro t ecti t s i n t el l ectu al p ro p ert y . In th i s ci rcu m s t an ce, t h e
o ri g i n o f t h e cl ai m

t es ts u g g es t s th atM y l an ’ s l i t i g at i o n ex p en s es are d edu ct i b l e.
c. Reg u l at o ry

Ex am p l es Cert ai n ex am

p l es s etfo rt h i n s ect i o n s 1
. 2 6 3 (a)-4 (e) an d1 .2 6 3 (a)-5 (l ), In co m e Tax Reg s ., i l lu s trat i n g t h e s co p e o f t h e t erm “ faci l i t at e” i n
s ect i on 1 .2 6 3 (a)-4 (e)(1 )(i ), In co m e Tax Reg s ., o ffer fu rt her s up p o rtfo r o ur
co n cl u s i o n . As an i n i t i al m at t er, th e p art ies s p ar o v er wh et h er we s ho u l dco n s i d er th e reg u l at i o n s s etfo rt h i n s ect i o n 1 .2 6 3 (a)-5 (l ), In co m e Tax Reg s ., wh i ch ad dres s th e t reat m en t o f “ [a] m ou n t s p ai do r i n cu rredt o faci l i tat e an acq u i s i t i o n o f a t rad e
o r b u si n es s , a ch an g e i n the cap i t al s tru ctu re o f a b u s i n es s en t i ty , an d cert ai n o t h er tran s act io n s ”, g iv en th atthe i s s u e b efo re u s rel at es t o s ect i o n 1 .2 6 3 (a)-4 (e), In co m e Tax Reg s ., wh i ch b ears o n “ [a] m o un t s p ai dt o creat e o r acq u i re i n t an g i b l es ” as ap p li es t o o ur cas es . Bo th p ro v is i on s i n cl u d e a n earl y i d en t i cal d es cri p t io n o f t h e t erm

“ faci l i t at e”, an dwe wi l l co ns i d er t h e reg u lat o ry ex am p l es t o the ex t en tth ey

i l l um i nat e t h e co m

m o n t erm .- 4 6 -

W e b el i ev e t h atth e m os tap p o s i te ex am p l e i s s ect i o n 1 .2 6 3 (a)-5 (l ), Ex am p l e (1 8 )(i ), In co m e Tax Reg s . Th is ex am p l e d i s cu s s es th e t reat m en to f l eg al fees p ai d i n co n nect i o n wi th b an krup t cy p ro ceed i ng s i m p l i cat i ng t o rtl i ab i l i ty

o f t h e t ax p ay er. Itp ro v id es : X co rp o rat i o n i s the d efen d an t i n n u m ero u s l aws u i ts al l eg i n g t o rt l i ab i l i ty b as edo n X’ s ro l e i n m an u factu ri n g cert ai n d efect i v e p ro du ct s . X fi les a p et i t i o n fo r reo rg an i zat i o n u n d er Ch ap ter 1 1 o f t he Ban krup t cy

Co d e i n an effo rtt o m an ag e al l o f t h e l aws ui t s i n a s i n g l e p ro ceed i n g . X p ay s i t s o u t s id e co u n s el t o p rep are t h e p et i t i o n an d p l an o f reo rg an i zat i o n , t o an al y ze ad equ at e p ro t ect io n u nd er t h e p l an , t o at t en dh eari n gs b efo re t h e Ban krup t cy Co u rtco n cern in g t h e p l an , an dt o d efen d ag ai ns tm ot i o n s b y cred i t o rs an dt o rt cl ai m an t s t o s tri k e th e t ax p ay er’ s p l an . [Id .] Th e ex am p l e co n cl u d es , i n rel ev an tp art , th atth e l eg al ex p en s es p ai db y X “ t o p rep are, an al y ze o r o b t ai n ap pro v al o f t h e p o rt i o n o f X’ s p l an o f reo rg an i zat i o n th atres o l v es X’ s t o rtl iab i l i ty d o n o tfaci l it at e t h e reo rg an izat i o n an dare n o t req u i redt o b e cap i t al i zed , p ro vi d edth ats u ch am o u n ts wo u ldh av e b een treat edas
o rd i n ary an dn eces s ary

b u s i n es s ex p en s es u n d er s ect i on 1 6 2 h adth e b an krup t cy p ro ceed in g n o tb een i n s ti tu t ed .” Id . Ex am pl e (1 8 )(i i). W e s ee a s tro n g p aral l el h ere, wh ere p at en tl i t i g at i on i s co n n ect edwi th b u td is ti n ctfro m th e b ro ad er p ro

ject
o f o b tai n i n g effect i v e FDA ap p ro v al o f ANDAs wi th p arag rap h IV cert i fi cat i o n s . Th e co n cl u s io n reach edb y th e ex am p l e, i .e., th atth e s ep arat e l i t i gat i o n ex p en s es
s h o u ldn o tb e cap i t al ized , th u s at tach es h ere.- 4 7 -

Th e Co m m is s i o n er arg u es th ats ect i on 1 .2 6 3 (a)-4 (e)(5 ), Ex am p l e (4 ), In co m e Tax Reg s ., p ro v id es th e m o re ap tco m p ari s o n . Inth atex am

pl e U o wn s a
m ajo ri ty o f t h e s h ares i n T wh i l e M i s a m i n o ri ty s h areh ol d er. See i d . U an dM d i s ag ree o v er a p erp etual ex t en s i o n o f T’ s ch art er, wh i ch , u n d er St at e l aw, req u i res U t o b u y o u tM . See i d . A d is p u t e o v er t h e p ro p er v al u e o f M ’ s s t o cks p awn s l i ti g at i o n an d$ 2 5 ,0 0 0 i n l i t i g at i o n ex p en s es . See i d . Th e ex am p l e co n cl u d es th at th e l i t i g at i o n ex p en s es faci li t at e t h e acq u i si ti o n o f s t o ckb y h el p i ng t o es t ab l i s h th e p u rch as e p ri ce an dth u s m u s tb e cap i t al i zed . See i d
. Des p i t e t h e co m

p l i cat edb ack dro p , th e p ri n ci p l e i ll u s trat edb y th i s ex am

p le i s s trai g h t fo rward : l it i g at i o n ex p en s es i ncu rredt o es t ab l i s h a n eces s ary el em en to f th e t ran s act i o n (i .e., th e p u rch as e p ri ce) faci l i t at e i tan dare s ub jectt o cap i t al i zat io n . W e b el i ev e t h e i n s tan tcas e i s n o t co m p arab l e. Th e p at en t l i ti g at i o n ex p en s es were n o ti n cu rredi n co n n ect i o n wi th a n eces s ary el em en to f
o b t ai n i n g effect i v e FDA ap p ro v al b u tt o res o l v e t h e qu es t i on o f p at en t ri g h t s . As
s u ch , th e ex am

p le fi n d s n o p u rch as e h ere. C. Co n cl u si o n W e h o ldth atth e d i s p u t edl eg al ex p en s es th atM y l an i n cu rreddu ri n g th e y ears ati s s u e t o p rep are p arag rap h IV n o t i ce l et ters m u st b e cap i t al i zedp u rs u an t t o s ect io n 2 6 3 (a), wh ereas ex p en ses i n cu rredt o l i t i g at e Sect i o n 2 7 1 (e)(2 ) s u i t s are- 4 8 -

cu rren t l y d edu ct i b l e p u rs u an tt o s ect i o n 1 6 2 (a). Th e IRS’ d et erm i n at i o n s as s et fo rt h i n t h e n o t i ces o f d efi ci en cy are acco rd i n g l y

s u s t ai n ed fo r am o u n t s i n cu rredt o p rep are p arag rap h IV n o t i ce l et t ers . III. Am o rt i zat i on o f M y l an ’ s Leg al Ex p en s es Las t ly we turn b ri efl y

t o th e am o rt i zat i o n (t h ati s , th e i n crem en t al reco v ery )
o f M y l an ’ s ex p en ses fo r t h e y ears ati s su e. Th ou g h M y l an h as rai s edv ari o u s
co n cern s reg ard i n g th e eq u i t ab l e an dp o l i cy i m pl i cat i o n s o f req u i ri n g g en eri c d ru g
m an u fact u rers t o reco v er t h ei r l eg al ex p en s es o v er a 1 5 -y ear t erm , we u n d ers t an d M y l an ’ s arg u m en t s t o b e g eared t o wardad v o cat i n g i t s g en eral p o s i ti o n th ati t s
ex p en s es are n o t cap it al ex p en d i tu res . Wh en th e IRS d et erm i n edt o d i s al l o w M y l an ’ s d edu ct i o n s , p arto f i ts d et erm i n at i o n refl ect edth atM y l an ’ s ex p en s es were s ub jectt o am o rt i zat io n o v er a 1 5 -y ear p eri o dp u rs u an tt o s ect i o n 1 9 7 . See s ec. 1 97 (a). In g en eral , wh ere
s ect i on 1 9 7 ap p li es , n o o th er m et h o d o f d ep reci at io n o r am o rt i zat i o n i s p erm i t t ed
. Id . s ub sec. (b ). M y l an d o es n o tco n t es ti n i t s p o st tri al b ri efi ng th e s ubs t an ce o f t h e IRS’ d et erm i n at i o n th at , as s u m in g M y l an ’ s ex p en s es were cap i t al , s ect i on 1 9 7 p ro v i d es th e m et h o dfo r am o rt i zat i on o f t h o s e ex p en ses . M y l an i s th erefo re d eem edt o h av e
co n ced edth e s ect i o n 1 9 7 am o rt i zat i o n i s s u e. See M en d es v . Co m m i s s io n er, 1 2 1- 4 9 -

T.C. 3 0 8 , 3 1 2 -3 13 (2 0 0 3); L eah y v . Co m m i ss i o ner, 8 7 T.C. 5 6 , 7 3 -7 4 (1 9 86 ); s ee al s o Oh d e v . Co m

m i s s i o n er, T.C. M em o . 2 0 1 7 -1 3 7 , at * 2 n .2 . W e acco rd i n g l y
s u s t ai n th e IRS’ d et erm i n at i o n th atM y l an ’ s ex p en s es fal l wi th i n th e b o u nd s o f
s ect i on 1 9 7
. IV. Co n cl u si o n In s u m M y l an i s l i ab le fo r t ax d efi ci en ci es as t o am ou n ts i n cu rredt o p rep are p arag rap h IV n o t ice l et t ers fo r i t s 2 0 1 2 , 2 0 1 3 , an d2 0 1 4 t ax ab l e y ears . To refl ectthe fo reg o i n g , Deci s i o n s wi l l b e en t eredu n der Ru l e 1 5 5
.