Court Opinion

ID: 7802387
Source: CourtListenerOpinion
Date Created: 2022-08-22 14:01:36.11667+00
Date Added: 2024-06-11T16:29:27.695036
License: Public Domain

In the United States Court of Federal Claims
                                                   No. 19-798
                                            (Filed: 19 August 2022)

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ACTAVIS LABORATORIES, FL, INC.,       *
                                      *
                  Plaintiff,          *                         Summary Judgment; Hatch-Waxman Act;
                                      *                         Tax Deduction; Capitalization; Woodward;
v.                                    *                         Patent Litigation Costs; Origin of the Claim;
                                      *                         35 U.S.C. § 271(e)(2); I.R.C. § 162(a);
THE UNITED STATES,                    *                         I.R.C. § 263(a); 26 C.F.R. § 1.263(a)-4;
                                      *                         Abbreviated New Drug Application
                  Defendant.          *                         (“ANDA”); Generic Drugs; FDA.
                                      *
***************************************

       Kevin P. Martin, with whom were David J. Zimmer, Brian T. Drummond, Christopher
J.C. Herbert, Goodwin Proctor LLP, all of Boston, MA, for plaintiff.

        Jason Bergmann, with whom were Mary M. Abate, Assistant Chief, David I. Pincus,
Chief, David A. Hubbert, Acting Assistant Attorney General, Tax Division, U.S. Department of
Justice, all of Washington, DC, for the defendant.

                                           OPINION AND ORDER

HOLTE, Judge.

       “[N]othing can be said to be certain, except death and taxes.” 1 The exception to that
exception is taxes on Hatch-Waxman patent litigation expenses.

        Generic drug manufacturer Watson Pharmaceuticals, Inc. filed seven Abbreviated New
Drug Applications with Paragraph IV certifications between 2008 and 2009. 2 Litigation
followed the ANDA filings under the Hatch-Waxman Act. Branded drug companies—the
creators of the pioneer name-brand drugs the ANDAs depended upon—sued Watson for a
tortious trespass of their property rights: patent infringement. Under 35 U.S.C. § 271(e)(2), the
branded drug companies alleged Watson’s generic products infringe their patents and Watson
should be prevented from selling the generics before expiration of the patents. The branded drug

1
 Letter from Benjamin Franklin to Jean-Baptiste Le Roy (Nov. 13, 1789), in 12 The Works of Benjamin Franklin
160, 161 (John Bigelow ed., Federal ed. 1904) (1888).
2
  The taxes at issue in this suit arise out of Watson’s generic drug business activities. Through a complicated chain
of acquisitions and business restructurings, plaintiff Actavis Laboratories, FL, Inc. became the substitute agent for
the relevant tax returns. The tax returns’ chain of title is undisputed and irrelevant to the pending motions for
summary judgment but may be found in plaintiff’s complaint. Oral Arg. Tr. (“Tr.”) at 9:18–11:9, ECF No. 58; see
Compl. at 20–23, ECF No. 1.
companies did not allege Watson’s ANDAs were technically unacceptable, or the generics were
ineligible for FDA approval. Rather, the branded drug companies sought to protect the property
interests in their patents and Watson defended those attacks on its generic drug business
practices.

        Watson deducted the Hatch-Waxman patent litigation expenses on its 2008 and 2009 tax
returns. At the time, patent litigation legal expenses—on either side of the “v.”—were generally
tax deductible. Then, in 2011, the Internal Revenue Service issued a memorandum reaching the
opposite conclusion: the IRS stated expenses incurred defending patent litigation under
§ 271(e)(2) must be capitalized under the origin of the claim test and Treasury Regulation
§ 1.263(a)-4. In 2016, the IRS issued a notice of deficiency disallowing Watson’s deductions
and demanding payment of the associated taxes, interest, and penalties for late payment.
Plaintiff Actavis Laboratories, FL, Inc. became the substitute agent for the returns and its parent
company paid the deficiency. Actavis then filed amended tax returns for 2008 and 2009 and
filed suit in this Court requesting a refund of the taxes, interest, and penalties paid.

        Actavis and the government filed cross-motions for summary judgment. Actavis argues
the Hatch-Waxman litigation expenses were incurred defending Watson’s business practices
from attack and are therefore ordinary and deductible expenses. The government argues the
expenses incurred defending the patent infringement suits facilitated the acquisition of
FDA-approved ANDAs, intangible assets, and must be capitalized. For the reasons set forth
below, the Court finds the litigation expenses originate out of the brand-name drug companies’
patent assertion efforts, do not facilitate FDA approval, and do not enhance the finally approved
ANDAs. Accordingly, the Court grants plaintiff’s motion for summary judgment and denies the
government’s cross-motion for partial summary judgment.

I.       Factual History 3

         A.       The Hatch-Waxman Litigation

         Between 2008 and 2009, Watson defended itself in Hatch-Waxman litigation involving
seven different Abbreviated New Drug Applications (“ANDA”) with Paragraph IV
certifications. Br. of the United States in Supp. of its Cross-Mot. for Partial Summ. J. & in Resp.
to Pl.’s Mot. for Summ. J. (“Def.’s MSJ”) at 18, ECF No. 46-1; see Tr. at 12:10–15 (plaintiff’s
counsel stating, “we generally agree with the recitation of . . . the history of the cases that the
[g]overnment set forth.”). An ANDA of the “Paragraph IV” variety is a new drug application to
the FDA with two important certifications: (1) the proposed “generic drug has the same active
ingredients as, and is biologically equivalent to, [a] brand-name drug[,]” Caraco Pharm. Lab’ys,
Ltd. v. Novo Nordisk A/S, 566 U.S. 399, 405 (2012) (citing 21 U.S.C. § 355(j)(2)(A)(ii), (iv)
(2018)); and (2) the listed patents affiliated with the brand-name drug are “invalid or will not be
infringed by the manufacture, use, or sale of the [generic] drug[,]” id. at 407 (quoting
§ 355(j)(2)(A)(vii)(IV)). These certifications “allow a generic competitor to . . . piggy-back[] on

3
  All facts in this section are undisputed. See Rule 56(a) of the Rules of the Court of Federal Claims (“RCFC”)
(requiring a movant for summary judgment to show “there is no genuine dispute as to any material fact”); see also
Oral Arg. Tr. (“Tr.”) at 7:19–25 (counsel for both parties agreeing there are no disputes of material fact), 10:13–18
(government counsel agreeing the facts establishing the tax returns in the complaint are undisputed).

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the” FDA-approved brand name drugs, and “speed [up] the introduction of low-cost generic
drugs to market.” Id. at 404–05 (citing Eli Lilly & Co. v. Medtronic, Inc., 496 U.S. 661, 676
(1990)). “[T]he FDA cannot authorize a generic drug that would infringe a patent,” however, so
the Hatch-Waxman Act “treats such a filing as itself an act of infringement, which gives the
brand[ed drug company] an immediate right to sue.” Id. at 405, 07 (citing 35 U.S.C.
§ 271(e)(2)(A) (2018)). 4 Generic drug companies are incentivized to file ANDAs with
Paragraph IV certifications and risk litigation with the possibility of receiving 180 days of
generic market exclusivity if they are among the first to file. See infra Section IV.C. In the
order presented by the government’s motion, the following cases against Watson arose from this
statutory background.

         Watson’s first ANDA, No. 91-289, was for a generic oral extended-release form of the
branded drug Sanctura XR. Def.’s MSJ at 19. Watson was among the first to file an ANDA for
the drug and the patent holder sued Watson on 13 July 2009 under 35 U.S.C. § 271(e)(2) (2018).
Id. (citing Allergan, Inc. v. Lab’ys, Inc., No. 1:09-cv-511 (D. Del. filed July 13, 2009)). The
district court found the asserted patent claims invalid due to obviousness, so Watson launched its
generic product once it received FDA approval—it was the exclusive generic for seven months.
Id.

        The second ANDA, No. 78-834, was for a generic version of the branded drug
Seasonique. Id. at 20. Watson was among the first to file an ANDA for a generic version of this
drug. Id. The patent holder sued Watson on 6 March 2008 under § 271(e)(2), and the district
court found the patent not obvious and ordered the effective date of Watson’s ANDA approval to
be the date of the patent’s expiration. Def.’s MSJ at 20–21 (citing Duramed Pharms., Inc. v.
Watson Lab’ys, Inc., No. 3:08-cv-116 (D. Nev. filed Mar. 6, 2008)). On 25 March 2011, the
Federal Circuit reversed, so Watson launched its generic product once it received FDA approval.
Id. at 21. In response, the branded drug company launched its own authorized generic product,
so Watson received no exclusivity period. Id.

        The third ANDA, No. 79-218, was for a generic version of the branded drug Lybrel. Id.
Watson was among the first to file an ANDA for the drug, and the patent holder sued Watson on
12 March 2008 under § 271(e)(2). Id. (citing Wyeth v. Watson Lab’ys, Inc., No. 1:08-cv-145 (D.
Del. filed Mar. 12, 2008)). The parties settled, so Watson entered the market with its generic
upon FDA approval. Id. at 22. The FDA did not grant Watson any period of exclusivity. Id.

         The fourth ANDA, No. 90-081, was for a generic version of the branded drug Yasmin.
Id. The patent holder sued Watson on 17 April 2008, and the district court found “an
infringement claim against an ANDA filer cannot be premised on a method-of-use patent where
that use is not FDA-approved.” Bayer Schera Pharma AG v. Sandoz, Inc., 741 F. Supp. 2d 541,
549 (S.D.N.Y. 2010) (Watson was co-defendant with Sandoz), aff’d sub nom. Bayer Schering
Pharma AG v. Lupin, Ltd., 676 F.3d 1316, 1326 (Fed. Cir. 2012). Watson was not one of the
first to file an ANDA for the drug but was the first ANDA generic to reach the market. Def.’s
MSJ at 23.

4
    For a detailed account of the Hatch-Waxman Act, see infra Sections IV.B–C.

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        The fifth ANDA, No. 78-833, was for a generic version of the branded drug Yaz. Id. at
24; Def.’s MSJ Ex. T at 5, ECF No. 46-22. Watson was not one of the first to file an ANDA for
the drug but was still sued by the patentee for infringement in two separate venues. Def.’s MSJ
at 24 (citing Bayer Healthcare Pharms. v. Watson Pharms., Inc., No. 2:07-cv-1472 (D. Nev.
filed Nov. 5, 2007); Bayer Schering Pharma AG v. Sandoz, Inc., No. 1:08-cv-8112 (S.D.N.Y.
filed Sept. 18, 2008)). The Southern District of New York dismissed Bayer’s case against
Watson, so Watson launched its generic product while the District of Nevada case was ongoing.
Def.’s MSJ at 24–25. Watson temporarily ceased sales when the District of Nevada found the
patent valid and enjoined the effectiveness of the FDA’s approval until after patent expiration.
Id. The Federal Circuit reversed the District of Nevada and found the patent invalid for
obviousness, Bayer Healthcare Pharms., Inc. v. Watson Pharms., Inc., 713 F.3d 1369, 1377
(Fed. Cir. 2013), so Watson relaunched its generic version of the drug. Def.’s MSJ at 25.

       The sixth ANDA, No. 90-479, was for a generic version of the branded drug Ortho Tri-
Cyclen Lo. Id. Watson was not one of the first to file an ANDA for the drug, and although it
was sued by the patent holder for infringement, the parties ultimately settled. Id. at 25–26 (citing
Janssen Pharms., Inc. v. Watson Lab’ys, Inc., No. 2:08-cv-5103 (D.N.J. filed Oct. 16, 2008)).
Consequently, Watson launched its generic drug but enjoyed no period of exclusivity. Id. at 26.

        The seventh ANDA, No. 79-075, was for a generic version of the branded drug Fentora.
Id. at 27. Watson was one of the first to file an ANDA and was sued for infringement of two
patents in two separate venues. Id. (citing Cephalon, Inc. v. Watson Pharms., Inc., No. 1:08-cv-
330 (D. Del. filed June 2, 2008); Cephalon, Inc. v. Watson Pharms., Inc., No. 3:08-cv-308 (D.
Nev. filed June 3, 2008)); Tr. 42:5–9 (plaintiff’s counsel stating they “have no reason to dispute”
the government’s expert report indicating ANDA 79-075 was a first to file). “After a bench trial,
the [District of Delaware] found that Watson’s ANDA products did not infringe and held the
asserted patents invalid for lack of enablement.” Cephalon, Inc. v. Watson Pharms., Inc., 707
F.3d 1330, 1333 (Fed. Cir. 2013). The Federal Circuit reversed the finding of invalidity and
affirmed the noninfringement finding. Id. Watson was sued a third time, however, for a third
patent on 25 September 2009—the district court found the patent in this suit valid and infringed,
and the Federal Circuit affirmed. See Cephalon, Inc. v. Watson Pharms., Inc., 769 F. Supp. 2d
761 (D. Del.), aff’d, 446 Fed. App’x 306 (Fed. Cir. 2011) (per curiam). Accordingly, Watson
could not market its Fentora generic until the patent expired in 2019. Def.’s MSJ at 27–28.

       B.      The Tax Returns

        For 2008 and 2009, Watson filed tax returns including deductions for the legal fees
incurred in defending the Hatch-Waxman litigation described above. Compl. at 20. The 2008
return included a deduction of $3,882,951 for such fees, and the 2009 return included a
deduction of $8,481,237 for such fees. Id. The returns have a lengthy chain of title leading to
plaintiff becoming their substitute agent, which the parties agree is both undisputed and
irrelevant to the cross-motions for summary judgment. Tr. at 9:18–11:9; see Compl. at 20–23.
On 7 April 2016, the IRS issued a notice of deficiency for the returns, disallowing the deduction
of the Hatch-Waxman litigation legal expenses. Compl. at 21. Following payment of the
deficiency and related penalties, plaintiff filed amended tax returns for 2008 and 2009 on 2
August 2018. Id. at 22–23. Plaintiff seeks a refund based on the IRS’s refusal to allow

                                               -4-
deductions of the Hatch-Waxman litigation expenses, the interest accrued on those taxes, and the
penalties, totaling $1,964,659 for 2008 and $3,995,920 for 2009. Id

II.      Procedural History

        On 31 May 2019, plaintiff filed its complaint alleging the IRS wrongfully determined
generic drug companies “must capitalize rather than deduct their [Hatch-Waxman] patent
infringement defense costs . . . .” Compl. at 1. Plaintiff asserted these “costs are ordinary
business expenses[,]” and requested the Court “declare that those costs are deductible and order a
refund of [plaintiff]’s overpayment of taxes.” Id. On 27 September 2019, the government filed
its answer, denying that plaintiff is entitled to its claimed refunds. Answer at 1, ECF No. 8.

        On 1 April 2021, plaintiff filed a motion for summary judgment. See Pl.’s Mem. of Law
in Supp. of its Mot. for Summ. J. (“Pl.’s MSJ”), ECF No. 31-1. Plaintiff requested the Court
decide the sole question of “[w]hether a generic drug company’s expenses incurred in defending
against patent litigation claims brought under 35 U.S.C. § 271(e)(2) are deductible under I.R.C.
§ 162(a) or must be capitalized under I.R.C. § 263(a).” Id. at 5. On 14 May 2021, plaintiff filed
a supplemental brief in support of its motion for summary judgment regarding a relevant Tax
Court decision (“Pl.’s Supp. Br.”), ECF No. 42. Plaintiff alleged: “The United States Tax Court
recently issued a thorough, precedential decision fully endorsing [p]laintiff’s position in the
above-captioned case before this Court.” Pl.’s Supp. Br. at 2 (citing Mylan, Inc. & Subsidiaries
v. Comm’r, 156 T.C. 137 (2021)).

        On 14 June 2021, the government filed a cross-motion for partial summary judgment and
response to plaintiff’s motion for summary judgment. See Def.’s MSJ. “The government
contends [Hatch-Waxman] litigation expenses may not be immediately expensed but must
instead be capitalized, because they were amounts paid to ‘facilitate’ the ‘acquisition of or
creation of . . . an intangible[]’ . . . .” Id. at 2 (citing Treas. Reg. § 1.263(a)-4(b)(1)(v)). The
government also asserts the Tax Court’s holding in Mylan is erroneous and the Court should
decline to follow it. Id. at 3. On 16 July 2021, plaintiff filed a reply in support of its motion for
summary judgment and opposition to the government’s cross-motion for partial summary
judgment (“Pl.’s Reply”), ECF No. 47. On 10 September 2021, the government filed a reply in
support of its cross-motion for partial summary judgment (“Def.’s Reply”), ECF No. 51. The
Court held a status conference with the parties on 3 November 2021 to determine the status of
any potential appeal from the Tax Court’s Mylan decision and to set a date for oral argument on
the pending motions. See Order, ECF No. 52. The Court held oral argument on the parties’
cross-motions for summary judgment on 18 February 2022. 5 See Order, ECF No. 56. On 11

5
  On 1 April 2021, plaintiff also filed a motion to strike portions of Brian O’Shaughnessy’s expert report (“Mot. to
Strike”), ECF No. 32. “This Court should strike these paragraphs,” plaintiff avers, “because Mr. O’Shaughnessy
lacks the expertise required to offer the testimony he proffers therein, and his opinions lack the required ‘fit’ to the
question before this Court, such that they will not ‘help the [Court] to understand the evidence or determine a fact in
issue.’” Mot. to Strike at 1 (citations omitted). On 14 June 2021, the government filed a response to plaintiff’s
motion to strike. See Resp. to Mot. to Strike, ECF No. 45. On 16 July 2021, plaintiff filed a reply in support of its
motion to strike, ECF No. 48. At the 18 February 2022 oral argument, the Court addressed plaintiff’s motion to
strike with the parties. Plaintiff’s counsel stated its “motion [to strike] would become moot” if the Court does not
rely on the disputed portions of the expert report in deciding summary judgment. Tr. at 234:9–11. In response,

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April 2022, plaintiff filed a notice of additional authority in response to a Court inquiry at oral
argument. See Notice, ECF No. 59.

III.     Summary of the Parties’ Cross-Motions for Summary Judgment

        Pending before the Court are the parties’ cross-motions for summary judgment. See Pl.’s
MSJ; Def.’s MSJ. Plaintiff requests the Court find “a generic drug company’s expenses incurred
in defending against patent litigation claims brought under 35 U.S.C. § 271(e)(2) are deductible
under I.R.C. § 162(a) . . . .” 6 Pl.’s MSJ at 5. Plaintiff contends the deductibility of “litigation
costs is based on the ‘origin and character of the claim.’” Id. at 19 (quoting Woodward v.
Comm’r, 397 U.S. 572, 578 (1970)). Treasury Regulation § 1.263(a)-4 “provides guidance” on
this matter but nevertheless “allow[s] deduction of defensive litigation expenses when the ‘origin
and character of the claim’ is a challenge to the taxpayer’s conduct of its business . . . .” Id. at
22, 23. According to plaintiff, “the origin and character of a claim under § 271(e)(2) relates to
patent infringement, not a capital acquisition[,]” so the expenses are deductible. Id. at 24.
Plaintiff adds, in a supplemental brief, the Tax Court recently issued a decision in Mylan, Inc. &
Subsidiaries v. Commisssioner, 156 T.C. 137 (2021), which “endorsed all of the key arguments
[plaintiff] made in its pending summary judgment motion in this case . . . .” Pl.’s Supp. Br. at 2.
“The Tax Court’s detailed, 49-page analysis of the question before this Court is persuasive,”
plaintiff argues, “so this Court should follow it . . . .” Id. at 2–3.

        The government contends Hatch-Waxman “litigation expenses may not be immediately
expensed but must instead be capitalized [under I.R.C. § 263(a)(1)], because they [a]re amounts
paid to ‘facilitate’ the ‘acquisition of or creation of . . . an intangible,’ [Treas.] Reg. § 1.263(a)-
4(b)(1)(v)—namely, [ANDAs] approved by the FDA prior to the expiration of all relevant
patents . . . .” Def.’s MSJ at 2. The government argues the Tax Court’s Mylan decision was
erroneous so this Court should not follow it. Id. at 3. Plaintiff misapplies the “origin of the
claim” test, the government asserts, because “the claim originates from [plaintiff’s] attempt to
obtain an FDA-approved Paragraph IV ANDA[,]” i.e., an intangible. Id. Lastly, the government
argues “the origin-of-the-claim doctrine should not be applied in isolation, but rather together
with” more recent legal authorities, namely: (1) the INDOPCO, Inc. v. Commissioner, 503 U.S.
79 (1992), significant-future-benefit test; and (2) Treasury Regulation § 1.263(a)-4. Id. at 4.

       Plaintiff responds to the government’s arguments stating: “The origin of the claim is not
the generic drug company’s ANDA, which itself triggers no litigation and requires no findings
that might result from patent infringement litigation before approval.” Pl.’s Reply at 1 (emphasis

government counsel represented, “for purposes of taking this motion [to strike] off the table, we will withdraw the
two [disputed] citations [in the government’s cross-motion for partial summary judgment] and ask the Court not to
rely on those portions of the report in resolving any fact issues.” Tr. at 234:12–16. As the government has
withdrawn its reliance on the disputed portions of Mr. O’Shaughnessy’s expert report and requested the Court not to
consider them in deciding summary judgment, and plaintiff agreed this renders its motion to strike moot, the Court
denies as moot plaintiff’s motion to strike, ECF No. 32.
6
  Plaintiff clarified at oral argument that where it refers generally to § 271(e)(2) litigation, it is only referring to
patent infringement litigation related to ANDAs with a Paragraph IV certifications under 35 U.S.C. § 271(e)(2)(A).
Tr. 9:5–15. This Opinion is therefore limited to that same scope, but likewise refers generally to § 271(e)(2)
litigation.

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removed). “[Section] 271(e)(2) litigation does not ‘facilitate’ acquisition of an ANDA within the
meaning of Treasury Regulation § 1.263(a)-4,” plaintiff argues, “because such litigation is not
‘an element of acquiring effective FDA approval of an ANDA with a paragraph IV
certification.’” Id. (citation omitted). Though plaintiff argues Treasury Regulation § 1.263(a)-4
does not apply to § 271(e)(2) litigation expenses, if it did, plaintiff states the origin of the claim
test would control. Id. at 12–13. Plaintiff further asserts the government’s reliance on
INDOPCO is misguided “because INDOPCO had nothing to do with litigation[,]” and “courts
have continued to apply the origin of the claim test to litigation costs[.]” Id. at 2. Even if the
Court were to consider revenue timing, plaintiff argues § 271(e)(2) litigation is “an attack on the
generic drug company’s existing business, which has always been considered deductible. . . .
Indeed, outside the generic drug context, patent holders still regularly sue alleged infringers prior
to the commercial sale of allegedly infringing products . . . .” Id. at 8.

         The government replies to plaintiff’s arguments stating: “The defense of Hatch-Waxman
litigation is one of many elements of the transaction in which a generic company creates a
Paragraph IV ANDA.” Def.’s Reply at 4. The government asserts the specific lawsuits plaintiff
attempted to deduct costs from necessarily “facilitate[d] the creation of Paragraph IV ANDAs”
because: (1) “[i]n all of the suits in question, an automatic thirty-month stay arose, during which
the FDA was barred from granting final approval to Watson’s Paragraph IV ANDAs”; (2)
Watson litigated the thirty-month stay in two of the suits; and (3) the patent holders in all of the
suits sought orders preventing effective FDA approval until the relevant patent expired. Id. at
4–5. The government further avers Treasury Regulation § 1.263(a)-4 “is fully consistent with
the Internal Revenue Code[ §§] 162 and 263,” so “the Court must give deference . . . .” Id. at 8
(citing Chevron U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 842–43 (1984)).
Treasury Regulation § 1.263(a)-4 is also consistent with the origin of the claim test, the
government argues, because it “announces specific standards for determining whether an
expense is incurred in the ‘process of acquisition’ of an intangible, namely, whether it facilitates
the creation of the asset.” Id. at 9 (quoting Woodward, 397 U.S. at 577). The government
concludes by arguing even without Treasury Regulation § 1.263(a)-4, Hatch-Waxman litigation
expenses must be capitalized under both INDOPCO’s significant-future-benefit standard and the
origin of the claim test, together or in isolation. Id. at 9–13.

IV.    Applicable Law

        Plaintiff incurred the expenses at issue under an elaborate regulatory and statutory
scheme governing generic pharmaceuticals—the Hatch-Waxman Act. After establishing the
standard of review, the Court describes the Hatch-Waxman Act’s procedures, as the statutory
framework is relevant to the Court’s deductibility analysis. The Court then describes the
relevant tax code, common law standards, and Treasury Regulations relevant to the deductibility
of plaintiff’s expenses. Finally, the Court reviews a recent non-binding Tax Court decision
answering the very question before the Court.

       A.      Summary Judgment Standard

       Summary judgment is appropriate where the evidence demonstrates there is “no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law.” RCFC

                                                -7-
56(a); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986). A genuine issue is one that
“may reasonably be resolved in favor of either party.” Anderson, 477 U.S. at 250.

       B.      The Hatch-Waxman Act

        The Food and Drug Administration is charged with the approval of all pharmaceutical
drugs, including new branded drugs and generic versions of such drugs. Caraco Pharm. Lab’ys,
Ltd. v. Novo Nordisk A/S, 566 U.S. 399, 404 (2012). To obtain FDA approval for a new branded
drug, a drug manufacturer must submit a New Drug Application (“NDA”). Id. The NDA must
contain information sufficient to establish that the drug is safe and effective for its intended
purpose, generally by conducting clinical trials in human subjects. Id.; 21 U.S.C. § 355(b)
(2018). Once the FDA approves the NDA, the branded drug company may begin selling and
marketing the new drug to the public. FTC v. Actavis, Inc., 570 U.S. 136, 142 (2013).

        Before 1984, generic drug companies were required to follow the same time-consuming
and expensive NDA process as branded drug companies. See aaiPharma Inc. v. Thompson, 296
F.3d 227, 230–31 (4th Cir. 2002). Simply making the generic drug just for FDA approval would
constitute an act of infringement on any patents the branded drug companies held over the
branded drugs. Roche Prod., Inc. v. Bolar Pharm. Co., 733 F.2d 858, 863 (Fed. Cir. 1984),
superseded by statute, 35 U.S.C. § 271(e)(1), as recognized in Warner-Lambert Co. v. Apotex
Corp., 316 F.3d 1348 (Fed. Cir. 2003). Generic drug companies would often be unable to
develop their generic products or seek FDA approval until after patent litigation ended or the
patent expired. aaiPharma Inc., 296 F.3d at 231. The cost to obtain FDA approval and defend
§ 271(a) patent litigation severely hampered affordable generic drug availability. Id. at 230–31.

        To address this problem, Congress enacted the Drug Price Competition and Patent Term
Restoration Act, Pub. L. No. 98-417, 98 Stat. 1585 (1984), commonly known as the
Hatch-Waxman Act (“Act”). Actavis, Inc., 570 U.S. at 142. The Hatch-Waxman Act created a
patent infringement safe harbor for generic drug companies’ development activities for the
purpose of obtaining FDA approval. 35 U.S.C. § 271(e)(1). The Act also simplified the FDA
approval process for generic drugs by introducing the Abbreviated New Drug Application
process. Actavis, Inc., 570 U.S. at 142. A generic drug company may file an ANDA specifying
“the generic has the ‘same active ingredients as,’ and is ‘biologically equivalent’ to, the
already-approved brand-name drug[,]” and thereby “obtain approval while avoiding the ‘costly
and time-consuming studies’ needed to obtain approval ‘for a pioneer drug.’” Id. (citations
omitted). The generic drug company may begin selling its product once the FDA approves the
ANDA and that approval becomes effective. 21 U.S.C. § 355(a).

        “To facilitate the approval of generic drugs as soon as patents allow, the
Hatch[-]Waxman Amendments and FDA regulations direct brand manufacturers to file
information about their patents” related to their NDAs. Caraco, 566 U.S. at 405. The FDA
publishes the “patent numbers and expiration dates, in a fat, brightly hued volume called the
Orange Book (less colorfully but more officially denominated Approved Drug Products With
Therapeutic Equivalence Evaluations).” Id. at 405–06. Generic drug companies filing an
ANDA are required to “‘assure the FDA’ that the generic ‘will not infringe’ the brand-name’s
patents.” Actavis, Inc., 570 U.S. at 143 (citations omitted). The generic drug company can

                                              -8-
provide this assurance in one of several ways, see 21 U.S.C. § 355(j)(2)(A)(vii)—relevant here is
Paragraph IV, in which the generic certifies that any listed patent “is invalid or will not be
infringed by the manufacture, use, or sale” of the proposed ANDA generic drug. See
§ 355(j)(2)(A)(vii)(IV). “Filing a paragraph IV certification . . . [i]s itself an act of infringement,
which gives the brand an immediate right to sue.” Caraco, 566 U.S. at 407; see 35 U.S.C.
§ 271(e)(2)(A).

         “If the brand-name patentee brings an infringement suit [under § 271(e)(2)] within 45
days, the FDA then must withhold approving the generic, usually for a 30[-]month period, while
the parties litigate patent validity (or infringement) in court.” Actavis, Inc., 570 U.S. at 143. If
the FDA approves the ANDA during the 30-month stay period, it will issue a “tentative approval
letter.” See 21 C.F.R. § 314.107(b)(3). The thirty-month stay terminates on a final ruling that
the patent is invalid or not infringed. 21 U.S.C. § 355(j)(5)(B)(iii)(I). If the courts have not yet
decided the matter, the FDA approval will become effective at the conclusion of the thirty-month
stay. Id. “The generic manufacturer then has the option to launch ‘at risk,’ meaning that, if the
ongoing court proceeding ultimately determines that the patent was valid and infringed, the
generic manufacturer will be liable for the brand-name manufacturer’s lost profits despite the
FDA’s approval.” In re Lipitor Antitrust Litig., 868 F.3d 231, 241 (3d Cir. 2017) (citing King
Drug Co. of Florence v. Smithkline Beecham Corp., 791 F.3d 388, 396 n.8 (3d Cir. 2015)). If a
court finds the patent valid and infringed, the ANDA’s FDA approval will not be effective until
expiration of the infringed patent. § 271(e)(4)(A).

         In summary, the Hatch-Waxman Act replaced the cause of action for patent infringement
available under § 271(a) for generic drug development activities before NDA filing with a cause
of action for patent infringement under § 271(e)(2) brought concurrently with the FDA’s
assessment of an ANDA during the life of the patent. The filing of an ANDA with a Paragraph
IV certification does not itself initiate litigation under § 271(e)(2), much like the development of
a product does not initiate litigation under § 271(a)—each act gives a patent holder the right, but
not the obligation, to sue. “Notwithstanding th[e] defined act of infringement, a district court’s
inquiry in a suit brought under § 271(e)(2) is the same as it is in any other infringement suit, viz.,
whether the patent in question is ‘invalid or will not be infringed by the manufacture, use, or sale
of the drug for which the [ANDA] is submitted.’” Glaxo, Inc. v. Novopharm, Ltd., 110 F.3d
1562, 1569 (Fed. Cir. 1997) (quoting 21 U.S.C. § 355(j)(2)(A)(vii)(IV)). “The only difference in
actions brought under § 271(e)(2) is that the allegedly infringing drug has not yet been marketed
and therefore the question of infringement must focus on what the ANDA applicant will likely
market if its application is approved, an act that has not yet occurred.” Id. Even the remedies at
play, though different in name, are alike in kind: the § 271(e)(2) plaintiff may seek an order
staying effective FDA approval until the relevant patent expires, see § 271(e)(4)(A); the § 271(a)
plaintiff may seek a permanent injunction, see, e.g., Aoki v. Gilbert, No. 211CV02797TLNCKD,
2020 WL 6741693, at *30, 33 (E.D. Cal. Nov. 17, 2020). The automatic thirty-month stay of
FDA approval a § 271(e)(2) plaintiff receives is akin to the preliminary injunction a § 271(a)
plaintiff may seek. See 21 U.S.C. § 355(j)(5)(B)(iii)(I); see also, e.g., Metalcraft of Mayville,
Inc. v. The Toro Co., 848 F.3d 1358 (Fed. Cir. 2017). “[T]he litigation of a Hatch-Waxman suit
under 35 U.S.C. § 271(e)([2]) has much in common with a traditional infringement suit under 35
U.S.C. § 271(a) . . . .” Def.’s MSJ at 15.

                                                 -9-
       C.      The Policy of the Hatch-Waxman Act and Generic Exclusivity

         The Hatch-Waxman Act reflects the balance Congress struck between conflicting policy
objectives: incentivizing branded drug companies to invest in research and development of new
drug products, while increasing the availability of cheaper, generic copies of those drugs on the
market. H.R. Rep. 98-857, pt. 1, at 14–15; see also Abbott Lab’ys v. Young, 920 F.2d 984, 991
(D.C. Cir. 1990) (Edwards, J., dissenting on other grounds) (citing Mead Johnson Pharm. Grp. v.
Bowen, 838 F.2d 1332, 1333 (D.C. Cir. 1988)). For branded drug companies’ benefit, the Act
prohibits ANDA filing before the expiration of five years from the date of FDA approval of the
pioneer NDA. 21 U.S.C. § 355(j)(5)(F)(ii) (2018) (but allowing ANDA filings with Paragraph
IV certifications after four years); see also Aaron S. Kesselheim & Jonathan J. Darrow, Hatch-
Waxman Turns 30: Do We Need A Re-Designed Approach for the Modern Era?, 15 Yale J.
Health Pol’y, L. & Ethics 293, 305 (2015). When coupled with the automatic thirty-month stay
of a litigated ANDA filing, most branded drug companies “expect[] to receive a minimum of
seven-and-a-half years of market exclusivity” for their NDAs. Kesselheim & Darrow, supra, at
305 (citing § 355(j)(5)(F)(ii) (requiring extension of the thirty-month stay to guarantee “seven
and one-half years”)). Branded drug companies may further seek as much as a five-year patent
term extension for “the patent term that was lost during the clinical testing phases and FDA
review period.” Id. at 306 (citing 35 U.S.C. § 156(c)(3), (g)(6) (2018)).

         To “encourage generic applicants” to use Paragraph IV certifications, the Hatch-Waxman
Act provides 180 days of generic market exclusivity to any Paragraph IV “first applicant.” Erika
King Lietzan, A Brief History of 180-Day Exclusivity Under the Hatch-Waxman Amendments to
the Federal Food, Drug, and Cosmetic Act, 59 Food & Drug L.J. 287, 288 (2004) (citing
§ 355(j)(5)(B)(iv)). During that period of exclusivity, only generics who have achieved first-to-
file status can compete with the brand-name drug. Actavis, Inc., 570 U.S. at 143–44. Being the
first-to-file is not an exclusive title—“[i]f multiple applicants file substantially complete ANDAs
with paragraph IV certifications on the same day as the first to do so, those applicants all are
entitled to exclusivity.” Lietzan, supra, at 290. Given the statutory time-bar on ANDA filing,
multiple generic drug companies may all file on the first possible day for a particular product to
acquire the 180 days of exclusivity. § 355(j)(5)(B)(iv), (F)(ii); see also 21 C.F.R. §
314.107(c)(1) (2016). Attaining first-to-file status alone is not enough to achieve exclusivity,
however—the statute provides several ways to forfeit the period of exclusivity. See
§ 355(j)(5)(D). Additionally, assuming a generic is one of the first applicants and receives FDA
approval without forfeiting exclusivity, there is only one 180-day exclusivity period per each
branded drug product. § 355(j)(5)(B)(iv)(I). The lone 180-day exclusivity period is triggered by
“the first commercial marketing of” an FDA-approved generic by “any first applicant.” Id. An
ANDA first applicant may therefore never enjoy 180 days of exclusivity if another first applicant
is able to market its generic product sooner. Id.

       Some consider “[f]iling a paragraph IV certification [to be] provoking litigation” because
“such a filing [i]s itself an act of infringement . . . .” Caraco, 566 U.S. at 407. Some view the
180-day generic exclusivity period as a reimbursement or reward for the cost of litigation the

                                              - 10 -
Paragraph IV certification provokes. 7 Scant evidence supports either proposition. There is some
disagreement on the precise statistics, but it is undisputed § 271(e)(2) litigation does not arise
with every ANDA containing a Paragraph IV certification. 8 Further, being a first applicant does
not appear to have much statistical bearing on a generic’s likelihood of being sued. FTC Study,
supra note 8, at 18. If the 180-day generic exclusivity period was intended to be a reward for
undertaking the burden of § 271(e)(2) litigation, then it does a poor job of rewarding all the
generics in need. Id. The likelihood of receiving the exclusivity period also appears to be
unrelated to whether the generic is sued or not—about half of all exclusivity periods go un-
litigated, and a first applicant is not guaranteed any exclusivity even if successful in litigation
and at the FDA. 9 Hemphill & Lemley, supra note 8, at 983; see also § 355(j)(5)(B)(iv).
Moreover, the legislative history is effectively silent as to the relationship between the 180-day
exclusivity period and the costs of defending § 271(e)(2) litigation. See H.R. Rep. 98-857.
Congress did not contemplate the cost of litigation when determining how long to grant generic
exclusivity. See id. Rather, the available legislative history supports a simpler conclusion—
Congress wanted to promote the introduction of affordable generic drugs to the market as
quickly as possible, so it provided an incentive to spur generics into action. Id.; see Tr. at 42:15–
44:18 (counsel for both parties agreeing this is the case). Congress often incentivizes behavior it
wants to promote and there’s no evidence to suggest the generic exclusivity period was intended
to subsidize § 271(e)(2) litigation. Those drawing this conclusion, supra note 7, do not cite any
authority for support. Neither party to this case believes the generic exclusivity period was
intended to be compensatory. 10

7
  See Kesselheim & Darrow, supra, at 326 (“Indeed, the 180-day generic exclusivity period was originally inserted
into the Hatch-Waxman Act because of the concern that the patent challenge and litigation process may be too
time-consuming and costly for many generic manufacturers without some sort of bonus.”); Janssen Pharmaceutica,
N.V. v. Apotex, Inc., 540 F.3d 1353, 1361–62 (Fed. Cir. 2008) (“The 180[-]day exclusivity period is important to
generic pharmaceutical companies as it promotes patent challenges by enabling a generic company a period to
recover its investment in these challenges.”); C. Scott Hemphill, Paying for Delay: Pharmaceutical Patent
Settlement as a Regulatory Design Problem, 81 N.Y.U. L. Rev. 1553, 1605 (2006) (noting the 180-day exclusivity
period incentivizes patent challenges); Purepac Pharm. Co. v. Thompson, 354 F.3d 877, 879 (D.C. Cir. 2004) (“In
order to encourage paragraph IV challenges, thereby increasing the availability of low-cost generic drugs . . . [the
first-filer] has the right to sell its drug without competition [from other generics] for 180 days.”).
8
  Compare Pl.’s MSJ at 11–12 (“[B]randed drug companies decide not to file patent infringement lawsuits under
§ 271(e)(2) in response to approximately 30% to 50% of ANDAs with a Paragraph IV certification.”), 12 n.22
(citing Federal Trade Commission, Generic Drug Entry Prior to Patent Expiration: An FTC Study (“FTC Study”),
14 (“The data revealed 75 drug products, out of a total of 104 NDAs (72 percent), in which the brand-name
company sued the first generic applicant.” (emphasis removed)), 18 (“If the brand-name company sued the first
generic applicant, it also sued the second generic applicant, if there was one, in nearly 85 percent of the cases.”)
(July 2002), https://www.ftc.gov/sites/default/files/ documents/reports/generic-drug-entry-prior-patent-expiration-
ftc-study/genericdrugstudy_0.pdf; C. Scott Hemphill & Mark A. Lemley, Earning Exclusivity: Generic Drug
Incentives and the Hatch-Waxman Act, 77 Antitrust L.J. 947, 983 (2011) ( “47 percent . . . of 180-day exclusivity
[periods] occurred because the patentee chose not to file a suit against the ANDA at all.”)); with Def.’s MSJ at 14
n.8 (“[A]ccording to Paragraph Four[.com], only ‘[a]bout 15% of the time, a brand company will not file a suit
against the generic.’”).
9
 Indeed, in this case alone, Watson was sued under § 271(e)(2) over seven ANDAs with Paragraph IV certifications
but was the first to file in only four of those seven and received an exclusivity period for only one of those four. See
supra Section I.A.
10
  Tr. 44:12–18 (“THE COURT: . . . [D]oes the [g]overnment argue at all that the purpose of the 180 days was to
reward first filers for having to cover the cost of litigation? [GOVERNMENT]: Not from a compensatory

                                                        - 11 -
         D.       The Tax Code, Origin of the Claim Test, & Treasury Regulations

        The Internal Revenue Code (“I.R.C.” or “26 U.S.C.”) allows a deduction for “all the
ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade
or business.” 11 I.R.C. § 162(a). By contrast, I.R.C. § 263(a) provides that “[n]o deduction shall
be allowed for” a capital expenditure. 12 “[D]eductions are exceptions to the norm of
capitalization . . . .” INDOPCO, Inc. v. Comm’r, 503 U.S. 79, 84 (1992). Where an expenditure
fits within both Section 162 and Section 263, the capitalization requirement controls and bars the
deduction. I.R.C. § 161; Comm’r v. Idaho Power Co., 418 U.S. 1, 17–18 (1974). “The primary
effect of characterizing a payment as either a [deductible] business expense or a [nondeductible]
capital expenditure concerns the timing of the taxpayer’s cost recovery . . . .” INDOPCO, 503
U.S. at 83. A deduction for an ordinary and necessary business expenditure taken in the current
year yields an immediate corresponding reduction in taxable income. Id. A capital expenditure,
on the other hand, “is amortized and depreciated over the life of the relevant asset . . . .” Id. at
83–84. Section 263 “serves to prevent a taxpayer from utilizing currently a deduction properly
attributable, through amortization, to later tax years when the capital asset becomes income
producing.” Idaho Power Co., 418 U.S. at 16.

        In its 1963 decision in United States v. Gilmore, on appeal from the United States Court
of Claims, the United States Supreme Court set forth what is commonly known as the “origin of
the claim” test. Woodward v. Comm’r, 397 U.S. 572, 578 (1970) (citing United States v.
Gilmore, 372 U.S. 39 (1963)). In Gilmore, the Court held the deductibility of “litigation costs of
resisting a claim depends on whether or not the claim arises in connection with the taxpayer’s
profit-seeking activities.” Gilmore, 372 U.S. at 48. The Court continued: “It does not depend
on the consequences that might result to a taxpayer’s income-producing property from a failure
to defeat the claim for . . . that ‘would carry us too far[,]’ would not be compatible with the basic
lines of expense deductibility drawn by Congress[, and] would lead to capricious results.” Id.
(footnotes omitted). In so holding, the Court found the expense of defending a divorce suit was a

standpoint but, rather, to provide them with an incentive to launch the Paragraph IV ANDA . . . .”); 45:9–23 (“THE
COURT: But no specific incentive of 180-day reward balanced to the cost of litigation. It’s just . . . one of the
general benefits a generic receives. . . . [GOVERNMENT]: No, I think—you’re right. The [g]overnment is not
arguing” the exclusivity period is a compensatory reward.); 45:25–46:6 (government counsel stating, “the litigation
costs of a generic in a Hatch-Waxman suit are relatively modest, but the reward for becoming the first to file and
getting a 180-day exclusivity period is so great that generics are incentive[z]ed to bring suit even when they may
have less than 10 percent chance of ultimately prevailing in the litigation against the patent.”); 46:17–47:5
(plaintiff’s counsel stating, undisputed, the exclusivity period “can’t be designed to cover the litigation costs because
you’ve got 180 days exclusivity if you’re a first file[r] . . . whether you’re sued or not . . . [and] you might get sued
even if you weren’t a first filer . . . .”); 47:6–18 (both parties stating they are unaware of any evidence that
“Congress . . . analyzed what the average litigation cost was, [and] there was no teetering balance to equate the”
benefit of exclusivity with the cost of litigation.).
11
  An expense is “ordinary” if it is customary or usual within a particular trade, business, or industry or relates to a
common or frequent transaction in the type of business involved. See Deputy v. du Pont, 308 U.S. 488, 495 (1940).
An expense is “necessary” if it is appropriate and helpful to the operation of the taxpayer’s business. See Comm’r v.
Tellier, 383 U.S. 687, 689 (1966).
12
  An expense is capital if it is incurred in the acquisition of an asset. Comm’r v. Idaho Power Co., 418 U.S. 1,
12–13 (1974); see also I.R.C. § 263(a) (“Any amount paid out for new buildings or for permanent improvements or
betterments made to increase the value of any property or estate [is a capital expenditure].”).

                                                         - 12 -
nondeductible personal expense, even though the litigation was over ownership of controlling
stock interests in three corporations. Id. at 41, 51–52.

        In 1970, the Supreme Court addressed the origin of the claim test once more in
Woodward v. Commissioner. In Woodward, the Court explained the deductibility of litigation
expenses hinges not on the taxpayer’s “primary purpose” in incurring the costs, but “involves the
simpler inquiry whether the origin of the claim litigated is in the process of acquisition [of a
capital asset] itself.” Woodward, 397 U.S. at 577. “A test based upon the taxpayer’s ‘purpose’
in undertaking or defending a particular piece of litigation would encourage resort to formalisms
and artificial distinctions.” Id. The Court stated the taxpayer’s motives or purposes in
undertaking defense of the litigation, as well as the consequences of the litigation, are irrelevant
to the costs’ deductibility. Id. at 578 (citing Gilmore, 372 U.S. 39). “The standard here
pronounced . . . [is] whether the origin of particular litigation lies in the process of acquisition.”
Id. Under state law, the litigation in Woodward was “required to fix the price” of the taxpayers’
acquired stock, so “the expenses incurred in that litigation were properly treated as part of the
cost of the stock that the taxpayers acquired.” Id. at 579.

        Separate from the origin of the claim test, “[e]xpenses must generally be capitalized when
they either: (1) [c]reate or enhance a separate and distinct asset, or (2) otherwise generate
significant benefits for the taxpayer extending beyond the end of the taxable year.” Santa Fe
Pac. Gold Co. & Subsidiaries v. Comm’r, 132 T.C. 240, 262 (2009) (citing Metrocorp, Inc. v.
Comm’r, 116 T.C. 211, 222 (2001)); INDOPCO, 503 U.S. at 87; Comm’r v. Lincoln Sav. & Loan
Ass’n, 403 U.S. 345, 354 (1971)). Due to challenges applying this significant-future benefits
standard to intangible assets, the IRS and the Department of the Treasury enacted regulations
that “defined the exclusive scope of the significant future benefit test through the specific
categories of intangible assets for which capitalization is required.” Guidance Regarding
Deduction and Capitalization of Expenditures, 67 Fed. Reg. 77,701, 77,702 (Dec. 19, 2002).
“[A]n amount paid to acquire or create an intangible not otherwise required to be capitalized by
the regulations is not required to be capitalized on the ground that it produces significant future
benefits for the taxpayer, unless the IRS publishes guidance requiring capitalization of the
expenditure.” Guidance Regarding Deduction and Capitalization of Expenditures, 69 Fed. Reg.
436, 436 (Jan. 5, 2004); Tr. at 195:23–24 (“[GOVERNMENT]: No such guidance has been
published [for Hatch-Waxman litigation expenses].”); see also Def.’s Reply at 11 n.4 (“[T]he
Treasury Department published the regulation to supplant the prior, categorical ‘“significant
future benefit” standard’ with ‘the specific categories of intangible assets for which capitalization
is required’ in the regulations, categories that ‘[t]he future benefit standard underlies.’” (quoting
Guidance Regarding Deduction and Capitalization of Expenditures, 67 Fed. Reg. 77,701 (Dec.
19, 2002))).

       E.      A Review of Mylan, Inc. v. Commissioner

        On 27 April 2021, the United States Tax Court issued an opinion deciding the same issue
before this Court. See Mylan, Inc. & Subsidiaries v. Comm’r, 156 T.C. 137 (2021) (pending
appeal to the United States Court of Appeals for the Third Circuit). “While decisions of the Tax
Court are not binding, the Court of Federal Claims ‘will follow these decisions if the underlying
rationale is persuasive.’” Buser v. United States, 85 Fed. Cl. 248, 264 n.16 (2009)

                                                - 13 -
(quoting Southland Royalty Co. v. United States, 22 Cl. Ct. 525, 530 n.15 (1991);
citing Travelers Ins. Co. v. United States, 25 Cl. Ct. 141, 145 (1992) (deeming decisions of the
Tax Court persuasive authority)).

        In Mylan, the petitioner was a generic drug manufacturer that deducted legal expenses
incurred while defending § 271(e)(2) patent infringement litigation. Mylan, 156 T.C. at 138.
The Tax Court found the legal expenses deductible because “[a]lthough the filing of an ANDA
with a paragraph IV certification triggers the opportunity for patent litigation as well as the FDA
review process, this statutory design does not transform patent litigation into a step in the ANDA
approval process.” Id. at 156–57. “The outcome of a Section 271(e)(2) suit[,]” the Tax Court
noted, “has no bearing on the FDA’s safety and bioequivalence review.” Id. at 157. “[T]he
Hatch-Waxman Act moved up the timing of patent litigation,” but the Tax Court observed “its
character remained unchanged.” Id. at 158. “Congress’ decision to coordinate effective FDA
approval with the outcome of a Section 271(e)(2) suit does not convert such litigation into a link
in the ANDA approval chain.” Id. at 159. “[A] patent on a brand name drug presents no
impediment to FDA approval of a generic version unless the patent holder decides to take
advantage of the mechanism Congress provided for an early adjudication of the patent holder’s
rights.” Mylan, 156 T.C. at 160. The Tax Court explained: “Even absent the transaction, the
patent holder would doubtless seek to defend its intellectual property against a potential
infringer, and the generic manufacturer would incur the same litigation costs in defending such
suit.” Id. at 161. “Accordingly, expenses [petitioner] incurred in defending Section 271(e)(2)
suits were not ‘paid to facilitate’ the transaction and are not required to be capitalized [under
Treasury Regulation § 1.263(a)-4].” Id. at 161–62.

         The Mylan decision then assessed petitioner’s § 271(e)(2) litigation expenses under the
origin of the claim test. Id. at 162 (“Under this test, we inquire ‘whether the origin of the claim
litigated is in the process of acquisition,’ enhancement, or other disposition of a capital asset.”
(quoting Woodward, 397 U.S. at 577; citing Santa Fe Pac. Gold, 132 T.C. at 264–65)). The Tax
Court found petitioner’s § 271(e)(2) litigation expenses “arose out of actions initiated by patent
holders to protect their intellectual property from infringement and exploitation.” Id. (citing
Glaxo, 110 F.3d at 1569). “Patent infringement suits are creatures of tort with an aim of
preventing and recovering damages to the patent holder’s business of exploiting its patent.”
Mylan, 156 T.C. at 162 (citing Urquhart v. Comm’r, 215 F.2d 17, 20 (3d Cir. 1954); Schillinger
v. United States, 155 U.S. 163, 169 (1894); Giesecke+Devrient GmbH v. United States, 150 Fed.
Cl. 330, 344 (2020)). The Tax Court then illustrated the Third Circuit decision in Urquhart
where the circuit court held “patent infringement ‘litigation is a far cry from removing a cloud of
title, or defending ownership of property.’” Mylan, 156 T.C. at 162 (quoting Urquhart, 215 F.2d
at 20). “[T]he litigation expenses were incurred not to defend or protect title but rather, ‘to
prevent (and recover) damage to their business, that is, to protect, conserve and maintain their
business profits.’” Id. at 162–63 (quoting Urquhart, 215 F.2d at 20). The Tax Court compared
petitioner’s § 271(e)(2) litigation expenses and found they, like Urquhart, “arose out of patent
infringement claims.” Id. (citing Santa Fe Pac. Gold, 132 T.C. at 264–65 (“[T]he substance of
the underlying claim or transaction out of which the expenditure in controversy arose governs
whether the item is a deductible expense or a capital expenditure[.]”)). The Mylan decision
concluded § 271(e)(2) litigation expenses “seem clearly deductible” under Urquhart. Id. (citing
Appeal of F. Meyer & Bro. Co., 4 B.T.A. 481, 482 (1926); Addressograph-Multigraph Corp. v

                                              - 14 -
Comm’r, 4 T.C.M. (CCH) 147, 166 (1945)) (“Expenses incurred in defending patent
infringement claims have been found deductible in the past.”). “[T]he litigation expenses that
[petitioner] incurred in defending Section 271(e)(2) suits arose out of the ordinary and necessary
activities of its generic drug business and accordingly are deductible.” Id. at 163–64 (citing Am.
Stores Co. v. Comm’r, 114 T.C. 458, 468 (2000)).

V.     The Appropriate Tests for Determining § 271(e)(2) Litigation Expense Deductibility

       As a threshold matter, the parties present competing analytical frameworks for
determining whether Hatch-Waxman litigation defense expenses are deductible under I.R.C.
§ 162(a) or must be capitalized under I.R.C. § 263(a). The Court must therefore determine the
applicable legal standards and their order of application before reaching the merits of the parties’
cross-motions for summary judgment.

        Plaintiff argues the expenses at issue are litigation expenses and not transaction costs, so
the Supreme Court’s origin of the claim test is the controlling standard. Pl.’s MSJ at 19.
“Plaintiff agree[s] that an approved Paragraph IV ANDA is a created intangible[,]” Tr. at
161:24–25, so to the extent Treasury Regulation § 1.263(a)-4 is relevant to this inquiry, plaintiff
argues the origin of the claim test should inform the regulation analysis. Tr. at 158:13–15. The
government counters Treasury Regulation § 1.263(a)-4 is the lone standard for the Court to
apply. Tr. at 142:3–6; Def.’s MSJ at 31. Should the Court find § 1.263(a)-4 inapplicable to
§ 271(e)(2) litigation expenses, the government argues the Court must then harmonize the origin
of the claim test with “INDOPCO’s significant-future-benefit standard.” Def.’s Reply at 10–11;
Tr. at 142:11–13. The government further posits, like plaintiff, the origin of the claim test should
inform the § 1.263(a)-4 analysis. Tr. 152:8–11. Both parties agree there is no conflict between
Treasury Regulation § 1.263(a)-4 and the origin of the claim test; the standards, though different
from one another, should reach the same conclusion. Def.’s Reply at 9; Pl.’s Reply at 12–13.

        The origin of the claim test, originating in 1963, United States v. Gilmore, 372 U.S. 39,
48 (1963), is the Supreme Court’s direct guidance on whether litigation expenses must be
capitalized under I.R.C. § 263(a). Woodward v. Comm’r, 397 U.S. 572, 574 (1970) (citing
I.R.C. § 263). When presented with the question of litigation expense deductibility, courts
regularly apply the origin of the claim test. See, e.g., Nw. Indiana Tel. Co. v. Comm’r, 127 F.3d
643, 646 (7th Cir. 1997) (“Gilmore, the undisputed leading case on this issue . . . .”); Mylan, Inc.
& Subsidiaries v. Comm’r, 156 T.C. 137 (2021); Baylin v. United States, 30 Fed. Cl. 248, 254
(1993) (citing Woodward), aff’d, 43 F.3d 1451 (Fed. Cir. 1995); McKeague v. United States, 12
Cl. Ct. 671, 675 (1987), aff’d, 852 F.2d 1294 (Fed. Cir. 1988); Keller St. Dev. Co. v. Comm’r,
688 F.2d 675, 681 (9th Cir. 1982).

        Treasury Regulation § 1.263(a)-4, enacted in 2004, is the IRS’s attempt to “explain how
[I.R.C. § 263(a)] applies to amounts paid to acquire or create intangibles.” Guidance Regarding
Deduction and Capitalization of Expenditures, 69 Fed. Reg. 436, 436 (Jan. 5, 2004). Treasury
Regulation § 1.263(a)-4 is not as narrowly focused as the origin of the claim test. The regulation
enumerates broad categories of expenses for which capitalization is required, specifically:
amounts paid to acquire, create, enhance, or facilitate the acquisition of an intangible. Treas.
Reg. § 1.263(a)-4(b). An expense may fall under the regulation through a determination “based

                                               - 15 -
on all of the facts and circumstances.” Treas. Reg. § 1.263(a)-4(b)(3)(i), (e)(1)(i). The
regulation provides no bright-line test and sets forth no specific standard for the deductibility of
litigation costs. See Treas. Reg. § 1.263(a)-4. The regulation addresses litigation costs only
once—in the examples, it illustrates the facts of Woodward and concludes those litigation costs
must be capitalized under the regulation, just as the origin of the claim test required. Treas. Reg.
§ 1.263(a)-4(e)(5) (example four). The regulation was not intended to replace, modify, or limit
the origin of the claim test. See id.; Guidance Regarding Deduction and Capitalization of
Expenditures, 67 Fed. Reg. 77,701, 77,705 (Dec. 19, 2002). Notably, the preamble from the
notice of proposed rulemaking states the regulation was not intended to displace existing caselaw
holding the cost of patent infringement litigation is “generally deductible.” Guidance Regarding
Deduction and Capitalization of Expenditures, 67 Fed. Reg. at 77,705 (citing Urquhart v.
Comm’r, 215 F.2d 17 (3d Cir. 1954)). Further, the regulatory history is replete with IRS
statements of intent to supplant the INDOPCO significant-future-benefit standard. 13

         The question of what legal standards determine the deductibility of Hatch-Waxman
litigation expenses has been addressed before. The Tax Court and the Office of Chief Counsel of
the IRS both follow a two-part analysis when presented this question. Mylan, 156 T.C. 137 (first
applying the regulation and then the origin of the claim test, but not INDOPCO’s
significant-future-benefit standard); Pl.’s Appx. (“Pl.’s MSJ Appx.”) at A0948, A0953–54 (14
September 2011 memorandum from the Office of Chief Counsel of the IRS first applying the
origin of the claim test and then the regulation, but not INDOPCO’s significant-future-benefit
standard), ECF 31-2. 14 By way of example, the IRS explains this process as follows:

         When legal fees are incurred in litigation, there is a two-step process for
         determining whether the fees must be capitalized. First, the origin of the claim
         doctrine must be applied to ascertain the character and nature of the expenditures.
         Second, the capitalization of intangibles regulations must be applied to determine,

13
  See, e.g., Guidance Regarding Deduction and Capitalization of Expenditures, 69 Fed. Reg. at 436 (“[A]n amount
paid to acquire or create an intangible not otherwise required to be capitalized by the regulations is not required to
be capitalized on the ground that it produces significant future benefits for the taxpayer, unless the IRS publishes
guidance requiring capitalization of the expenditure.”), 438 (“The reference to ‘benefits to be received in the future’
has been deleted to avoid any implication of a ‘significant future benefits’ test.”); Guidance Regarding Deduction
and Capitalization of Expenditures, 67 Fed. Reg. at 77,702 (“A ‘significant future benefit’ standard, however, does
not provide the certainty and clarity necessary for compliance with, and sound administration of, the law.
Consequently, the IRS and Treasury Department believe that simply restating the significant future benefit test,
without more, would lead to continued uncertainty on the part of taxpayers and continued controversy between
taxpayers and the IRS. Accordingly, the IRS and Treasury Department have initially defined the exclusive scope of
the significant future benefit test through the specific categories of intangible assets for which capitalization is
required in the proposed regulations. The future benefit standard underlies many of these categories.”), 77,703 (“If
an expenditure is not described in one of the categories in the proposed regulations or in subsequent future guidance,
taxpayers and IRS field personnel need not determine whether that expenditure produces a significant future
benefit.”).
14
   “Determining whether the expenditures at issue must be capitalized as within I.R.C. § 263 (rather than deducted
under § 162 or excluded from capitalization under I.R.C. § 174) requires a two step analysis. In the first step, . . .
the origin of the claim test must be applied, considering the relevant facts and circumstances. . . . In the second
step, . . . whether the fees are within § 263 must be analyzed, specifically considering the 2004 capitalization of
intangibles regulations.” Pl.’s MSJ Appx. at A0953–54 (14 September 2011 memorandum from the Office of Chief
Counsel of the IRS) (footnotes omitted).

                                                        - 16 -
        based on the ascertained character and nature, whether the expenditures are within
        any of the categories of expenditures that must be capitalized under the regulations.

Pl.’s MSJ Appx. at A0921–22 (6 November 2015 memorandum from the Office of Chief
Counsel of the IRS) (footnote omitted) (emphasis added). 15 Further, the Department of
Treasury, the Tax Court, and the Office of Chief Counsel of the IRS all agree an expense not
otherwise required to be capitalized under the regulation should not then be capitalized on the
ground that it produces significant future benefits under INDOPCO. See id.; Mylan, 156 T.C.
137; supra note 13. While none of the above are binding precedent, the uniform interpretation of
applicable law is instructive.

         The Court finds the two-step process as explained by the IRS persuasive. The expenses
at issue are § 271(e)(2) patent infringement litigation expenses. See supra Section III. The
origin of the claim test is directly applicable to litigation expenses, Woodward, 397 U.S. at
577–79, whereas Treasury Regulation § 1.263(a)-4 only may require the capitalization of
litigation expenses under some “facts and circumstances.” Treas. Reg. § 1.263(a)-4(b)(3)(i),
(e)(1)(i), (e)(5) (example four). It is undisputed, however, “that an approved Paragraph IV
ANDA is a created intangible[,]” Tr. at 161:24–25, so Treasury Regulation § 1.263(a)-4 must
apply to some of plaintiff’s ANDA-related expenses. See Treas. Reg. § 1.263(a)-4(b). Further,
Treasury Regulation § 1.263(a)-4 was intended to replace the prior, categorical INDOPCO
significant-future-benefit standard with specific categories of intangible assets which “[t]he
future benefit standard underlies.” 16 Guidance Regarding Deduction and Capitalization of
Expenditures, 67 Fed. Reg. at 77,702; see supra note 13. Based on this background, the Court
analyzes the deductibility of plaintiff’s § 271(e)(2) patent litigation expenses in the following
order: (1) as the most directly applicable standard, the Court will apply the origin of the claim
test first, ascertaining the nature and character of the expenditures; (2) then, the Court will apply
Treasury Regulation § 1.263(a)-4 to assess whether the expenses, based on their nature and
character, fall within the category of ANDA-related expenses the regulation requires plaintiff to
capitalize. As the parties agreed, the Court’s origin of the claim analysis will inform the Court’s
application of the regulation due to its full consideration of the facts and circumstances, an
exercise relevant to both standards. Tr. 152:8–11, 158:13–15; see also Pl.’s MSJ Appx. at
A0921–22. Further, the Court will not attempt to harmonize the origin of the claim test with
INDOPCO’s significant-future-benefit standard because the history of the regulation reveals an
application of the regulation is effectively an application of the significant-future-benefit
standard. See supra note 13. Allowing the origin of the claim test to inform the application of
the regulation therefore provides the government’s requested harmonization of the origin of the

15
  See Hanover Bank v. Comm’r, 369 U.S. 672, 686 (1962) (holding these unpublished private rulings are not
precedential); I.R.C. § 6110(k)(3) (“Unless the Secretary otherwise establishes by regulations, a written
determination may not be used or cited as precedent.”).
16
  The question of whether the IRS may overwrite the Supreme Court’s interpretations of the tax code is not before
the Court. But see Nat’l Cable & Telecommunications Ass’n v. Brand X Internet Servs., 545 U.S. 967, 983 (2005)
(“Neither Chevron nor the doctrine of stare decisis” “preclude[es] agencies from revising unwise judicial
constructions of ambiguous statutes.”).

                                                      - 17 -
claim test with “INDOPCO’s significant-future-benefit standard.” 17 Def.’s Reply at 10–11; Tr.
at 142:11–13.

VI.     Whether the Origin of a § 271(e)(2) Claim is in the Process of a Capital Acquisition

        The first step in determining the deductibility of Hatch-Waxman litigation expenses is
applying the origin of the claim test. See supra Section V. This analysis begins with first
determining the substance of a § 271(e)(2) patent infringement claim. See infra Section VI.A.
The Court then assesses the nature and character of Hatch-Waxman litigation. See infra Section
VI.B. The second step in determining deductibility of Hatch-Waxman litigation expenses is
applying Treasury Regulation § 1.263(a)-4. See supra Section V. The Court does so in view of
the nature and character of the expenses incurred, as determined by the origin of the claim test
from step one. See infra Section VII. Finally, once the Court has determined the origin of the
§ 271(e)(2) patent infringement claims against plaintiff and whether Treasury Regulation
§ 1.263(a)-4 requires capitalization of the expenses incurred defending those claims, the Court
applies I.R.C. §§ 162(a), 263(a) to decide whether plaintiff’s Hatch-Waxman litigation expenses
are deductible. See infra Section VIII.

        A.       The Substance of a § 271(e)(2) Patent Infringement Claim

        Plaintiff argues the origin of a § 271(e)(2) patent infringement claim “is the decision by a
branded drug company to enforce its patent rights against potential competitors[.]” Pl.’s MSJ at
25. Plaintiff contends these claims stem from the branded drug company’s incentive “to protect
its own business, revenues and profits, against allegedly infringing sales by a competitor[.]” Id.
The government responds by arguing the Court must evaluate the origin of the claim test “from
the perspective of the party whose taxes are at issue”—the generic drug company. Def.’s MSJ at
38. “For the generic company defendant in a Hatch-Waxman suit,” the government argues “the
origin of the claim is the ANDA approval process itself, a process by which the generic company
seeks to obtain a capital asset.” Def.’s Reply at 12.

        The deductibility of litigation expenses generally depends on the origin and character of
the claim which caused the expenses. See Woodward v. Comm’r, 397 U.S. 572, 577–78 (1970);
United States v. Hilton Hotels Corp., 397 U.S. 580, 583 (1970); United States v. Gilmore, 372
U.S. 39, 48–49 (1963); Wellpoint, Inc. v. Comm’r, 599 F.3d 641, 647 (7th Cir. 2010); Newark
Morning Ledger Co. v. United States, 539 F.2d 929, 934–35 (3d Cir. 1976). The Court
determines the origin and character of a claim by looking to “the substance of the underlying
claim or transaction out of which the expenditure in controversy arose . . . .” Santa Fe Pac. Gold
Co. & Subsidiaries v. Comm’r, 132 T.C. 240, 264–65 (2009); see also Woodward, 397 U.S. at
578. The Court makes “an objective inquiry into the nature and circumstances of the
lawsuit.” Putnam-Greene Fin. Corp. v. United States, 308 F. Supp. 2d 1374, 1379 (M.D. Ga.
2004) (citations omitted) (considering “the issues involved, the nature and objectives of the suit
in which the expenditures were made, the defenses asserted, the purpose for which the claimed

17
   Even if INDOPCO’s significant-future-benefit standard remained in effect beyond the regulation, INDOPCO is
likely inapplicable—INDOPCO did not involve litigation expenses and did not address the origin of the claim test.
See INDOPCO, Inc. v. Comm’r, 503 U.S. 79, 81 (1992); A.E. Staley Mfg. Co. & Subsidiaries v. Comm’r, 119 F.3d
482, 488 (7th Cir. 1997).

                                                      - 18 -
deductions were expended, the background of the litigation, and all facts pertaining to the entire
controversy out of which the disputed expenses arose[.]”). It is “the ‘substance’ of an action,
more so than the ‘form’ of the action, [that] is critical in determining the origin of the action.”
Id. Under the origin of the claim doctrine framework, it is a “well-worn notion that expenses
incurred in defending a business and its policies from attack are necessary and ordinary—and
deductible—business expenses.” A.E. Staley Mfg. Co. & Subsidiaries v. Comm’r, 119 F.3d 482,
487 (7th Cir. 1997) (citing Comm’r v. Heininger, 320 U.S. 467 (1943)); see also Santa Fe Pac.
Gold, 132 T.C. at 261 (“[D]eduction is generally allowed for expenses incurred in defending a
business and its policies from attack.”). If the “origin of particular litigation lies in the process of
acquisition[,]” however, the expenses incurred from that litigation must be capitalized.
Woodward, 397 U.S. at 578.

         It is further helpful to know what the origin of the claim test is not. The Court does not
determine the origin and character of a claim by looking to “the motives of the payor or the
consequences that may result from the failure to defeat the claim.” Santa Fe Pac. Gold, 132 T.C.
at 264–65. The test “does not involve a mechanical search for the first in the chain of events[.]”
Id. at 265. Proximity to a capital expense is not determinative, as “[a]n ordinary expense does
not become a capital expenditure simply because of some relation in time or circumstance to an
admittedly capital expenditure.” McKeague v. United States, 12 Cl. Ct. 671, 675 (1987) (citing
Connecticut Light & Power Co. v. United States, 299 F.2d 259, 264 (Ct. Cl. 1962)), aff’d, 852
F.2d 1294 (Fed. Cir. 1988) (“[I]t is . . . irrelevant that [plaintiff] brought the counts in the
complaint in order to achieve the relief granted in Count XIII, i.e., the [capital acquisition].”). It
does not matter whether a litigation’s “result indirectly enhances capital values” under the origin
of the claim test; rather, “the nature and origin of the expense” controls. Id. (citation omitted). It
is irrelevant whether the litigation is the taxpayer’s “means used to attain a” capital
acquisition—the expense “must be directly related to the acquisition or disposition of a capital
asset.” Id. (citing Gilmore, 372 U.S. at 48; I.R.C. § 263(a) (1982); Hilton Hotels, 397 U.S. at
583; Kutz v. United States, 392 F. Supp. 539, 541 (M.D. Pa. 1975); Reed v. Comm’r, 55 T.C. 32,
42 (1970)). The origin of the claim test is narrowly focused on the substance of the claim
litigated. Woodward, 397 U.S. at 577–78.

        In this case, the claims which caused plaintiff’s expenses were § 271(e)(2) patent
infringement claims. A claim brought under § 271(e)(2) involves “a highly artificial act of
[patent] infringement that consists of submitting an ANDA . . . containing the fourth type of
certification . . . .” Eli Lilly & Co. v. Medtronic, Inc., 496 U.S. 661, 678 (1990). While Hatch-
Waxman litigation may be relatively new, patent infringement claims have longstanding origins
in the law. A granted patent is “the property of the patentee, and as such is entitled to the same
legal protection as other property.” 18 McCormick Harvesting Mach. Co. v. C. Aultman & Co.,

18
  Edmund W. Kitch, The Nature and Function of the Patent System, 20 J. L. & Econ. 265, 266 (1977) (“The patent
system achieves these ends by awarding exclusive and publicly recorded ownership of a prospect shortly after its
discovery. The patent system so viewed is closely analogous to the American mineral claim system for public
lands. . . . [T]his view of the patent system [is] called the prospect theory.”); F. Scott Kieff, Property Rights and
Property Rules for Commercializing Inventions, 85 Minn. L. Rev. 697, 703 (2001) (“[T]the treatment of patents as
property rights is necessary to facilitate investment in the complex, costly, and risky commercialization activities
required to turn nascent inventions into new goods and services. Furthermore, property treatment is equally
necessary to help society decide which inventive activities are worth protecting in the first instance.”).

                                                       - 19 -
169 U.S. 606, 609 (1898) (citing Seymour v. Osborne, 78 U.S. 516 (1870); Cammeyer v. Newton,
94 U.S. 225 (1876); United States v. Palmer, 128 U.S. 262 (1888); James v. Campbell, 104 U.S.
356 (1881)). “[T]he ‘right to exclude,’ [is] universally held to be a fundamental element of the
property right . . . .” Kaiser Aetna v. United States, 444 U.S. 164, 179–80, 180 n.11 (1979) (“As
stated by Mr. Justice Brandeis, ‘[a]n essential element of individual property is the legal right to
exclude others from enjoying it.’” (quoting Int’l News Serv. v. Associated Press, 248 U.S. 215,
250 (1918) (Brandeis, J., dissenting))). A patent provides its owner “a limited right to exclude
others from making, using, or selling a claimed invention for a limited period of time . . . .”
Leatherman Tool Grp., Inc. v. Cooper Indus., Inc., 131 F.3d 1011, 1015 (Fed. Cir. 1997). To
“trespass upon the rights” of a patentee—a property owner—is to commit an act of patent
“infringement” in violation of the patentee’s right to exclude. 19 Schillinger v. United States, 155
U.S. 163, 169–70 (1894); Leatherman Tool Grp., Inc., 131 F.3d at 1015. Put simply, the §
271(e)(2) patent infringement claims plaintiff defended were akin to claims for trespass of the
patentee’s property. Schillinger, 155 U.S. at 169–70.

          The government attempts to obscure the differences between infringement litigation and
suits involving asset ownership. The government contends plaintiff’s “litigation objective” in
defending the § 271(e)(2) claims was to prevent the delay of acquisition of an “intangible capital
asset[,]” the approved ANDA, so the origin of the expenses was a capital acquisition. Def.’s
Reply at 12. The origin of the claim test and tax law, however, have long distinguished between
patent infringement litigation and suits involving acquisition of a capital asset. Compare
Urquhart v. Comm’r, 215 F.2d 17, 20 (3d Cir. 1954) (finding patent litigation legal expenses
deductible because “[i]nfringement litigation is a far cry from removing a cloud of title, or
defending ownership of property”), and Mylan, 156 T.C. at 152 (same), with Baier’s Est. v.
Comm’r, 533 F.2d 117, 120 (3d Cir. 1976) (holding the origin of litigation expenses incurred
incident to a dispute over the terms of a patent assignment agreement were capital), and Safety
Tube Corp. v. Comm’r, 168 F.2d 787, 789 (6th Cir. 1948) (“Legal expenses incurred in
[litigation over property ownership] constitute capital expenditures and are not deductible . . . .”).
The former seeks to enforce existing property rights against another, and the latter involves
ownership of an asset itself. Schillinger, 155 U.S. at 169–70; Urquhart, 215 F.2d at 20. Unlike
an action for “removing a cloud of title, or defending ownership of property[,]” Urquhart, 215
F.2d at 20, a claim for patent infringement, like a claim for trespass, “is one sounding in
tort . . . .” Schillinger, 155 U.S. at 169. “[W]hat a patent owner loses from infringement is the
acquisition of ‘a just and deserved gain’ from the exploitation of the invention embodied in his
patent.” Mathey v. Comm’r, 177 F.2d 259, 263 (1st Cir. 1949). Hatch-Waxman litigation
involves only questions of patent validity and infringement and therefore receives different
treatment than suits over asset title under the origin of the claim test and tax law. Urquhart, 215
F.2d at 20; see supra Section IV.B.

19
  Ryan T. Holte, The Misinterpretation of eBay v. MercExchange and Why: An Analysis of the Case History,
Precedent, and Parties, 18 Chap. L. Rev. 677, 682 (2015) (“As stated recently by a district court . . . emphasizing
the importance of equitable remedy options for patent holders: ‘ . . . [W]hether for Thomas Edison and his light
bulb patents or [a patent holder today] and its off-the-shelf purchase, the exclusive rights under 35 U.S.C. § 271 are
the same; that period of exclusivity never comes back.’” (quoting Sealant Sys. Int’l, Inc. v. TEK Glob., S.R.L., No.
5:11-CV-00774-PSG, 2014 WL 5141819, at *5 (N.D. Cal. Oct. 13, 2014))).

                                                        - 20 -
         The government also argues the origin of a Hatch-Waxman suit is the ANDA filing
because it “is the first of many steps in a lengthy process intended to create an intangible that
will generate future income.” Def.’s MSJ at 39–40. The government’s proffered origin of the
claim test analysis has been repeatedly rejected for at least three reasons. First, even if the
ANDA filing is the “artificial act of infringement,” Eli Lilly & Co., 496 U.S. at 678, the test
“does not involve a mechanical search for the first in the chain of events[.]” Santa Fe Pac. Gold,
132 T.C. at 265. If the government believes the origin of the claim is “the pebble that starts the
avalanche of the Paragraph IV litigation[,]” Tr. at 44:18–19, it is the “Orange Book listing of a
patent . . . [that] is the trigger for [Hatch-Waxman Act] protection.” 20 aaiPharma Inc. v.
Thompson, 296 F.3d 227, 232 (4th Cir. 2002). Second, even if an FDA-approved ANDA is an
income-generating intangible, “[a]n ordinary [and deductible] expense does not become a capital
expenditure simply because of some relation in time or circumstance to an admittedly capital
expenditure.” McKeague, 12 Cl. Ct. at 675 (citing Connecticut Light & Power Co., 299 F.2d at
264), aff’d, 852 F.2d 1294 (Fed. Cir. 1988) (“[I]t is . . . irrelevant that [plaintiff] brought the
counts in the complaint in order to achieve the relief granted in Count XIII, i.e., the [capital
acquisition].”). Third, even if the successful defense of a § 271(e)(2) claim prevents a patentee
from staying effective FDA approval, § 271(e)(4)(A), whether a litigation’s “result indirectly
enhances capital values is not a factor [under the origin of the claim test]; the only consideration
that controls is the nature and origin of the expense.” McKeague, 12 Cl. Ct. at 675 (citation
omitted). It is irrelevant whether defending a Hatch-Waxman suit is the taxpayer’s “means used
to attain a certain end”—the litigation expenses “must be directly related to the acquisition or
disposition of [the ANDA].” Id. (emphasis added) (citing Gilmore, 372 U.S. at 48; I.R.C. §
263(a) (1982); Hilton Hotels, 397 U.S. at 583; Kutz, 392 F. Supp. at 541; Reed, 55 T.C. at 42);
Wells Fargo & Co. & Subsidiaries v. Comm’r, 224 F.3d 874, 886 (8th Cir. 2000). The
government’s proposed origin of the claim test is accordingly unsupported by caselaw.

20
   Of note, the FDA’s Orange Book management practices reinforce that Hatch-Waxman litigation is controlled by
the patent holders. The FDA does not “police the [Orange Book] listing process by analyzing whether the patents
listed by NDA applicants actually claim the subject drugs or applicable methods of using those drugs.” Apotex, Inc.
v. Thompson, 347 F.3d 1335, 1349 (Fed. Cir. 2003); Caraco Pharm. Lab’ys, Ltd. V. Novo Nordisk A/S, 566 U.S.
399, 406–07 (2012) (“[The FDA] does not independently assess the patent’s scope or otherwise look behind the
description authored by the brand. According to the agency, it lacks ‘both [the] expertise and [the] authority’ to
review patent claims; . . . its . . . ‘role with respect to patent listing is ministerial.’”); Tr. at 47:19–48:2 (government
counsel stating he does not “know that the FDA necessarily is making any assumptions” regarding patent validity or
infringement). “[A]ccepting at face value the accuracy of NDA holders’ patent declarations[,]” the FDA “follow[s
branded drug company] listing instructions” blindly. Am. Bioscience, Inc. v. Thompson, 269 F.3d 1077, 1080 (D.C.
Cir. 2001). “In the late 1990’s, evidence mounted that some brands were exploiting this statutory scheme to prevent
or delay the marketing of generic drugs[.]” Caraco, 566 U.S. at 408 (citing FTC Study, supra note 8); see, e.g.,
Mylan Pharms., Inc. v. Thompson, 268 F.3d 1323 (Fed. Cir. 2001) (holding an ANDA filer did not have a cause of
action to delist an Orange Book patent, even where the patent does not cover the relevant drug or its method of use,
and the patent was listed just eleven hours prior to the original patent’s expiration). Though generic drug companies
may have a counterclaim to seek correction of exploitative Orange Book listings, they cannot prospectively correct
such listings and avoid filing a Paragraph IV certification—i.e., the “artificial act of infringement,” Eli Lilly & Co.,
496 U.S. at 678. 21 U.S.C. § 355(j)(5)(C)(ii)(I)–(II) (“No independent cause of action[.]”). Recognizing this
problem, on 16 June 2022, Senator Richard Durbin introduced a bill that would create an interagency task force on
patents required “to assist the [FDA] in its ministerial role of listing appropriate and accurate descriptions of
patents.” Interagency Patent Coordination and Improvement Act of 2022, S. 4430, 117th Cong. § 15(d)(3)(B)
(2022).

                                                          - 21 -
        In sum, the substance of a patent infringement claim under § 271(e)(2) is no different
than a traditional patent infringement claim: both are property trespass claims originating in tort.
Schillinger, 155 U.S. at 169. A branded drug company owns intangible property—a
patent—analogous to real property in an action for physical trespass. McCormick Harvesting
Mach. Co., 169 U.S. at 609. Filing an ANDA with a Paragraph IV certification is a statutorily
created act of trespass onto that intangible property. Eli Lilly & Co., 496 U.S. at 678. Once a
generic drug company files an ANDA with a Paragraph IV certification and commits the
statutorily defined act of trespass onto a branded drug company’s property, the branded drug
company’s claim accrues. See § 271(e)(2); Glaxo, Inc. v. Novopharm, Ltd., 110 F.3d 1562, 1569
(Fed. Cir. 1997). By statute, the branded drug company (the patentee) may enforce its right to
exclude the generic drug company from the manufacture, use, or sale of a drug that infringes
upon its patent when the generic drug company files an ANDA with a Paragraph IV certification.
§ 271(e)(2); see also Kaiser Aetna, 444 U.S. at 179–80; Schillinger, 155 U.S. at 169. The
ANDA filing itself does not affect the property rights of either the branded or generic drug
companies—a branded company’s title to a patent is not called into question, and a generic
company does not acquire the right to infringe. See supra Section IV.B. Rather, the ANDA
merely begins an administrative process, itself spurring no litigation. Id. Litigation does not
begin until a patentee determines its intellectual property is infringed and sues to prevent that
infringement; even then, the litigation is not concerned with whether the FDA will eventually
approve the ANDA. See § 271(e)(2); Glaxo, Inc., 110 F.3d at 1569. All the legal expenses
plaintiff seeks to deduct stem from litigation originating in precisely this way. Given this
posture, the § 271(e)(2) claims against plaintiff arose out of patentee efforts to protect their
intellectual property from infringement, not generic drug company efforts to acquire an approved
ANDA. See Woodward, 397 U.S. at 577–78; Hilton Hotels, 397 U.S. at 583; Gilmore, 372 U.S.
at 48–49. As such, the substance of Hatch-Waxman litigation is the same as any other patent
infringement litigation—a property trespass action originating in tort. Schillinger, 155 U.S. at
169; Urquhart, 215 F.2d at 20; Santa Fe Pac. Gold, 132 T.C. at 264–65.

       B.      The Nature and Character of Hatch-Waxman Litigation

        Continuing the origin of the claim test analysis the Court next makes “an objective
inquiry into the nature and circumstances of [a § 271(e)(2) patent infringement]
lawsuit.” Putnam-Greene Fin. Corp., 308 F. Supp. 2d at 1379; Woodward, 397 U.S. at 577–78.
If the nature and character of Hatch-Waxman “litigation lies in the process of [ANDA]
acquisition[,]” that would support the capitalization of plaintiff’s legal expenses. Woodward,
397 U.S. at 578. Plaintiff argues the character of § 271(e)(2) litigation confirms it “does not
concern ‘the process of [ANDA] acquisition itself,’ but the generic drug company’s business.”
Pl.’s MSJ at 25 (quoting Woodward, 397 U.S. at 577). Plaintiff claims “the allegations in [a §
271(e)(2)] complaint, the legal issues involved, the defenses asserted, and the purposes for which
the amounts claimed as deductible were expended,” all show Hatch-Waxman litigation is
indistinguishable from traditional patent infringement litigation. Id. at 25–26. The government
does not disagree with plaintiff—it states “the litigation of a Hatch-Waxman suit under 35
U.S.C. § 271(e)([2]) has much in common with a traditional infringement suit under 35 U.S.C. §
271(a)[.]” Def.’s MSJ at 15. Although the government acknowledges the commonalities
between Hatch-Waxman litigation and traditional patent infringement litigation, the government
argues the “unique remedies in Hatch-Waxman litigation . . . show that the origin of the claim is

                                               - 22 -
the generic company’s Paragraph IV ANDA application.” Def.’s MSJ at 40. The Court assesses
these arguments in turn below.

               1.     The Facts and Circumstances of a § 271(e)(2) Action

         Hatch-Waxman litigation amounts to nothing more than ordinary patent litigation. As
emphasized by the Federal Circuit: “Notwithstanding th[e] defined act of infringement, a district
court’s inquiry in a suit brought under § 271(e)(2) is the same as it is in any other infringement
suit, viz., whether the patent in question is ‘invalid or will not be infringed by the manufacture,
use, or sale of the drug for which the [ANDA] is submitted.’” Glaxo, Inc., 110 F.3d at 1569
(quoting 21 U.S.C. § 355(j)(2)(A)(vii)(IV))). So, although “[s]ection 271(e)(2)(A) defines the
filing of an ANDA as an act of infringement, . . . it does not alter the underlying patent
infringement analysis . . . .” Bayer Schering Pharma AG v. Lupin, Ltd., 676 F.3d 1316, 1325
(Fed. Cir. 2012); see also, e.g., Abbott Lab’ys v. TorPharm, Inc., 503 F.3d 1372, 1379 (Fed. Cir.
2007) (noting the lack of “any authority, be it statute, case law, or legislative history of the
Hatch-Waxman Act, suggesting that suits commenced under the provisions of the Act are to be
treated any differently than patent infringement suits under 35 U.S.C. § 27l(a).”); Allergan, Inc.
v. Alcon Lab’ys, Inc., 324 F.3d 1322, 1331 (Fed. Cir. 2003) (finding timing is the only difference
between § 271(a) and § 271(e)(2) claims). In Hatch-Waxman litigation, the Court looks to
whether a generic company’s prospective “commercial manufacture, use, or sale of a drug,” §
271(e)(2), infringes upon a branded drug company’s valid and enforceable patent, and, if so,
grants an appropriate remedy—like a conventional patent infringement claim. Glaxo, Inc., 110
F.3d at 1569–70. The issues involved, the nature of the suit, and the defenses asserted in a §
271(e)(2) action are substantively indistinguishable from a traditional § 271(a) patent
infringement case. Putnam-Greene Fin. Corp., 308 F. Supp. 2d at 1379; Glaxo, Inc., 110 F.3d at
1569; Bayer Schering Pharma AG, 676 F.3d at 1325; Abbott Lab’ys, 503 F.3d at 1379; Allergan,
Inc., 324 F.3d at 1331. Thus, while the “form” of plaintiff’s defense against § 271(e)(2) claims
arose in the context of plaintiff’s attempt to attain FDA approved ANDAs, the “substance” of the
defense was resisting claims of tortious trespass to intellectual property—patent infringement.
Clark Oil & Ref. Corp. v. United States, 473 F.2d 1217, 1220 (7th Cir. 1973); see also Glaxo,
Inc., 110 F.3d at 1569; Bayer Schering Pharma AG, 676 F.3d at 1325; Abbott Lab’ys, 503 F.3d
at 1379; Allergan, Inc., 324 F.3d at 1331. The facts and circumstances of Hatch-Waxman
litigation therefore support treating related legal expenses the same as traditional patent
infringement legal expenses under the origin of the claim test.

               2.     Comparison of Hatch-Waxman Litigation Remedies to Traditional
                      Patent Infringement Litigation Remedies

        The government argues “[t]he unique remedies in Hatch-Waxman litigation . . . show that
the origin of the claim is the generic company’s Paragraph IV ANDA application.” Def.’s MSJ
at 40. Although the government agrees Hatch-Waxman litigation “has much in common” with
traditional patent litigation, id. at 15, the government alleges the automatic thirty-month stay of
FDA approval, the stay of approval effectiveness until expiration of an infringed patent, and the
limited availability of monetary damages are “[u]nlike traditional patent infringement cases[.]”
Id. at 40. According to the government, under the origin of the claim test, these “unique
remedies” overcome all that Hatch-Waxman litigation has in common with traditional patent

                                              - 23 -
litigation. Id.; Def.’s Reply at 13. Under the origin of the claim test framework, the Court must
assess these remedies for their “substance” rather than their “form.” Clark Oil & Ref. Corp., 473
F.2d at 1220.

                           i.       The Automatic Thirty-Month Stay

        The government first argues the automatic thirty-month stay of ANDA approval
effectiveness shows the origin of a § 271(e)(2) claim is the ANDA. Def.’s MSJ at 40 (“The mere
filing of the action within forty-five days triggers a thirty-month stay of approval of the
Paragraph IV ANDA . . . .”). The government, however, fails to show how the Hatch-Waxman
automatic thirty-month stay is substantively different from a traditional preliminary injunction.
See 21 U.S.C. § 355(j)(5)(B)(iii)(I); see also, e.g., Metalcraft of Mayville, Inc. v. The Toro Co.,
848 F.3d 1358 (Fed. Cir. 2017). Both remedies prevent the commercial manufacture, use, or sale
of a drug while patent infringement litigation is ongoing. Indeed, that was the purpose of the
automatic thirty-month stay of effective ANDA approval. 21 Although the thirty-month stay is
automatic in Hatch-Waxman litigation, generic drug companies can and do litigate the stay, just
as a § 271(a) defendant would litigate a motion for preliminary injunction. Compare Momenta
Pharms., Inc. v. Amphastar Pharms., Inc., 686 F.3d 1348, 1361 (Fed. Cir. 2012) (litigating a
preliminary injunction through a motion to dissolve the injunction and a Federal Circuit appeal),
and Polymer Techs., Inc. v. Bridwell, 103 F.3d 970, 977–78 (Fed. Cir. 1996), with Def.’s Reply
at 5 (describing two instances where plaintiff in this case litigated the automatic thirty-month
stay). A preliminary injunction benefits a patent holder by allowing litigation over patent rights
prior to diminished market share. See, e.g., Abbott Lab’ys v. Sandoz, Inc., 544 F.3d 1341, 1361–
62 (Fed. Cir. 2008). The automatic thirty-month stay likewise benefits patent holders as it

21
   In a recent statutory interpretation case, the Court stated it “considers the text paramount and does not find
legislative history persuasive[.]” ITServe Alliance, Inc. v. United States, No. 1:21-cv-01190-RTH, Op. & Order at 8
n.5 (Fed. Cl. Aug. 12, 2022), ECF No. 53. The Court reasoned, “[w]hile legislative history is one of the traditional
tools of statutory construction the Court can use to determine the plainness or ambiguity of statutory language, . . .
legislative history cannot overcome the statutory text to provide a wider application of the statute than the plain
meaning can bear.” Id. (citing Ariz. Pub. Serv. Co. v. EPA, 211 F.3d 1280, 1287 (D.C. Cir. 2000), Barnhart v.
Sigmon Coal Co., 534 U.S. 438, 457 (2002)). While the legislative history is not a starting place to understand
statutory purpose, here the legislative floor statements do support the conclusion there is no material difference
between an automatic thirty-month stay and a preliminary injunction. See Notice at 1–2, ECF No. 59. As stated by
Senator Orin Hatch in 130 Cong. Rec. S10503-13 (daily ed. August 10, 1984) at page S10504:

         The period of time during which an abbreviated new drug application is not to be made effective,
         during the pendency of a patent challenge under the statute, is extended from 18 to 30 months from
         the date of submission of an ANDA application containing bioequivalency data. This increases the
         likelihood that the litigation will be concluded within the time period during which ANDA’s are not
         allowed.

As stated by Representative Henry Waxman in 130 Cong. Rec. H9105-51 (daily ed. Sept. 6, 1984) at page H9114:

         [T]he period during which a generic drugmaker may not market pending the judicial resolution of a
         challenge to patent validity is expanded from the 18 months currently in the bill to 30 months. Some
         of the brand name drug companies felt this change increases the likelihood that such patent,
         litigation will be concluded before the generic drugmaker begins marketing.

Here, the bill’s co-sponsors’ floor statements accord with each other and do not contradict the plain meaning
of the text.

                                                        - 24 -
“giv[es] the patent holder a chance to vindicate its intellectual property rights before the FDA
approves a generic version of the drug.” aaiPharma Inc., 296 F.3d at 232 (citing Bristol-Myers
Squibb Co. v. Royce Lab’ys, Inc., 69 F.3d 1130, 1135 (Fed. Cir. 1995)). Also like a preliminary
injunction, the automatic stay is initiated by the patent holder—“[i]f a patent is not listed in the
Orange Book, ANDA applicants do not have to file a Paragraph IV certification, and the patent
holder is unable to take advantage of the thirty-month stay.” Id. In sum, the differences between
the automatic stay and a preliminary injunction are a matter of form and serve only to benefit the
patent holder. Clark Oil & Ref. Corp., 473 F.2d at 1220. The automatic stay therefore does not
show the origin of a Hatch-Waxman claim is the generic drug company’s ANDA. Id.;
Woodward, 397 U.S. at 577–78.

                       ii.    The Stay of Effective FDA Approval

         The government next contends the stay of effective FDA approval until an infringed
patent expires also shows the ANDA is the origin of Hatch-Waxman litigation. Def.’s MSJ at
40. The government again fails to show how the stay of approval effectiveness upon a finding of
infringement is substantively different from a permanent injunction in traditional patent
litigation. Both prevent the commercial manufacture, use, or sale of a drug until expiration of
the infringed property right. Compare § 271(e)(4)(A) with W. Plastics, Inc. v. DuBose
Strapping, Inc., No. 5:15-CV-294-D, 2020 WL 5709250, at *4 (E.D.N.C. Sept. 24, 2020)
(enjoining the manufacture, use, sale, or importation of infringing products until patent
expiration), aff’d, No. 2021-1371, 2021 WL 5985361 (Fed. Cir. Dec. 17, 2021). Though the stay
of approval effectiveness is automatic under the statute—not requiring a showing of the
permanent injunction factors required in eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391
(2006)—this is a matter of form, not substance. Clark Oil & Ref. Corp., 473 F.2d at 1220; Santa
Fe Pac. Gold, 132 T.C. at 264–65; see also Woodward, 397 U.S. at 578. By enacting this de
facto permanent injunction provision, Congress implicitly determined the public interest is best
served by an equitable remedy upon a finding of § 271(e)(2) infringement. eBay Inc., 547 U.S.
at 391. Moreover, the stay entered under § 271(e)(4)(A) applies strictly to “the effective date of
any approval”—in other words, the FDA reaches its approval decision regardless of any
infringement finding, and that approval is effective once trespass to intellectual property is
eliminated. § 271(e)(4)(A). This further supports the origin of the claim in § 271(e)(2) litigation
being the patentee’s decision to protect its patent rights, because even if it were proper to
consider the consequences of litigation, the consequences here are strictly tied to enforceability
of a property right, not FDA approval. Woodward, 397 U.S. at 578 (citing Gilmore, 372 U.S.
39); see also McKeague, 12 Cl. Ct. at 675; Santa Fe Pac. Gold, 132 T.C. at 264–65. This
remedy therefore does not show the origin of a Hatch-Waxman claim is the ANDA filing. Clark
Oil & Ref. Corp., 473 F.2d at 1220; Woodward, 397 U.S. at 577–78.

                       iii.   The Exclusion of Damages

        Lastly, the government argues the exclusion of damages absent a commercial
manufacture, use, or sale in Hatch-Waxman litigation shows the origin of the claim is the
ANDA. Def.’s MSJ at 40; see 35 U.S.C. § 271(e)(4)(C) (“. . . [D]amages or other monetary
relief may be awarded against an infringer only if there has been commercial manufacture, use,
offer to sell, or sale . . . .”). “Unlike traditional patent infringement cases, which often seek

                                               - 25 -
reasonable royalties or lost profits designed to compensate the patent holder for losses suffered to
its present income,” the government avers, “the focus of the Hatch-Waxman suit is an effort to
defeat or delay FDA approval of the Paragraph IV ANDA.” Def.’s MSJ at 40–41 (emphasis
removed).

        The government emphasizes that monetary damages in traditional § 271(a) patent
infringement cases are limited to “damages adequate to compensate for the infringement, but in
no event less than a reasonable royalty for the use made of the invention . . . .” 35 U.S.C. § 284
(2018). The government, however, does not explain how this difference creates a meaningful
distinction. Though the Hatch-Waxman plaintiff’s claim for damages is barred absent
“commercial manufacture, use, offer to sell, or sale,” § 271(e)(4)(C), a traditional plaintiff may
not receive damages without similar conduct because the traditional plaintiff cannot bring a
claim in the first place. § 271(a) (barring traditional patent infringement claims themselves
absent someone who “makes, uses, offers to sell, or sells any patented invention”). Even if the
traditional plaintiff had a cause of action without this conduct, it is difficult to imagine a
circumstance where a traditional plaintiff could recover significant damages without identifying
some infringing “commercial manufacture, use, offer to sell, or sale.” See, e.g., Whitserve, LLC
v. Computer Packages, Inc., 694 F.3d 10, 26 (Fed. Cir. 2012) (citing Lucent Techs., Inc. v.
Gateway, Inc., 580 F.3d 1301, 1324 (Fed. Cir. 2009)). Without any commercial manufacture,
use, offer to sell, or sale of an infringing product, even the most sophisticated expert witness may
have difficulty finding a theory upon which to base a claim for lost profits or a reasonable
royalty. Id. Monetary relief in Hatch-Waxman litigation may therefore differ in form from
traditional litigation, but the government fails to show how it differs in substance. Clark Oil &
Ref. Corp., 473 F.2d at 1220; see §§ 271(e)(4)(C), 284; cf. § 271(a) (barring patent infringement
claims themselves absent someone who “makes, uses, offers to sell, or sells any patented
invention”).

        Hatch-Waxman litigation begins with an “artificial act of infringement[,]” Eli Lilly &
Co., 496 U.S. at 678—an ANDA filing—but this does not affect the above damages analysis.
Generic drug companies make and use patented drugs before filing ANDAs. Supra Section
IV.B. 22 Under the Hatch-Waxman Act, generic drug companies enjoy an infringement safe
harbor for that use if it is “reasonably related to the development and submission of” an ANDA.
§ 271(e)(1). In other industries, such use of an invention is actionable patent infringement under
§ 271(a). C.f. Roche Prod., Inc. v. Bolar Pharm. Co., 733 F.2d 858, 863 (Fed. Cir. 1984)
(holding experimental use of an invention in furtherance of the infringer’s business is § 271(a)
patent infringement), superseded by statute, 35 U.S.C. § 271(e)(1), as recognized in Warner-
Lambert Co. v. Apotex Corp., 316 F.3d 1348 (Fed. Cir. 2003). Hatch-Waxman litigation and
traditional patent infringement litigation therefore are both preceded by the same “mak[ing]” and
“us[ing]” of a “patented invention.” § 271(a); supra Section IV.B. The two differ in that the
Hatch-Waxman Act: exempts from infringement the use of an invention for developing an
ANDA, § 271(e)(1); and excludes damages claims when there are no commercial sales,
§§ 355(j)(5)(B)(iii), 271(e)(4)(C). Hatch-Waxman litigation necessarily occurs after use of an
invention, but before FDA approval and monetary damages accrual. See § 271(e)(2). If
22
  “The purpose of sections 271(e)(1) and (2) is to establish that experimentation with a patented drug product, when
the purpose is to prepare for commercial activity which will begin after a valid patent expires, is not a patent
infringement.” H.R. Rep. No. 98-857, pt. 1, at 45 (1984), as reprinted in 1984 U.S.C.C.A.N. 2647, 2678.

                                                      - 26 -
traditional patent infringement litigation occurred under the same facts—after use, but before
marketing or sales—the patentee is unlikely to recover significant damages. See, e.g., Whitserve,
LLC, 694 F.3d at 28 (basing reasonable royalty calculations on the number of “infringing
transactions”). Congress implicitly recognized branded drug companies incur miniscule
damages before the generic drug receives FDA approval and reaches market. See generally
§ 271(e) (creating a safe harbor for infringing activities relating to ANDA applications and
barring damages in ANDA litigation where there is no commercial activity). Congress
coordinated Hatch-Waxman litigation with the FDA approval process and streamlined it by
preventing litigation over little to no damages. See id.; FTC v. Actavis, Inc., 570 U.S. 136, 142–
43 (2013); Caraco, 566 U.S. at 406–07. These differences do not make damages in Hatch-
Waxman litigation materially different from traditional patent infringement litigation; in either
scenario, as stated supra, there is use of a patented drug but little monetary damages before
commercial marketing. Accordingly, the bar on damages does not show the origin of a Hatch-
Waxman claim is the ANDA filing—it is merely the effect of litigating patent issues before any
“commercial manufacture, use, offer to sell, or sale.” § 271(e)(4)(C); Clark Oil & Ref. Corp.,
473 F.2d at 1220; Woodward, 397 U.S. at 577–78.

                            iv.      Hatch-Waxman Litigation Remedies Summary

         The above Hatch-Waxman litigation remedies differ from those in traditional patent
infringement litigation only in form, not substance. Clark Oil & Ref. Corp., 473 F.2d at 1220.
Even if they differed in substance, the Supreme Court in Woodward stated “the origin of the
claim litigated” is not based on “the consequences of the litigation, [or] . . . the taxpayer’s
motives or purposes in undertaking defense of the litigation . . . .” Woodward, 397 U.S. at 578
(citing Gilmore, 372 U.S. 39); see also McKeague, 12 Cl. Ct. at 675; Santa Fe Pac. Gold, 132
T.C. at 264–65. Nor is “the origin and character of the claim with respect to which an expense
was incurred” affected by the “potential consequences upon the fortunes of the taxpayer[.]”
Gilmore, 372 U.S. at 49. Whether the result of litigation “indirectly enhances capital values is
not a factor”; the Court may not look to whether a § 271(e)(2) claim is a “means used to attain a
certain end[.]” McKeague, 12 Cl. Ct. at 674–75 (citing Gilmore, 372 U.S. at 48) (a taxpayer’s
“purpose or motive” is “irrelevant in determining the origin of the claim”); see also Woodward,
397 U.S. at 577 (rejecting the notion that a taxpayer’s “primary purpose” in incurring an expense
should inform the origin of the claim test). Even if the Court were to assume branded drug
companies suing generics under § 271(e)(2) are solely focused on “delay[ing] FDA approval of
the Paragraph IV ANDA” with no anticipation of compensation or concern for their property
rights, as the government posits, it would have no bearing on the origin of the claim test. Def.’s
MSJ at 41; Woodward, 397 U.S. at 578. The availability of an exclusivity period for a first
ANDA-filer and the possible motivations for defending against a § 271(e)(2) claim also do not
alter this conclusion. 23 Gilmore, 372 U.S. at 49; Woodward, 397 U.S. at 578. The government

23
  Plaintiff states the IRS has taken the position in three memoranda that the possibility of a 180-day generic
exclusivity period is a factor differentiating § 271(e)(2) litigation from § 271(a) litigation, therefore justifying
different tax treatment. Pl.’s MSJ at 38 (citing Pl.’s MSJ Appx. at A0925–32, A0913, A0980–84). The
government’s brief describes the 180-day exclusivity period in the background section, Def.’s MSJ at 16–18, but
otherwise the government does not embrace the IRS’s position with respect to generic exclusivity in this case. See
Def.’s MSJ; Def.’s Reply. There is accordingly no reason for the Court to engage with this proposition beyond
noting: the receipt of an exclusivity period is uncorrelated with whether a first-filer is sued; there is no guarantee a

                                                         - 27 -
appeals “to formalisms and artificial distinctions” in its effort to assert the origin of a § 271(e)(2)
claim is the acquisition of an approved ANDA. Woodward, 397 U.S. at 577; Gilmore, 372 U.S.
at 47–49; McKeague, 12 Cl. Ct. at 675; Santa Fe Pac. Gold, 132 T.C. at 264–65. The Court
concludes the nature and character of § 271(e)(2) patent infringement litigation is that of
traditional patent infringement—a property trespass tort—and the government’s remedy
arguments fail to overcome that. See supra Section VI.A.; Woodward, 397 U.S. at 577–78;
Hilton Hotels Corp., 397 U.S. at 583; Gilmore, 372 U.S. at 48–49.

         C.       Origin of the Claim Test Conclusion

        The substance of a § 271(e)(2) claim is that of traditional patent infringement—a
property trespass action sounding in tort. See supra Section VI.A. The nature and character of
Hatch-Waxman litigation are indistinguishable from traditional patent infringement litigation,
with any differences being a matter of form. See supra Section VI.B. The Court therefore
concludes “the origin of the” § 271(e)(2) claims plaintiff litigated is not “in the process of
acquisition” of the ANDAs themselves. Woodward, 397 U.S. at 577. Rather, the origin of the
§ 271(e)(2) claims is the branded drug companies’ patent enforcement efforts to maintain their
business profits and cease plaintiff’s generic drug business activities. See Woodward, 397 U.S.
at 577–78; Gilmore, 372 U.S. at 48–49.

VII.     Whether Treasury Regulation § 1.263(a)-4 Requires Capitalization (Preventing
         Deduction) of § 271(e)(2) Litigation Expenses

        The second step in determining deductibility of Hatch-Waxman litigation expenses is
applying Treasury Regulation § 1.263(a)-4. See supra Section V. Treasury Regulation §
1.263(a)-4 sets forth standards for determining whether “[a]mounts paid to acquire or create
intangibles” must be capitalized, preventing their deduction. The parties agree an FDA-approved
ANDA is a qualifying intangible under the regulation. 24 Accordingly, the Court must only
determine whether Hatch-Waxman litigation defense expenses—which, as the Court concluded
supra Section VI, originate from the branded drug companies’ patent enforcement efforts—are:
(1) a part of the ANDA transaction; (2) “facilitate the acquisition or creation of” the approved
ANDA; or (3) otherwise “enhance” the approved ANDA. Treas. Reg. § 1.263(a)-4(b).

        The regulation enumerates specific categories of expenses that must be capitalized.
Treas. Reg. § 1.263(a)-4(b). Relevant here, the regulation requires capitalization of amounts:
(1) paid to acquire an intangible asset (“the transaction”); (2) “paid to facilitate . . . an acquisition

first-filer enjoys any period of exclusivity; there is no evidence to suggest the exclusivity period is intended to
reimburse generics specifically for the costs of § 271(e)(2) litigation, as opposed to acting as a simple incentive for
early ANDA filing; and whether the result of litigation “indirectly enhances capital values is not a factor” in
determining the tax treatment of plaintiff’s § 271(e)(2) litigation expenses, McKeague, 12 Cl. Ct. at 675. See supra
Section IV.C.; see also Woodward, 397 U.S. at 577; Gilmore, 372 U.S. at 47–49.
24
  Def.’s MSJ at 31 (“An FDA-approved Paragraph IV ANDA is a ‘created intangible,’ because it is a ‘license,
permit, franchise, or other similar right granted by [a] governmental agency.’” (quoting Treas. Reg. §
1.263(a)-4(d)(5)(i))); Tr. at 161:24–162:6 (“THE COURT: . . . Does Plaintiff agree that an approved Paragraph IV
ANDA is a created intangible? . . . [PLAINTIFF]: Yes, Your Honor. . . . THE COURT: Okay. And the
Government? [GOVERNMENT]: Yes.”).

                                                        - 28 -
or creation of an intangible [asset]”; and (3) “paid to create or enhance a separate and distinct
intangible asset.” Id. “For purposes of [the first inquiry], the term transaction means all of the
factual elements comprising an acquisition or creation of an intangible and includes a series of
steps carried out as part of a single plan.” Treas. Reg. § 1.263(a)-4(e)(3). For the second
inquiry, “an amount is paid to facilitate the acquisition or creation of an intangible (the
transaction) if the amount is paid in the process of investigating or otherwise pursuing the
transaction.” Treas. Reg. § 1.263(a)-4(e)(1)(i). “Whether an amount is paid in the process of
investigating or otherwise pursuing the transaction is determined based on all of the facts and
circumstances.” Id. “In determining whether an amount is paid to facilitate a transaction, the
fact that the amount would (or would not) have been paid but for the transaction is relevant, but
is not determinative.” Id. For the third inquiry, the regulation does not provide any explanation
or example of when an amount “enhance[s] a separate and distinct intangible asset.” Treas. Reg.
§ 1.263(a)-4(b)(iii).

         The “transaction” at issue here is the acquisition of an FDA-approved ANDA with a
Paragraph IV certification. Treas. Reg. § 1.263(a)-4(e)(3); see supra Section I. The primary step
in that transaction is FDA review of the ANDA to ensure the “generic drug and the relevant
listed drug share the same active ingredients and are bioequivalent.” Caraco Pharm. Lab’ys,
Ltd. v. Forest Lab’ys, Inc., 527 F.3d 1278, 1282 (Fed. Cir. 2008) (citing § 355(j)(2)(A)(ii), (iv)).
The FDA “shall approve” an ANDA unless it fails to satisfy certain technical requirements
enumerated in the statute and accompanying regulations. 21 U.S.C. § 355(j)(4). Such technical
requirements include: “the active ingredient is the same as that of the [branded] drug”; the drugs
are bioequivalent; the production methods would preserve the generic’s identity, strength,
quality, and purity; and proper labeling. § 355(j)(4); 21 C.F.R. § 314.105(d), .127. If the FDA
finds the ANDA application satisfies the technical requirements, the FDA “shall approve” the
application and that is the end of the “transaction.” § 355(j)(4); Treas. Reg. § 1.263(a)-4(e)(3).

        The FDA’s review of an ANDA does not include patent related questions. When a
generic drug company files an ANDA with a Paragraph IV certification, it certifies the patents
associated with the relevant NDA in the Orange Book are either invalid or will not be infringed
by the proposed generic drug. § 355(j)(2)(A)(vii)(IV); see supra Section IV.B. The FDA
performs no assessment of that certification as a part of its ANDA review process—“[a]ccording
to the agency, it lacks ‘both [the] expertise and [the] authority’ to review patent claims[.]”
Caraco Pharm. Lab’ys, Ltd. V. Novo Nordisk A/S, 566 U.S. 399, 406–07 (2012); Mylan, Inc. &
Subsidiaries v. Comm’r, 156 T.C. 137, 157 (2021) (“The FDA does not analyze patent issues as
part of its review . . . .”); cf. Am. Bioscience, Inc. v. Thompson, 269 F.3d 1077, 1080 (D.C. Cir.
2001); Apotex, Inc. v. Thompson, 347 F.3d 1335, 1349 (Fed. Cir. 2003); Tr. at 47:19–48:2
(government counsel stating he does not “know that the FDA necessarily is making any
assumptions” regarding patent validity or infringement). “If the brand-name patentee brings an
infringement suit [under § 271(e)(2)] within 45 days,” FTC v. Actavis, Inc., 570 U.S. 136, 143
(2013), the FDA continues the ANDA review during the pendency of the suit and may issue a
tentative or final approval before the suit is resolved. See 21 C.F.R. § 314.107(b)(3); 21 U.S.C. §
355(j)(5)(B)(iii)(I). FDA approval of an ANDA does not hinge on any patent issues in the
Hatch-Waxman suit—at most, if a court finds the patent valid and infringed, the generic’s FDA
approval will not become effective until expiration of the infringed patent. § 271(e)(4)(A); see
Mylan, 156 T.C. at 157. Further, prevailing in the Hatch-Waxman suit does not aid ANDA

                                               - 29 -
approval, as the FDA may disapprove an ANDA for not meeting safety and bioequivalence
standards. 21 U.S.C. § 355(j)(4)(F)); see supra Section IV.B. Thus, defending a claim of patent
infringement under § 271(e)(2) is not in the “series of steps carried out as part of a single plan”
to acquire an approved ANDA. Treas. Reg. § 1.263(a)-4(e)(3).

         Hatch-Waxman litigation is not a part of the ANDA “transaction.” Treas. Reg.
§ 1.263(a)-4(e)(3). Although the ANDA filing may be the “artificial act of infringement[,]” Eli
Lilly & Co. v. Medtronic, Inc., 496 U.S. 661, 678 (1990), this is, among other reasons, to enable
the use of branded drug products for generic drug research and development during the life of the
patent. 25 See § 271(e)(1). This artificial act of infringement permits drug manufacturers to
preemptively litigate patent infringement and validity, so if a patent is either invalid or not
infringed, an affordable generic becomes available to the public sooner. See AstraZeneca
Pharms. LP v. Apotex Corp., 669 F.3d 1370, 1377 (Fed. Cir. 2012) (“[Section] 271(e)(2)
provided a new cause of action so that courts could promptly resolve infringement and validity
disputes before the ANDA applicant had engaged in the traditional statutorily defined acts of
infringement.”); Bristol-Myers Squibb Co. v. Royce Lab’ys, Inc., 69 F.3d 1130, 1135 (Fed. Cir.
1995) (holding that a Section 271(e)(2) suit makes “it possible for a patent owner to have the
court determine whether, if a particular drug were put on the market, it would infringe the
relevant patent”). If a patent is valid and infringed, then the affordable generic will still receive
FDA approval and will be ready to launch into the marketplace on the day the patent expires.
See § 271(e)(4)(A). If the branded drug company chooses not to bring a § 271(e)(2) claim—and
it is under no obligation to do so 26—then the affordable generic becomes available to the public
as soon as the FDA processes the ANDA. See § 355(j)(4). In any case, the FDA’s review of the
ANDA is the same—the FDA “shall approve” a technically acceptable ANDA. Id.
Accordingly, Hatch-Waxman litigation is not a part of the ANDA “transaction” under Treasury
Regulation § 1.263(a)-4.

         For the same reasons Hatch-Waxman litigation is not a part of the ANDA transaction,
Hatch-Waxman litigation expenses also do not “facilitate” the “acquisition or creation” of an
approved ANDA. As illustrated supra, the expenses are not “paid in the process of investigating
or otherwise pursuing [an ANDA].” Treas. Reg. § 1.263(a)-4(b), (e)(1)(i). The FDA does not
concern itself with patent issues when determining an ANDA’s technical acceptability. See §
355(j)(4); Caraco, 566 U.S. at 406–07. Further, as described supra Section VI.B., considering
“all of the facts and circumstances” as required under Treasury Regulation § 1.263(a)-4(e)(1)(i),
a claim under the Hatch-Waxman Act may alter the suit’s timing, “but it does not alter the
underlying patent infringement analysis . . . .” Bayer Schering Pharma AG v. Lupin, Ltd., 676
F.3d 1316, 1325 (Fed. Cir. 2012); Abbott Lab’ys v. TorPharm, Inc., 503 F.3d 1372, 1379 (Fed.
Cir. 2007) (noting the lack of “any authority, be it statute, case law, or legislative history of the
Hatch-Waxman Act, suggesting that suits commenced under . . . the Act are to be treated any
differently than patent infringement suits under 35 U.S.C. § 271(a).”); Allergan, Inc. v. Alcon
Lab’ys, Inc., 324 F.3d 1322, 1331 (Fed. Cir. 2003) (finding timing is the only difference between

25
  “The purpose of sections 271(e)(1) and (2) is to establish that experimentation with a patented drug product, when
the purpose is to prepare for commercial activity which will begin after a valid patent expires, is not a patent
infringement.” H.R. Rep. No. 98-857, pt. 1, at 45 (1984), as reprinted in 1984 U.S.C.C.A.N. 2647, 2678.
26
     See supra note 8.

                                                      - 30 -
§ 271(a) and § 271(e)(2) claims). An expense incurred defending a § 271(e)(2) patent
infringement claim does nothing to “facilitate” or advance FDA approval of a pending ANDA.
Treas. Reg. § 1.263(a)-4(b).

         To illustrate how Hatch-Waxman litigation expenses do not facilitate ANDA approval,
what the Hatch-Waxman Act and the Federal Food, Drug, and Cosmetic Act provide are two
coordinated, but distinct processes. See Actavis, Inc., 570 U.S. at 142–43. On one track, the
FDA considers whether the ANDA satisfies all technical requirements for a generic drug safe for
the American public. See § 355(j)(4). On another track, the district courts perform an entirely
different analysis, initiated by the patent holder, 27 to determine whether a branded drug
company’s patent rights are valid and infringed. Glaxo, Inc. v. Novopharm Ltd., 110 F.3d 1562,
1569 (Fed. Cir. 1997). These two tracks remain in parallel regarding whether the ANDA should
be approved or whether the patent is valid and infringed. The tracks cross only when both the
FDA approves the ANDA and the district court finds a valid patent infringed—at which point,
the Hatch-Waxman Act requires delay of ANDA approval effectiveness until expiration of the
infringed patent. See § 271(e)(4)(A); Caraco, 566 U.S. at 405 (“[T]he FDA cannot authorize a
generic drug that would infringe a patent[.]”). The generic drug company is not obligated to
demonstrate patent invalidity or noninfringement to the FDA to obtain ANDA approval, nor is it
obligated to show the technical acceptability of its ANDA application to the court during
Hatch-Waxman litigation. See supra Section IV.B. As such, amounts paid during Hatch-
Waxman litigation to secure a judgment of patent invalidity or noninfringement can never be
amounts “paid in the process of investigating or otherwise pursuing” an approved ANDA; they
do nothing to advance ANDA approval. Treas. Reg. § 1.263(a)-4(b), (e)(1)(i). “[A]n
amount . . . paid to facilitate the acquisition or creation of an” approved ANDA is an amount that
goes to whether the FDA approves the ANDA—not whether a patent is valid and infringed.
Treas. Reg. § 1.263(a)-4(e)(1)(i); Mylan, 156 T.C. at 159 (“Congress’ decision to coordinate
effective FDA approval with the outcome of a Section 271(e)(2) suit does not convert such
litigation into a link in the ANDA approval chain.”). 28 Accordingly, Hatch-Waxman litigation
expenses do not “facilitate the acquisition or creation” of an ANDA. Treas. Reg. § 1.263(a)-
4(b).

27
   The government argues the generic drug company may initiate Hatch-Waxman litigation because, if the branded
drug company does not bring a § 271(e)(2) claim against the generic within forty-five days, “the generic company
may itself file suit ‘for a declaratory judgment that such patent is invalid or not infringed.’” Def.’s MSJ at 35
(quoting 35 U.S.C. § 271(e)(5)). The litigation expenses at issue in this case arose only out of branded drug
companies’ § 271(e)(2) claims, as plaintiff does not argue it is entitled to a refund for any § 271(e)(5) declaratory
judgment litigation expenses. Accordingly, the Court does not reach this question and does not consider the
argument relevant.
28
   Although branded drug companies cannot file § 271(e)(2) claims absent an ANDA with a Paragraph IV
certification, that does not necessarily mean plaintiff would not have incurred patent infringement legal expenses.
Branded drug companies previously brought suit under § 271(a) before the Hatch-Waxman Act coordinated such
litigation timing with the FDA’s generic drug review process. See Roche Prod., Inc. v. Bolar Pharm. Co., 733 F.2d
858, 863 (Fed. Cir. 1984); 35 U.S.C. § 271(e)(1); Treas. Reg. § 1.263(a)-4(e)(1)(i) (“[T]he fact that the amount
would (or would not) have been paid but for the transaction is relevant, but is not determinative.”); cf. Mylan, 156
T.C. at 161 (“Even absent the [ANDA] transaction, the patent holder would doubtless seek to defend its intellectual
property against a potential infringer, and the generic manufacturer would incur the same litigation costs in
defending such suit.”). Even if a branded drug company chooses not to pursue Hatch-Waxman litigation against an
ANDA-filer, the branded drug company may still sue later for traditional patent infringement. § 271(a). As such,
plaintiff’s litigation expenses are not unique to its ANDA filings.

                                                        - 31 -
         In arguing Hatch-Waxman litigation facilitates ANDA approval, the government
provides its own definition of “facilitate.” The government proposes: “To ‘facilitate’ means ‘to
make the occurrence of (something) easier; to render less difficult.’” Def.’s Reply at 6 (citing
Facilitate, Black’s Law Dictionary (10th ed. 2014)); but see Treas. Reg. § 1.263(a)-4(e)(1)(i)
(“[A]n amount is paid to facilitate . . . if the amount is paid in the process of investigating or
otherwise pursuing the transaction.”). The government’s definition, however, further shows why
Hatch-Waxman litigation does not “facilitate” ANDA acquisition. If Hatch-Waxman litigation
made receiving an approved ANDA easier, the Court would expect that to mean the litigation
removes some ANDA technical requirement under § 355(j)(4), or otherwise expedites the FDA
approval process. See Def.’s Reply at 6. Hatch-Waxman litigation does no such thing.
Saliently, Hatch-Waxman litigation can only delay, never accelerate, final ANDA approval, and
no district court decision during litigation can affect that final approval decision. See 21 C.F.R. §
314.107(b)(3); 21 U.S.C. § 355(j)(5)(B)(iii)(I); Mylan, 156 T.C. at 157. If a technically
acceptable ANDA is on track for FDA approval but is then stalled by § 271(e)(2) patent
infringement litigation, it would not follow that legal expenses incurred to prevent the delay
“facilitates” or “renders less difficult” FDA approval. Treas. Reg. § 1.263(a)-4(e)(1)(i); Def.’s
Reply at 6. The best result a generic drug company can secure from successfully defending a
§ 271(e)(2) claim is FDA approval on the same date it otherwise would have been approved if no
litigation had occurred. The government’s argument assumes Hatch-Waxman litigation is
integral to the ANDA transaction, so litigation expenses always ensure easier ANDA approval.
Def.’s Reply at 6–7. As discussed supra, however, Hatch-Waxman litigation is not part of the
ANDA transaction and does not arise with every filed ANDA, see supra note 8. Accordingly,
even under the government’s extrinsic definition, Hatch-Waxman litigation does not “facilitate”
ANDA approval. Def.’s Reply at 6 (citing Facilitate, Black’s Law Dictionary (10th ed. 2014)).

        Finally, Hatch-Waxman litigation defense expenses do not “enhance” an ANDA with a
Paragraph IV certification under Treasury Regulation § 1.263(a)-4. As noted supra, Hatch-
Waxman litigation can only delay the effective date of FDA approval; it cannot accelerate
approval, render approval less difficult to obtain, or improve the ANDA. See 21 C.F.R.
§ 314.107(b)(3); 21 U.S.C. § 355(j)(5)(B)(iii); Mylan, 156 T.C. at 157. The government argues
successful defense of a § 271(e)(2) claim removes a barrier to obtaining effective FDA approval
and therefore necessarily “enhances” the ANDA, “both by advancing the date of final FDA
approval and ensuring that such approval is not later revoked.” Def.’s MSJ at 36 n.13; Def.’s
Reply at 8 n.3. This argument mischaracterizes the nature of an approved ANDA. When a
generic drug company submits a technically acceptable ANDA, it is on track to its earliest
possible effective approval date. See 21 C.F.R. § 314.107(b)(3); 21 U.S.C. § 355(j)(5)(B)(iii)(I);
Mylan, 156 T.C. at 157. Then, when a branded drug company files a § 271(e)(2) claim, the
branded drug company places an obstacle in the way of effective FDA approval.
§ 355(j)(5)(B)(iii). That obstacle may stay approval effectiveness for a period of up to thirty
months while litigation is ongoing, it may stay approval effectiveness for the life of the patent, or
it may not delay approval effectiveness at all. Id. The successful defense of a § 271(e)(2) claim,
however, may under no circumstances advance the ANDA approval to a date sooner than it
otherwise would have been approved. See 21 C.F.R. § 314.107(b)(3); 21 U.S.C.
§ 355(j)(5)(B)(iii); Mylan, 156 T.C. at 157. Failure to defend a § 271(e)(2) claim also cannot
result in revocation of FDA approval; it can only stay approval effectiveness for the life of the

                                               - 32 -
patent. § 355(j)(5)(B)(iii)(II); § 271(e)(4)(A). Accordingly, costs paid to remove a litigation
barrier blocking FDA approval do not “enhance” the ANDA; they merely prevent its further
diminishment through extended delays to its effectiveness. 29 Treas. Reg. § 1.263(a)-4(b).

        In conclusion, no provision of Treasury Regulation § 1.263(a)-4 requires capitalization of
Hatch-Waxman litigation expenses. Although the parties agree an FDA-approved ANDA with a
Paragraph IV certification is a qualifying intangible under § 1.263(a)-4, defending Hatch-
Waxman litigation is not a part of that transaction. Treas. Reg. § 1.263(a)-4(e)(3). The legal
expenses incurred—which originate from the branded drug companies’ patent enforcement—do
not “facilitate the acquisition or creation of” the approved ANDA, as they are not “paid in the
process of investigating or otherwise pursuing the transaction.” Treas. Reg. § 1.263(a)-4(b),
(e)(1)(i). The expenses do not make acquiring ANDA approval “easier” or “render [it] less
difficult.” Def.’s Reply at 6. Lastly, the expenses do not “enhance” the approved ANDA; they
only prevent its further diminishment. Treas. Reg. § 1.263(a)-4(b). Accordingly, Treasury
Regulation § 1.263(a)-4 does not require the capitalization of § 271(e)(2) litigation expenses.
See Mylan, 156 T.C. at 161.

VIII. Tax Treatment of § 271(e)(2) Patent Litigation Expenses

        The Court holds supra Section VI under the origin of the claim test that a generic drug
company’s expenses incurred defending § 271(e)(2) patent litigation claims originate in branded
drug companies’ patent enforcement efforts—property trespass claims sounding in tort.
Schillinger v. United States, 155 U.S. 163, 169 (1894). The Court further holds supra Section
VII Treasury Regulation § 1.263(a)-4 does not require the capitalization of these expenses.
Having established the origin of these expenses and their treatment under the regulation, the
Court next considers whether the expenses are deductible under the tax code. I.R.C. §§ 162(a),
263(a).

        Patent litigation expenses are generally tax deductible. The Internal Revenue Code
allows a deduction for “all the ordinary and necessary expenses paid or incurred during the
taxable year in carrying on any trade or business[.]” I.R.C. § 162(a); see supra note 11.
Litigation expenses for taxpayers “engaged in the business of exploiting and licensing patents . . .
are peculiarly normal” to their business. Urquhart v. Comm’r, 215 F.2d 17, 19 (3d Cir. 1954).
29
   Though the government does not take this position, the Court notes the availability of a 180-day exclusivity period
for first-applicants also does not support the proposition Hatch-Waxman litigation enhances an approved ANDA
with a Paragraph IV certification. See supra note 23; Section IV.C. Notwithstanding the receipt of an exclusivity
period is uncorrelated with whether litigation happens at all, supra Section IV.C., notes 7–8, 20, the exclusivity
period is not an intangible right of the generic drug company that enjoys it, but merely a limitation on the FDA’s
authority to approve other ANDAs—it is a disability impeding those other companies for failure to file sooner. See
21 U.S.C. § 355(j)(5)(B)(iv) (subsequent filers’ “application shall be made effective on the date that is 180 days
after the date of the first commercial marketing of the drug (including the commercial marketing of the listed drug)
by any first applicant”). Though a first-applicant may enjoy and benefit from this disability, an ANDA holder that
believes it is entitled to exclusivity cannot sue another generic drug company to stop it from launching. Id. Further,
as discussed supra Section IV.C., “[i]f multiple applicants file substantially complete ANDAs with paragraph IV
certifications on the same day as the first to do so, those applicants all are entitled to exclusivity.” Lietzan, supra, at
290. A first-applicant may therefore be one of many to enjoy this period of exclusivity, or it may never enjoy the
exclusivity if another first-applicant begins marketing first. § 355(j)(5)(B)(iv), (F)(ii); see also 21 C.F.R. §
314.107(c)(1) (2016).

                                                          - 33 -
Such “litigation expenses [a]re incurred to prevent (and recover) damage to their business, that
is, to protect, conserve and maintain their business profits.” Id. at 20. Patent litigation
“expenditures which yield benefits over a period of years” does not mean the expenditures are
“not current operating expenses . . . .” Id. at 20–21. Accordingly, under I.R.C. § 162(a), legal
expenses incurred during patent litigation are tax deductible regardless of future benefits derived
from such litigation.

        Like expenses incurred pursuing patent infringement claims, expenses incurred defending
patent infringement claims have also historically been deductible under I.R.C. § 162(a). Mylan,
Inc. & Subsidiaries v. Comm’r, 156 T.C. 137, 163 (2021) (citing Appeal of F. Meyer & Bro. Co.,
4 B.T.A. 481, 482 (1926) (holding that amount paid by defendant in a patent infringement suit
for an accounting was an ordinary and necessary expense); Addressograph-Multigraph Corp. v
Comm’r, 4 T.C.M. (CCH) 147, 166 (1945) (upholding treatment of amounts incurred in
defending patent infringement suits as ordinary and necessary business expenses)); cf. Mathey v.
Comm’r, 177 F.2d 259, 263 (1st Cir. 1949); Urquhart, 215 F.2d at 20. The government does not
“know of any [published] case in which a patent infringement defendant, outside of ANDA, was
not allowed to deduct litigation expenses[.]” Tr. at 101:2–25. The IRS Office of Chief Counsel
stated in an 11 August 2014 memo: “In general, costs to defend against a claim of patent
infringement are deductible on the theory that the taxpayer is protecting or maintaining its
income-generating business.” Pl.’s MSJ Appx. at A0912; see also Guidance Regarding
Deduction and Capitalization of Expenditures, 67 Fed. Reg. 77,701, 77,705 (Dec. 19, 2002)
(“[A]mounts paid to protect . . . property against infringement and to recover profits and
damages as a result of an infringement . . . under current law, . . . are generally deductible.”
(citing Urquhart, 215 F.2d 17)). Accordingly, absent any precedent to the contrary, a patent
infringement defendant’s legal expenses are, like the patent owner’s, tax deductible.

         As established supra Section VI, patent infringement claims are property trespass claims
sounding in tort. Schillinger, 155 U.S. at 169. Consistent with the tax treatment of patent
infringement litigation expenses, expenses incurred defending against tort claims are also
deductible business expenses. Kornhauser v. United States, 276 U.S. 145, 153 (1928); Mylan,
156 T.C. at 153–54. It is a “well-worn notion that expenses incurred in defending a business and
its policies from attack are necessary and ordinary—and deductible—business expenses.” A.E.
Staley Mfg. Co. & Subsidiaries v. Comm’r, 119 F.3d 482, 487 (7th Cir. 1997) (citing Comm’r v.
Heininger, 320 U.S. 467 (1943)); see also Santa Fe Pac. Gold Co. & Subsidiaries v. Comm’r,
132 T.C. 240, 261 (2009) (“[D]eduction is generally allowed for expenses incurred in defending
a business and its policies from attack.”). The deductibility of patent infringement litigation
expenses is further “consistent with the treatment of damages paid in the wake of such
litigation.” Mylan, 156 T.C. at 154 (citing Schnadig Corp. v. Gaines Mfg. Co., 620 F.2d 1166,
1169 (6th Cir. 1980) (“When an infringer is required to pay damages to a design patentee, the
amount so paid is deductible from his income tax.”)); Mathey, 177 F.2d at 263 (noting “an award
of damages in patent li[tig]ation is ordinarily . . . taxable . . . as income in the year received”).
Accordingly, further supporting the deductibility of patent infringement legal expenses, tort
litigation expenses and patent infringement damages are likewise deductible under I.R.C.
§ 162(a).

                                               - 34 -
        In summary, the origin of the Hatch-Waxman patent infringement litigation defense
expenses plaintiff incurred lies in the branded drug companies’ patent enforcement efforts—a
claim sounding in tort. Schillinger, 155 U.S. at 169; Giesecke+Devrient GmbH v. United States,
150 Fed. Cl. 330, 344 (2020); see supra Section VI. Treasury Regulation § 1.263(a)-4 does not
require the capitalization of these litigation expenses. See supra Section VII; Mylan, 156 T.C. at
161; Guidance Regarding Deduction and Capitalization of Expenditures, 67 Fed. Reg. at 77705
(noting that the proposed regulation was consistent with “existing regulations” and “current law”
and “is not intended to require capitalization of amounts paid to protect the property against
infringement”). The government fails to convince the Court the litigation expenses arise out of
the acquisition, ownership, or improvement of property as might support their capitalization
under the tax code. I.R.C. § 263(a); Mylan, 156 T.C. at 164. Accordingly, as expenses incurred
defending both patent infringement claims and tort claims have historically been treated as tax
deductible under I.R.C. § 162(a), the Court concludes plaintiff’s § 271(e)(2) litigation expenses
are tax deductible and plaintiff is entitled to summary judgment on its claims. I.R.C. § 162(a);
Woodward v. Comm’r, 397 U.S. 572, 577–78 (1970); United States v. Gilmore, 372 U.S. 39,
48–49 (1963); Kornhauser, 276 U.S. at 153; Mylan, 156 T.C. at 163; Urquhart, 215 F.2d at
19–21; see supra Section VI.

IX.    Conclusion

         For the reasons discussed supra, the Court GRANTS plaintiff’s motion for summary
judgment, DENIES the government’s cross-motion for partial summary judgment, and DENIES
as MOOT plaintiff’s motion to strike, see supra note 5. As agreed by the parties, this decision
results in “a judgment for . . . plaintiff.” Tr. 228:7; Pl.’s MSJ at 40. As the specific monetary
figures remain undecided, the parties SHALL FILE a joint status report proposing a timeline for
further proceedings consistent with this opinion, if any, on or before 20 September 2022.

       IT IS SO ORDERED.

                                                       s/ Ryan T. Holte
                                                       RYAN T. HOLTE
                                                       Judge

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