Insights

In a significant decision for generic drug manufacturers, the Federal Circuit recently affirmed that litigation expenses incurred in defending Hatch-Waxman patent lawsuits are deductible as ordinary and necessary business expenses under the Internal Revenue Code (IRC). The ruling in Actavis Laboratories FL, Inc. v. United States, No. 23-1320 (Fed. Cir. Mar. 21, 2025), resolves a key tax dispute, allowing tax deductions for these expenses in the year they are incurred rather than capitalizing them over time. This outcome provides clarity and potential tax benefits for qualifying businesses navigating the interplay of patent litigation and FDA drug approvals.

Before leaving for an extended recess period ahead of the November general election, Congress left unfinished several proposals with ramifications for generic and biosimilar drug competition. This client alert summarizes some of that legislation and possible next steps in the “lame duck” period before the end of the year.

The Federal Circuit recently held that a claim that a product is protected by patents when it is not may constitute false advertising. Defendants in this case, Dawgs Inc., accused the makers of Crocs of using the terms “patented,” ‘proprietary,” and “exclusive” in its advertising in a manner that misled consumers about the nature, characteristics, or qualities of its own products and the products of its competitors. Specifically, Dawgs alleged that Crocs made promotional statements that a patent covers its Croslite shoe material, that Croslite has numerous tangible benefits found in all of Crocs’ shoe products and that, because Croslite is “patented,” others’ products lack these same benefits. Crocs, Inc. v. Effervescent, Inc., No. 2022-2160, 2024 U.S. App. LEXIS 25001 (Fed. Cir. Oct. 3, 2024).

The USPTO has just issued an update to its guidance on subject matter eligibility, discussing the application of these guidelines to emerging technologies such as AI-related and AI-assisted inventions.  These guidelines are currently open to public comment until September 16.   

The USPTO has proposed a rule rendering a patent unenforceable if it is disclaimed over another patent that is subsequently found invalid.  The FTC filed a comment letter in support of the USPTO’s proposed rule, noting that “the proposed rule would reduce the costs incurred by potential competitors challenging weak patents or defending against assertions of patent claims that are obvious variants of a single invention.”

Momentum is building for the US BIOSECURE Act, and it is becoming more and more likely that it will soon become law. It may significantly impact pharmaceutical and biotechnology companies and supply chains, particularly if they or their customers do business with the U.S. Federal Government. It is therefore important to prepare now to avoid potentially serious adverse effects.

In Vanda Pharmaceuticals, Inc. v. United States, No. 23-629C (Fed. Cl. 2024), 2024 WL 201890, the Court of Federal Claims (COFC) addressed whether government disclosure of a company’s trade secrets and commercial information could create a viable claim for a taking under the Fifth Amendment or for breach of an implied-in-fact contract.  The company, Vanda Pharmaceuticals (Vanda), claimed that the government’s disclosure of its confidential trade secrets—including its trademarked drugs’ dissolution rates—to competitors seeking U.S. Food and Drug Administration (FDA) approval of generic drug alternatives was an unlawful regulatory taking that diminished the value of Vanda’s brand name drugs and infringed upon Vanda’s right to exclude generics from the market.  The government moved to dismiss Vanda’s claims for lack of subject matter jurisdiction and for failure to state a claim.  The COFC denied the government’s motion in part, holding as a matter of first impression that Vanda adequately stated a takings claim based on the government’s disclosures but failed to state a claim for breach of an implied-in-fact contract.  The COFC also held that Vanda’s claims involving one generic drug manufacturer were outside the Tucker Act’s six-year statute of limitations and were time barred. 

On November 7, 2023, the Federal Trade Commission (“FTC”) announced it is challenging over 100 patents as improperly listed in the Food and Drug Administration’s (“FDA”) publication titled “Approved Drug Products with Therapeutic Equivalence Evaluations,” which is commonly known as the Orange Book. The FTC sent warning letters to ten drug and medical device manufacturers identifying patents for inhalers, autoinjectors and anti-inflammatory multi-dose bottles that the FTC believes are improperly listed. In the letters, the FTC indicated it is using the FDA’s regulatory dispute process to challenge the listing of these patents in the Orange Book because improperly listing patents may violate antitrust laws and impede competition. The FTC’s actions appear to be consistent with its recent and increased scrutiny of the healthcare and pharmaceutical industries.

The case of Juno Therapeutics, Inc. v. Kite Pharma, Inc.[1]has captured the attention of the legal community and beyond, as it delves into the complex world of written description in patent law.  The Supreme Court recently made a significant decision in Juno by denying certiorari on appeal from the Federal Circuit.  On January 9, 2023, the Supreme Court denied Juno’s petition for rehearing.

Last week, the U.S. Court of Appeals for the Federal Circuit publicly released[1]  an opinion further clarifying the standard for determining a licensee’s right to sue for patent infringement on its own. See Univ. of S. Florida Rsch. Found., Inc. v. FujiFilm Med. Sys. U.S.A., Inc. In particular, the decision clarifies that if a license does not explicitly transfer the right to sue, the licensee may not have the right to sue on its own. This decision may impact how patent owners structure and phrase their license agreements going forward, particularly in the university research space, where universities often reserve key rights to their licensed patents.

The 11th Circuit upheld a decision to unseal “embarrassing internal communications” between members of the United Network for Organ Sharing (“UNOS”) relating to its new policy directing liver transplants to go to the sickest patients within a certain radius of the donor.

After months of anticipation, the Supreme Court issued its opinion in Van Buren v. United States narrowing the scope of what constitutes “exceeds authorized access” under Section 1030(a)(2) of the Computer Fraud and Abuse Act (“CFAA”). No. 19-783, --- S.Ct. --- (June 3, 2021). The Supreme Court ruled that to be liable under the “exceeds authorized access” prong of the CFAA, a defendant must have accessed information within a computer system they were not permitted to access. It is no longer sufficient under the CFAA to show a defendant had an improper motive to obtain and use information on a computer system which they were permitted to access. 

In good news for generic drug manufacturers, the U.S. Tax Court recently ruled that they can deduct legal fees associated with patent infringement lawsuits, even when the legal fees are triggered by an FDA application, which will reduce their federal tax liabilities in the year in which those fees are incurred. In addition to deducting these fees going forward on their federal tax returns, drug manufacturers should consider whether this Tax Court decision entitles them to tax refund for prior years. Moreover, any companies that incur legal fees associated with creating intangibles (e.g., patents, rights to sell generic drugs, trademarks) will want to consider whether this ruling impacts them.  

On March 4, 2021, the Federal Circuit spoke pointedly on its view of contract interpretation and contract obligations in the context of trademark licensing agreements between private and government actors. In Authentic Apparel Group, LLC v. United States, No. 2020-1412 (Fed. Cir. Mar. 4, 2021), the court upheld the Court of Federal Claims’ decision, on summary judgment, that the Army did not violate its obligations under a trademark licensing agreement with Authentic Apparel Group, LLC (“Authentic”). Authentic, the licensee, claimed that the Army violated the terms of the licensing agreement by refusing to approve certain products and marketing materials bearing Army trademarks. These included a proposed shoe line and an advertisement featuring Dwayne “The Rock” Johnson. The Federal Circuit disagreed.

The Federal Circuit affirmed a finding of indefiniteness based on a patent owner’s materially conflicting positions adopted during prosecution on the scope of its claims.

On August 3, the Federal Circuit reissued its decision in Illumina, Inc. v. Ariosa Diagnostics, Inc., holding that a method of preparing DNA before testing it is patentable even though that method relied on a naturally occurring phenomenon. Here, the Federal Circuit adds more language to clarify its reasoning for determining that the claims are patent-eligible and explains what distinguishes a claim directed to a natural phenomenon from one that merely uses such a phenomenon. It also distinguishes this method of preparation for performing a diagnostic as different from the diagnostic itself (which would not be patent eligible). 

On June 15, 2020, the U.S. Patent and Trademark Office (USPTO) announced the creation of a prioritized examination process for applications for trademarks and service marks “used to identify qualifying COVID-19 medical products and services.” The process allows applicants to petition for accelerated review after filing their trademark or service mark application. In addition, the USPTO announced that it will waive the fee for these petitions. Andrei Iancu, Director of the USPTO, stated that he believes this accelerated examination process “will help to bring important and possibly life-saving treatments to market more quickly.”

On May 21, 2020 the U.S. Copyright Office published its highly anticipated report about Section 512 of Title 17 of the United States Code. The aim of the report was to determine, in light of the monumental changes the Internet has undergone since the days of dial-up and floppy disks, whether Section 512 continues to work “effectively in achieving its aim of balancing the needs of online service providers (OSPs) with those of creators.” The Copyright Office’s report marks the first time the government has studied the effectiveness of the controversial Section 512 since it was enacted more than 20 years ago. As noted by the Copyright Office, “[t]he proper balance of intermediary safe harbors and liability online is a topic on which few stakeholders have no opinion, and passions (as well as rhetoric) run high on all sides.”

The USPTO recently launched the COVID-19 Prioritized Examination Pilot Program that allows small and micro entities to request prioritized examination of certain applications related to COVID-19 without paying customary fees. The pilot program went into effect on May 14, 2020 and will continue until the USPTO has accepted 500 requests.

Last Monday, the PTO affirmed its earlier (and unsurprising) position that a patent application filed in July was incomplete because it named an artificial intelligence as the inventor.  The application is believed to be among the first to name an AI as an inventor.