[Federal Register Volume 65, Number 64 (Monday, April 3, 2000)]
[Notices]
[Pages 17502-17506]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-8129]


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FEDERAL TRADE COMMISSION

[File No. 981 0395]


Abbott Laboratories, and Geneva Pharmaceuticals, Inc.; Analysis 
To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreements.

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SUMMARY: The consent agreements in these two matters settle alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the draft 
complaint that accompanies the consent agreements and the terms of the 
consent orders--embodied in the consent agreements--that would settle 
these allegations.

[[Page 17503]]


DATES: Comments must be received on or before April 17, 2000.

ADDRESSES: Comments should be directed to FTC/Office of the Secretary, 
Room 159, 600 Pennsylvania Ave., NW, Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Richard Parker or Richard Feinstein, 
FTC/H-374, 600 Pennsylvania Ave., NW, Washington, DC 20580. (202) 326-
2574 or 326-3688.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Section 2.34 of 
the Commission's Rules of Practice (16 CFR 2.34), notice is hereby 
given that the above-captioned consent agreement containing a consent 
order to cease and desist, having been filed with and accepted, subject 
to final approval, by the Commission, has been placed on the public 
record for a period of thirty (30) days. The following Analysis to Aid 
Public Comment describes the terms of the consent agreement, and the 
allegations in the complaint. An electronic copy of the full text of 
the consent agreement package can be obtained from the FTC Home Page 
(for March 16, 2000), on the World Wide Web, at ``http://www.ftc.gov/
ftc/formal.htm.'' A paper copy can be obtained from the FTC Public 
Reference Room, Room H-130, 600 Pennsylvania Avenue, NW, Washington, DC 
20580, either in person or by calling (202) 326-3627.
    Public comment is invited. Comments should be directed to: FTC/
Office of the Secretary, Room 159, 600 Pennsylvania. Ave., NW, 
Washington, DC 20580. Two paper copies of each comment should be filed, 
and should be accompanied, if possible, by a 3\1/2\ inch diskette 
containing an electronic copy of the comment. Such comments or views 
will be considered by the Commission and will be available for 
inspection and copying at its principal office in accordance with 
Section 4.9(b)(6)(ii) of the Commission's Rules of Practice (16 CFR 
4.9(b)(6)(ii)).

Analysis To Aid Public Comment

    The Federal Trade Commission has accepted for public comment 
agreements and proposed consent orders with Geneva Pharmaceuticals, 
Inc. and Abbott Laboratories. The proposed consent orders settle 
charges that these parties unlawfully agreed that Geneva would refrain 
from selling its generic vision of one of Abbott's drugs, in exchange 
for payments from Abbott. The proposed consent orders have been placed 
on the public record for 30 days to receive comments by interested 
persons. The proposed consent orders have been entered into for 
settlement purposes only and do not constitute an admission by Abbott 
or Geneva that they violated the law or that the facts alleged in the 
complaint, other than the jurisdictional facts, are true.

Background

    Abbott Laboratories develops, manufactures, and sells a variety of 
health care products and services. Based in Abbott Park, Illinois, 
Abbott's 1998 net sales worldwide were approximately $12.5 billion. 
Over 20% of Abbott's net sales of pharmaceutical products in the U.S. 
are for a drug called Hytrin. Hytrin is used to treat two chronic 
conditions that affect millions of Americans, particularly senior 
citizens: hypertension (high blood pressure) and benign prostatic 
hyperplasia (enlarged prostate).
    Geneva is one of the leading generic drug manufacturers in the 
United States. An indirect wholly-owned subsidiary of Novartis Corp., 
Geneva is based in Broomfield, Colorado. Geneva developed a generic 
version of Hytrin, and in March 1998 received approval from the U.S. 
Food and Drug Administration (``FDA'') to market that generic product.
    A generic drug is a product that the FDA has found to be 
bioequivalent to a brand name drug. A company seeking FDA approval to 
market a new drug must file a New Drug Application (``NDA''). In order 
to market a generic version of a brand name drug, a company must file 
an Abbreviated New Drug Application (``ANDA'') and receive approval 
from the FDA.
    Generic drugs are chemically identical to their branded 
counterparts, but typically are sold at substantial discounts from the 
branded price. A Congressional Budget Office Report estimates that 
purchasers saved an estimated $8-$10 billion on prescriptions at retail 
pharmacies in 1994 by purchasing generic drugs instead of the brand 
name product.\1\
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    \1\ Congressional Budget Office, How Increased Competition from 
Generic Drugs Has Affected Prices and Returns in the Pharmaceutical 
Industry at xiii, 13 (July 1998).
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    Congress enacted the Drug Price Competition and Patent Term 
Restoration Act of 1984, commonly referred to as ``the Hatch-Waxman 
Act,'' to facilitate the entry of generic drugs while maintaining 
incentives to invest in new drug development. In particular, the Hatch-
Waxman Act establishes certain rights and procedures in situations 
where a company seeks FDA approval to market a generic product prior to 
the expiration of a patent or patents relating to a brand name drug 
upon which the generic is based. In such cases, the applicant must: (1) 
Certify to the FDA that the patent in question is invalid or is not 
infringed by the generic product (known as a ``paragraph IV 
certification''); and (2) notify the patent holder of the filing of the 
certification. If the holder of patent rights files a patent 
infringement suit within 45 days, FDA approval to market the generic 
drug is automatically stayed for 30 months, unless before that time the 
patent expires or is judicially determined to be invalid or not 
infringed. This automatic 30-month stay allows the patent holder time 
to seek judicial protection of its patent rights before a generic 
competitor is permitted to market its product.
    In addition, the Hatch-Waxman Act provides an incentive for generic 
drug companies to bear the cost of patent litigation that may arise 
when they challenge invalid patents or design around valid ones. The 
Act grants the first company to file an ANDA in such cases a 180-day 
period during which it has the exclusive right to market a generic 
version of the brand name drug. No other generic manufacturer may 
obtain FDA approval to market its product until the first filer's 180-
day exclusivity period has expired.
    Geneva was the first company to file an ANDA for terazosin 
hydrochloride (``terazosin HCL''), the generic version of Hytrin. It 
filed applications covering a tablet form and a capsule form of its 
generic terazosin HCL. Geneva filed a paragraph IV certification with 
the FDA stating that these products did not infringe any valid patent 
held by Abbott covering terazosin HCL. In June 1996, Abbott sued Geneva 
for patent infringement by Geneva's terazosin HCL tablet product, but 
due to an oversight failed to mane an infringement claim against 
Geneva's capsule product, although both products raised the same 
potential infringement issues.
    Abbott's lawsuit triggered a 30-month stay of final FDA approval of 
Geneva's terazosin HCL tablet ANDA, until December 1998. No stay 
applied to the FDA approval process for Geneva's terazosin HCL capsule 
ANDA, however, because no infringement claim was filed within the 
statutory time period required by the Hatch-Waxman Act. The FDA granted 
Geneva final approval to market generic terazosin HCL capsules on March 
30, 1998.

The Challenged Agreement

    The complaint challenges an agreement whereby Abbott, following the 
FDA approval of Geneva's generic terazosin HCL capsule product, paid

[[Page 17504]]

Geneva not to enter the market during their ongoing patent litigation 
over the tablet product. According to the complaint, on the day it was 
granted approval to market its generic terazosin HCL capsules, Geneva 
contacted Abbott and announced that it would launch its generic 
terazosin HCL capsules unless it was paid by Abbott not to enter. Two 
days later, on April 1, 1998, Abbott and Geneva entered into an 
agreement, pursuant to which Geneva agreed not to enter the market with 
any generic terazosin HCL capsule or tablet product until the earlier 
of: (1) The final resolution of the patent infringement litigation 
involving Geneva's terazosin HCL tables product, including review 
through the Supreme Court; or (2) entry of another generic terazosin 
HCL product.
    Geneva also agreed-at Abbott's insistence-not to transfer, assign, 
or relinquish its 180-day exclusively right. The effect of this 
provision was to ensure that no other company's generic terazosin HCL 
product could obtain FDA approval; and enter the market during the term 
of the agreement, because Geneva's agreement not to launch its product 
meant that the 180-day exclusivity period would not expire.
    In exchange, Abbott agreed to pay Geneva $4.5 million per month 
until a district court judgment in the parties' patent infringement 
dispute, and then (assuming Geneva won in the district court) to pay 
the $4.5 million monthly payments into an escrow fund until the final 
resolution of the litigation, which Geneva would then receive if its 
district court victory was upheld.
    Abbott's payment to Geneva of $4.5 million a month was well over 
the $1 to $1.5 million per month that, the complaint states, Abbott 
believed Geneva would forego by staying off the market. The complaint 
alleges that Abbott was willing to pay Geneva a ``premium'' to refrain 
from competing because of the substantial impact that launch of a 
generic version of Hytrin would have on Abbott's overall financial 
situation. Abbott forecasted that entry of generic terazosin HCL on 
April 1, 1998 would eliminate over $185 million in Hytrin sales in just 
six month. Accordingly, the complaint charges, Abbott sought to 
forestall Geneva--and all other potential generic competition to 
Hytrin-from entering the market because of the threat they represented 
to the high profits it was making from Hytrin.
    The complaint further charges that, in accordance with the terms of 
the agreement, Geneva did not enter the market with its generic 
terazosin HCL capsules, even after the district court and the court of 
appeals upheld Geneva's position that Abbott's patent was invalid. In 
August 1999, Abbott and Geneva--aware of the Commission's 
investigation--terminated their agreement (which by its terms would not 
have ended until disposition of the litigation by the Supreme Court). 
Geneva finally brought its generic terazosin HCL capsule product to 
market on August 13, 1999.

Competitive Analysis

    The complaint charges that the challenged agreement prevented 
competition that Abbott's Hytrin product would otherwise have faced 
from generic products of Geneva and other potential generic 
competitors. Generic drugs can have a swift marketplace impact, because 
pharmacists generally are permitted, and in some instances are 
required, to substitute lower-priced generic drugs for their branded 
counterparts, unless the prescribing physician directors otherwise. In 
addition, there is a ready market for generic products because certain 
third-party payers of prescription drugs (e.g., state Medicaid programs 
and many private health plans) encourage or insist on the use of 
generic drugs wherever possible. Abbott's forecasts, the complaint 
states, projected that generic terazosin HCL would capture roughly 70% 
of Hytrin sales within the first six months following its launch. The 
agreement, however, ensured that Geneva would not offer generic 
terazosin HCL in competition with Hytrin, and would not take action-
such as relinquishing exclusivity rights-that would have permitted the 
entry of any other generic manufacturer.
    These restraints on generic competition had direct and substantial 
effects on consumers. Without a lower-priced generic alternative, 
consumers, government agencies, health plans, pharmacies, hospitals, 
wholesalers, and others were forced to purchase Abbott's more expensive 
Hytrin product. Other drugs, the complaint states, are not effective 
substitutes for terazosin HCL because they are different in terms of 
chemical composition, safety, efficacy, and side effects. There is 
little price sensitivity between terazosin HCL and other products. 
Thus, the complaint alleges that the sale of terazosin HCL in the 
United States in the relevant market within which to assess the effects 
of the challenged agreement.
    The challenged conduct represents an agreement not to compete 
between potential horizontal competitors. A firm is a potential 
competitor if there is evidence that entry by that firm is reasonably 
probable in the absence of the agreement at issue.\2\ Geneva certified 
to the FDA that its entry with generic HCL would not infringe a valid 
patent, and was confident that it ultimately would prevail in its 
patent infringement dispute with Abbott, the complaint states. In early 
1998, Geneva was making preparations to launch its generic terazosin 
HCL capsule product as soon as possible. After receiving FDA approval 
for the capsule product, Geneva threatened to launch that product 
unless Abbott paid it not to do so. The challenged agreement directly 
restrained competition between these potential competitors.
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    \2\ Federal Trade Commission and United States Department of 
Justice, Antitrust Guidelines for the Licensing of Intellectual 
Property at Sec. 1.1 n.6(1995)
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    In addition, the agreement created a bottleneck that prevented any 
other potential competitors from entering the market, because no other 
ANDA filer could obtain FDA approval until Geneva's 180 day exclusivity 
period expired. Other companies were developing generic terazosin HCL 
products, and at least one other generic manufacturer had satisfied the 
FDA's requirements for approval by February 1999, but was barred from 
entering the market because Geneva's failure to launch its product 
meant its 180-day exclusivity right had not even begun to run.
    The complaint states that the challenged agreement is not justified 
by any countervailing efficiency. Although the agreement between Abbott 
and Geneva provided substantial private benefits to both parties, the 
facts in this matter demonstrate that the broad restraints were not 
justified by any benefits to competition and consumer welfare. The 
Commission considered whether the agreement could be considered a 
procompetitive effort to effectuate a temporary settlement of a patent 
dispute, akin to a court-ordered preliminary injunction. However, it 
finds that any legitimate interest in resolving patent disputes cannot 
justify the harm to consumers imposed by the agreement in this case. 
The restraint imposed exceeds what likely would be available to the 
parties under a court-ordered preliminary injunction. For example, it: 
(1) Barred Geneva's entry beyond the pendency of the district court 
litigation; (2) provided large up-front payments that could be expected 
to create disincentives for Geneva to enter (in contrast to a court-
ordered bond to cover damages actually incurred as a result of the 
court's injunction); (3) barred Geneva from relinquishing its

[[Page 17505]]

exclusivity rights; (4) prohibited Geneva from developing or marketing 
non-infringing generic products. Moreover, the restraints contained in 
the agreement were entered into without any judicial finding that 
Abbott was likely to succeed on the merits of its infringement suit, 
without any consideration of whether Abbott would suffer irreparable 
injury, and without any weighing of the equities, including any 
consideration of the public interest.
    The complaint also charges that Abbott had a monopoly in the market 
for terazosin HCL, and, by entering into the agreement with Geneva, 
Abbott sought to preserve its dominance by delaying the entry of Geneva 
and other generic companies into the market. As detailed above, there 
were no countervailing justifications for Abbott's conduct. In 
addition, the complaint alleges that Abbott and Geneva conspired to 
monopolize the market for terazosin HCL. As stated in the complaint, 
Abbott and Geneva acted with specific intent that Abbott monopolize the 
market for terazosin HCL, and entered into a conspiracy to achieve that 
goal. Finally, the parties' agreement otherwise amounts to an unfair 
method of competition in violation of Section 5 of the FTC Act.

The Proposed Orders

    The proposed orders are designed to remedy the unlawful conduct 
charged in the complaint. Although the particular agreement challenged 
in the complaint has been terminated, prospective relief is necessary 
to prevent a recurrence of similar agreements with respect to other 
drugs. Private agreements in which the brand name drug company (the NDA 
holder) pays the first generic to seek FDA approval (the first filer) 
not to enter the market can substantially delay generic competition and 
raise serious antitrust issues. Moreover, the FDA, which has expressed 
concern about such private agreements, has observed that the incentives 
for companies to enter into such arrangements are becoming greater, as 
the returns to the brand name company from extending its monopoly 
increasingly exceed the potential economic gains to the generic 
applicant from its 180 days of market exclusivity.\3\
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    \3\ FDA Proposed Rule Regarding 180-Day Generic Drug Exclusivity 
for Abbreviated New Drug Applications, 64 FR 42873, 42882-83 (August 
6, 1999).
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    In essence, the proposed orders:
     Bar two particular types of agreements between brand name 
drug companies and potential generic competitors--restrictions on 
giving up Hatch-Waxman 180-day exclusivity rights and on entering the 
market with an non-infringing product;
     Require that agreements involving payments to the generic 
company to stay off the market be approved by the court when undertaken 
in the context of an interim settlement of patent litigation, with 
notice to the Commission to allow it time to present its views to the 
court;
     Require respondents to give the Commission written notice 
30 days before entering into such agreements in other contexts; and
     Require that Geneva waive its right to 180-day marketing 
exclusivity for its generic terazosin HCL tablet product, so that other 
generic tablet producers can immediately enter the market.
    Paragraph II prohibits two kinds of agreements between ``an NDA 
Holder'' and ``the ANDA First-Filer'' (that is, the party possessing an 
unexpired right to Hatch-Waxman 180-day exclusivity). Paragraph II.A. 
bars agreements in which the first company to file an ANDA agrees with 
the NDA holder not to relinquish its right to the 180-day exclusivity 
period established under the Hatch-Waxman Act. Paragraph II.B. 
prohibits the ANDA first filer from agreeing not to develop or market a 
generic drug product that is not the subject of a patent infringement 
lawsuit. The order prohibits restrictions on giving up exclusivity 
rights and on competing with a non-infringing product because under the 
circumstances of this case these restraints are not justified.
    Paragraph II's focus on agreements between an NDA holder and the 
ANDA first filer does not mean that the Commission believes that there 
is no risk of competitive harm in other contexts. In particular, Abbott 
or Geneva's participation in an agreement in which a generic company 
that is not the ANDA first filer is paid by the NDA holder not to 
market a non-infringing product could raise substantial competitive 
concerns. Given the variety of circumstances in which the restraints 
may arise, however, and the possibility that some legitimate 
justifications might exist in some other contexts, the Commission 
believes that it is appropriate at this time to limit the flat bans in 
Paragraph II to agreements between NDA holders and ANDA first filers.
    Paragraphs III bans private agreements involving payments to keep a 
generic drug off the market during patent infringement litigation 
brought by an NDA holder. Abbott and Geneva can enter into such 
arrangements only if (a) They are presented to the court and embodied 
in a court-ordered preliminary injunction, and (b) the following other 
conditions are met: (i) Along with any stipulation for preliminary 
injunction, they provide the court with a copy of the Commission's 
complaint, order, and this Analysis to Aid Public Comment in this 
matter, as well as the proposed agreement between the parties; (ii) at 
least 30 days before submitting the stipulation to the court, they 
provide written notice to the Commission; and (iii) they do not oppose 
Commission participation in the court's consideration of the request 
for preliminary relief.
    Thus, the proposed orders bar agreements made in the context of an 
interim settlement of a patent infringement action, whereby the NDA 
holder pays the generic not to enter the market, unless the parties 
obtain court approval through a process that is designed to enhance the 
court's ability to assess the competitive implications of the 
agreement. This remedy, in addition to facilitating the court's access 
to information about the Commission's views, also makes the process 
public and thereby may prompt other generic drug manufacturers (or 
other interested parties) to alert the court to potential 
anticompetitive provisions that could delay their entry into the 
market. Furthermore, the Commission believes that the requirement that 
the agreement be filed on the public record with the court will deter 
Abbott and Geneva from entering into anticompetitive agreements.
    Paragraph IV addresses certain agreements to stay off the market 
that are not covered by Paragraph III because they do not involve 
interim relief in a litigated matter. Such situations would include 
agreements that are part of a final settlement of the litigation, and 
situations in which no litigation has been brought. In these 
circumstances, there is no judicial role in ordering relief agreed to 
by the parties. The Commission is concerned about such private 
agreements in which the first filer is paid by the NDA holder not to 
enter the market, because of the substantial risk of competitive harm 
that they may create. Thus, the order requires that Abbott and Geneva 
notify the Commission 30 days before entering into an agreement in 
which an ANDA first filer agrees with an NDA holder to refrain from 
going to market. Such notice will assist the Commission in detecting 
anticompetitive agreements before they have caused substantial injury 
to consumers. Absent the order, there is no mechanism for the antitrust 
enforcement agencies to find out about such agreements.

[[Page 17506]]

    The form of notice that Abbott and Geneva must provide to the 
Commission under Paragraphs III and IV of the orders is set forth in 
Paragraph V. In addition to supplying a copy of the proposed agreement, 
they are required to provide certain other information to assist the 
Commission in assessing the potential competitive impact of the 
agreement. Accordingly, the orders require them to identify, among 
other things, all others who have filed an ANDA for a product 
containing the same chemical entities as the product a issue, and the 
court that is hearing any relevant legal proceedings involving either 
party. In addition, they must provide the Commission with all documents 
that evaluate the proposed agreement.
    In addition, the proposed order against Geneva requires that it 
waive its 180-day marketing exclusivity period for its generic 
terazosin HCL tablet product. Although Geneva's exclusivity right with 
respect to the terazosin capsules product has expired, its exclusivity 
period for the tablet product still remains as a barrier to entry. This 
provision of the order will therefore open the market to greater 
generic competition in terazosin HCL products.
    The proposed orders also contain certain reporting and other 
provisions that are designed to assist the Commission in monitoring 
compliance with the order and are standard provisions in Commission 
orders.
    The orders will expire in 10 years.

Opportunity for Public Comment

    The proposed orders have been placed on the public record for 30 
days in order to receive comments from interested persons. Comments 
received during this period will become part of the public record. 
After 30 days, the Commission will again review the agreements and the 
comments received and will decide whether it should withdraw from the 
agreements or make the proposed orders final.
    The purpose of this analysis is to facilitate public comment on the 
agreements. The analysis is not intended to constitute an official 
interpretation of the agreements, the proposed complaint, or the 
proposed consent orders, or to modify their terms in any way.

    By direction of the Commission.
Donald S. Clark,
Secretary.

Statement of Chairman Robert Pitofsky and Commissioners Sheila F. 
Anthony, Mozelle W. Thompson, Orson Swindle, and Thomas B. Leary

    The Analysis to Aid Public Comment, published today along with 
proposed consent orders against Geneva Pharmaceuticals, Inc. and Abbott 
Laboratories, describes the conduct of those two companies in agreeing 
that Abbot would pay Geneva to refrain from selling a generic version 
of Hytrin, Abbott's branded version of terazosin hydrochloride. It also 
describes relevant provisions of the Drug Price competition and Patent 
Term Restoration Act of 1984 (``Hatch-Waxman Act''), including 
particularly the provision that gives the first generic company to seek 
FDA approval a 180-day period during which it has the exclusive right 
to market the generic version of a brand name drug.
    Pursuant to a private agreement not reviewed by any court, Abbott 
paid Geneva substantial sums not to enter the market with its generic 
version of Hytrin, and not to transfer, assign or relinquish its 180-
day exclusive marketing right to any other producer of generic products 
that might compete with Abbot. By not selling its generic version. 
Geneva prevented the start of the 180-day exclusivity period, with the 
result that neither Geneva nor any other company could introduce a 
generic version of Hytrin into the market.
    These consent orders represent the first resolution of an antitrust 
challenge by the government to a private agreement whereby a brand name 
drug company paid the first generic company that sought FDA approval 
not to enter the market, and to retain its 180-day period of market 
exclusivity. Because the behavior occurred in the context of the 
complicated provisions of the Hatch-Waxman Act, and because this is the 
first government antitrust enforcement action in this area, we believe 
the public interest is satisfied with orders that regulate future 
conduct by the parties. We recognize that there may be market settings 
in which similar but less restrictive arrangements could be justified, 
and each case must be examined with respect to its particular facts.
    We have today issued an administrative complaint against two other 
pharmaceutical companies with respect to conduct that is in some ways 
similar to the conduct addressed by these consent orders. We anticipate 
that the development of a full factual record in the administrative 
proceeding, as well as the public comments on these consent orders, 
will help to shape further the appropriate parameters of permissible 
conduct in this area, and guide other companies and their legal 
advisors.
    Pharmaceutical firms should now be on notice, however, that 
arrangements comparable to those addressed in the present consent 
orders can raise serious antitrust issues, with a potential for serious 
consumer harm. Accordingly, in the future, the Commission will consider 
its entire range of remedies in connection with enforcement actions 
against such arrangements, including possibly seeking disgorgement of 
illegally obtained profits.
    If firms are uncertain about the limits of permissible behavior 
under the Hatch-Waxman Act, they may, of course, seek advisory opinions 
from the staff of this agency.

[FR Doc. 00-8129 Filed 3-31-00; 8:45 am]
BILLING CODE 6750-01-M