Archive for the ‘Legal/Tech News’ Category

Apple’s Canary Fails to Chirp

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Recently, Apple updated the privacy section on its website. While this was likely part of their response to privacy concerns due to the recent iCloud controversy, and fortuitously timed with the release of the newest batch of phones from the company, it also contains the latest edition of their transparency report. This report is a collection of the requests made by governments around the world for information about Apple device users and account holders. Curiously though, the most controversial aspect of the report may be what is not included. As the Electronic Frontier Foundation reported Apple was one of the first major companies to make use of the device known as a warrant canary. A warrant canary is one of the methods that a company may use to alert the public of otherwise secret demands made by US government. Following the passage of the USA Patriot Act in 2001, the availability of secret subpoenas has been dramatically expanded, and may be used against anyone who may have information which the authorities consider relevant to their intelligence or terrorism investigations. Because of the nature of these subpoenas, criminal penalties may be assessed against individuals who reveal even the existence of the requests for information. To get around this, a company may publish a public statement that they have not received such a request. If that is no longer true, removing the statement, or refusing to make it again, signals the public that the government has asked for data. In the transparency report covering early 2013 Apple stated that it “has never received an order under Section 215 of the USA Patriot Act. We would expect to challenge such an order if served on us.” This language is missing from the more recent reports, instead stating “To date, Apple has not received any orders for bulk data.” This shift in language may be Apple’s signal that it has been forced to comply with an order under the Patriot Act. An alternative view is that Apple is just complying with the latest addition to the government’s scheme of actually reporting on these kinds of requests. Detailed in a January 2014 letter to the general counsel of major tech companies, there are essentially two options available. A company may publish the amount of requests for specific kinds of information in bands of 1000, or may publish total aggregate numbers in bands of 250. Apple’s latest report indicates that it currently sits in the 0-250 band. The major flaw in both of these reporting capabilities is that the starting number is in fact zero, which is where the warrant canary can do its work. The letter indicates that there is to be a significant time delay between the issuing of a request and when a company may report on it, ranging from six months to two years for a new government security product. A timely published warrant canary may also circumvent this requirement. The risk of the canary from the government's standpoint is that it undermines the nature of the secret orders and reduces the effectiveness of a major national security tool. Whether the absence of the canary language indicates Apple’s compliance with the new government reporting scheme or is an admission that Apple has actually received a secret order, the takeaway is clear: The government has an arsenal of methods to acquire information about users of Internet services without their knowledge. The validity of these secret orders is an issue of supreme importance in our increasingly interconnected world. Among the variety of ways for companies to advocate for their users, publishing transparency reports similar to Apple’s is probably one of the simplest, and subtlest, ways to bring the discussion into headline news once again. The warrant canary is a device with perhaps questionable legal heritage, but it promotes a vigilant and informed public discussing a question at the crossroads of national security and personal privacy.

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October 1st, 2014 at 5:58 pm

Posted in Legal/Tech News

Appellate Review of Markman Hearings

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In Markman, the Supreme Court declared that determining the meaning of patent claims, i.e. “claim construction,” is a question to be decided by the court; the Seventh Amendment right to a jury trial does not apply. Markman v. Westview Instruments, Inc., 517 U.S. 370, 372 (1996). Shortly thereafter, in Cybor, the Court of Appeals for the Federal Circuit held that de novo review applied when results from these newly-created ‘Markman hearings’ are appealed. Cybor Corp. v. FAS Technologies, Inc., 138 F.3d 1448, 1451 (Fed. Cir. 1998) (en banc).   Earlier this year, the Federal Circuit granted a rehearing en banc to determine if Cybor should be overruled, and what, if any, deference should be given to a District Court’s claim construction. Lighting Ballast Control LLC v. Philips Electronics N. Am. Corp., ___F.3d___, WL 667499 (Fed. Cir. Feb. 21, 2014) (en banc). The court considered three options: (1) reaffirm Cybor and maintain de novo review, (2) overrule Cybor and declare claim construction a question of fact, or (3) adopt a “hybrid” standard of review that affords deference to the District Court’s factual determinations but preserves de novo review of the “ultimate” conclusion. Amici from industrial and technological companies advocated reaffirming Cybor. Academics and practitioners generally favored either the hybrid approach or the overruling of Cybor. Relying on stare decisis, a 6-4 majority reaffirmed Cybor.   The majority pointed out that since Cybor was decided, Congress has not acted to overturn it while enacting other patent legislation during that time. They further explained that predictability and consistency favor maintaining the status quo. Consistency is a concern particularly relevant in patent law – a concern which led to the creation of the Federal Circuit over thirty years ago. The majority feared a return of “forum shopping” because the same patent could be subject to conflicting interpretations in different District Courts. Parties would be incentivized to choose a forum with judges likely to interpret patent claims in their favor knowing that reversal on appeal is unlikely.   The dissent, appearing to favor the hybrid approach, pointed out that the parties in the present case, almost all amici, and the Supreme Court recognize that claim construction involves some questions of fact. Thus, they vehemently argued that under Rule 52(a)(6), courts of appeal can set aside only those findings of fact that are “clearly erroneous.” Rejecting stare decisis, the dissent argued that “informal deference” is already given to District Courts because they spend “hundreds of hours” learning the relevant technology, so overruling Cybor would “not upset settled expectations.” The dissent also stated that de novo review incentivizes the losing party to appeal, decreases the likelihood of settlement, and increases litigation costs.   But Lighting Ballast may not stand for long. In April, the Supreme Court granted certiorari in Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc., which presents a nearly identical question as that in Lighting Ballast. In Teva, the District Court held a Markman hearing and construed the claims in Teva’s favor, avoiding invalidity for indefiniteness. The trial judge relied heavily on Teva’s expert witness to determine the level of ordinary skill in the art at the time of invention. Teva Pharm. USA, Inc. v. Sandoz Inc., 810 F. Supp. 2d 578, 596 (S.D.N.Y. 2011). On appeal, the Federal Circuit explicitly applied de novo review, compared the testimony of the competing expert witnesses, reversed the District Court, and held the claims indefinite. Teva Pharm. USA, Inc. v. Sandoz, Inc., 723 F.3d 1363, 1369 (Fed. Cir. 2013), reh’g en banc denied. Similar to the dissent in Lighting Ballast, Teva claims that Rule 52(a)(6) should have governed the Federal Circuit’s standard of review because determining the level of ordinary skill in the art is a question of fact. Unfortunately, Teva will not be heard until the Supreme Court’s October 2014 term. Until then, Lighting Ballast remains good law; de novo review of claim construction still applies.   Guest Post Written by Brian Apel

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July 13th, 2014 at 1:05 pm

Akamai and the Question on Joint Infringement on Method Claims in the Supreme Court

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On April 30, 2014, the Supreme Court of the United States will hear opening arguments [1] for a landmark case found in patent law casebooks, Akamai Technologies, Inc. v. Limelight Networks, Inc., whereby the Federal Circuit, sitting en banc, held in a 6-5 ruling that a defendant may be held liable for inducing patent infringement under 35 U.S.C. § 271(b) when no direct infringement occurred under 35 U.S.C. § 271(a). [2] 35 U.S.C. § 271 states:
  • “(a) … whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent.
  • (b) Whoever actively induces infringement of a patent shall be liable as an infringer…”
The Federal Circuit overruled its own precedence set in BMC Resources, Inc. v. Paymentech, L.P., which had previously held that induced infringement requires a single party to commit all steps of a method constituting direct infringement under § 271(a).  In Akamai, neither Limelight nor its customers performed all of the steps, but nevertheless Limelight was found liable because Akamai and its customers jointly performed all steps.  The court reasoned that a party who actually participates in performing the infringing method should be “more culpable than another one who does not perform any steps” but instead induces another to do so. [3] Arguments supporting Judge Newman’s 35-page dissent include imposing an unfair obligation on businesses to speculate on potential future uses by a third-party buyer or user, the increased discovery costs to an already expensive procedure, and the potential for erroneously imposing liability on supplying non-infringing products and services. [4]  This case is of interest for inventions involving multiple steps, in particular the internet software and hardware industry, as demonstrated by the amicus briefs submitted by technological giants, such as Apple, the Google, Oracle, Red Hat, SAP, CISCO, Xilinx, Altera, HTC, SmugMug, weatherford, the CTIA, Facebook, Inc. and LinkedIn Corporation, The Wireless Association, the Consumer Electronics Association, MetroPCS Wireless, and many others.[5] Many people will be listening next Wednesday on how the Supreme Court will interpret the word “whoever” in the statute and balance these important policy goals.

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May 2nd, 2014 at 3:53 pm

IRS Ruling Declares Bitcoin Will Be Taxed As Property

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On March 25, 2014, the Internal Revenue Service issued a ruling declaring that it will tax virtual currencies, such as Bitcoin, as property. This ruling could have significant effects on the way that consumers use Bitcoin. The implication of the ruling is that Bitcoin can no longer operate as an alternative form of currency because any transaction using Bitcoin as consideration will lead to a capital gain or loss for the person paying with Bitcoin. Bitcoin fluctuates drastically in value, which means that almost every transaction using Bitcoin will result in some sort of gain or loss which will now be taxable at capital gains rates. So, for example, if a person buys a Bitcoin for $10 and uses it to purchase an item for $15, he or she will be required to pay capital gains tax on the $5 increase in value. The extreme value fluctuation, however, also explains why the IRS’s ruling may not be as extreme as some commentators suggest. It is, in fact, this value fluctuation which has led consumers to use Bitcoin primarily as an investment medium, like gold, silver, and other commodities, rather than as actual currency. The rapidly changing value of Bitcoin provides plenty of room for investors to try to maximize value by betting on the increase or decrease of the technological commodity. There are also significant administrative restrictions which will make the IRS’s ruling difficult, if not impossible, to enforce, at least with respect to the average individual. In order to determine the amount of capital gains tax an individual owes to the U.S. government, he or she will have to carefully track all of the purchases made with Bitcoin over the course of the year. If individuals are making multiple purchases with Bitcoin, this will prove to be a very tedious and complicated requirement and is likely to discourage individuals from using Bitcoin as currency in the first place. In addition to being difficult for individuals to monitor their capital gains, it will be just as complicated for the IRS to figure out how much it should be receiving in taxes from these individuals. Bitcoin’s original purpose was to provide a type of currency that was completely anonymous, which is why it has often been used in funding illegal transactions. The virtual wallets which house Bitcoins are not tied to individuals; this will make it very difficult for the IRS to monitor how much capital gains tax individuals owe on their Bitcoin transactions. This administrative monitoring gap may provide a new venue for entrepreneurs to develop a platform which provides tracking of an individual’s basis in and purchases using Bitcoin in order to properly determine how much capital gains tax they owe in connection with Bitcoin transactions. But without this type of platform, it is unclear how the IRS will effectively enforce its new ruling. Sources:
  • http://money.cnn.com/2014/03/31/technology/irs-bitcoin/
  • http://techcitynews.com/2014/03/28/bitcoin-is-property-not-currency-rules-irs/
  • http://techcrunch.com/2014/03/30/bitcoin-slips-in-the-wake-of-the-irss-tax-decision/
  • http://www.coindesk.com/irs-bitcoin-ruling-may-bright-side/
  • http://www.inman.com/2014/03/31/irss-bitcoin-guidance-turns-every-transaction-into-a-reportable-capital-gain-or-loss-at-tax-time/
  • http://www.irs.gov/uac/Newsroom/IRS-Virtual-Currency-Guidance
  • http://www.theatlantic.com/technology/archive/2014/03/why-bitcoin-can-no-longer-work-as-a-virtual-currency-in-1-paragraph/359648/
  • http://www.theguardian.com/technology/2014/mar/31/bitcoin-legally-property-irs-currency

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April 8th, 2014 at 10:27 am

Keurig Walls Off the Garden by Shutting Out Third Party K-cups

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Keurig, the single serve coffee machine produced by Green Mountain, is nearly ubiquitous in offices, homes, and schools around the country. The device rose to popularity on the back of the K-cup, the single serve pods produced by Green Mountain that allowed a single cup of hundreds of different coffee, tea, and chocolate drinks to be brewed in a matter of seconds. Green Mountain made $3.9 billion in sales in 2012, with 2.7 billion coming from K-cup sales. Keurig was able to maintain strong sales of its K-cups because of several patents on the design and features of the K-cup. However, in September 2012, U.S. Patent Nos. 5,353,765 and 5,840,189 expired. These two patents covered the original K-cup design. Their expiry has opened the door for generic knockoff K-cups to flood the market. Green Mountain claims that the design covered by these patents is outdated and has been superseded by new and improved designs covered under patents that are still in force, including, U.S. Patent Nos. 6,645,537 and the still pending Application No. 20050051478. However, many generic K-cups are already on the market and work in Keurig’s brewing machines. While Keurig claims that generic K-cups will continue to make up less than 15% of the total K-cup market and stress that their current design is superior to any competing product, Green Mountain is clearly worried about the generic threat. In early March of this year Green Mountain announced “Keurig 2.0,” an improved brewing device that would be launching as early as the fall of 2014. Among other changes over previous models, the new Keurig brewer will contain technology that prevents generic K-cups from being used. Green Mountain is the latest to introduce protections for their propriety technology, following in the footsteps of Hewlett-Packard and other printer manufacturers who have added technology to their printers preventing generic printer cartridges from being used, or software companies that have added Digital Rights Management (DRM) to their software to prevent piracy. It is unclear exactly what sort of form this proprietary protection will take, but past forms used in printers include RFID tags. In any case, Green Mountain has made clear that they will still allow third parties to produce K-cups so long as they obtain a license from Green Mountain. Already, a legal fight is brewing over Green Mountain’s proposed move. TreeHouse Foods and Rogers Family are already suing Green Mountain on antitrust grounds. Besides the antitrust concerns, Green Mountain may have difficulty stopping third parties that circumvent their protections. In 2012, Lexmark installed technology to prohibit generic printer ink refills in their printers and lost an appeal in the 6th Circuit for a copyright and DMCA claim against a company that developed a work around for the protection technology for their generic ink refills. In the near future, the legal precedents set by these cases could have far-reaching effects on DRM and physical proprietary protections across the market.

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April 2nd, 2014 at 4:22 pm

Patent protection is essential yet insufficient for the success of a startup

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Pebble has successfully run the largest Kickstarter campaign, raising more than $ 10.2 million in 2012 [1] [2]. However, Pebble’s future might not be so bright. First, the USPTO recently issued a final rejection to Pebble Technology’s only US patent application (US Patent Application Number 13/511,531 titled System and Method for Alerting a User on an External Device of Notifications or Alerts Originating from a Network-Connected Device) on March 10, 2014 [3]. In contrast, Apple has filed at least 79 patents related to smart watches [4]. Second, large companies have the resources to defend themselves against non-practicing entities while a startup such as Pebble Technology does not. Fortunately for Pebble Technology, this concern is somewhat alleviated by the 2013 Obama Executive Order on Patent Trolls. But Pebble is also facing strong competition from established consumer electronics giants such as Sony. In addition, other companies such as Google and HTC are eager to enter the market. Furthermore, cheaper alternatives such as Fitbit may be more attractive to some consumers. Clearly, the wearable technology space is not short of impressive design and technologies [5] [6]. Navigating a crowded technology space is definitely not easy for a startup. To be successful, a startup needs to be innovative, to have a strong business plan and strategy, and to have intellectual property protection. And Pebble Technology might need help in all these areas.

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March 30th, 2014 at 11:39 am

Patents for Humanity

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The Obama administration recently announced a renewal of Patents for Humanity, a USPTO program promoting the use of patented technologies to address worldwide humanitarian needs.  Patents for Humanity is part of the President’s program to strengthen the patent system and to promote innovation by recognizing patent owners and licensees who using their patented technology to improve global health and living standards for the less fortunate.  In addition to public recognition for their contribution to humanitarian needs, the winners will receive an acceleration certificate that gives expedited processing of select matters (e.g. moving patent re-examination proceedings to the front of the queue) before the USPTO. The first Patents for Humanity was implemented in February 2012 as part of an initiative to solve long-standing development challenges.  Participants described in their applications how they've used their patented technology or product to address humanitarian issues (defined as issues “significantly affecting the public health or quality of life of an impoverished population”) in one of the four categories: medical technology, food and nutrition, clean technology and information technology.  The first 1,000 applications that met the competition requirements were considered, and the applications were independently reviewed by three judges selected from academia for their expertise in medicine, law, science, engineering, public policy, or a related field.  The judging process applied three neutrality principles – technology-neutral, geographically-neutral, and financially-neutral.  The program considered inventions from any field of technology that met the competition criteria. The targeted impoverished population may be located anywhere in the world.  And any means of getting technology to those in need may qualify without regard to financial consideration.  Lastly, the program considered the diversity of contributions in order to highlight global humanitarian contributions across all types of technology, organizations, and practices. The 2012-2013 program recognized 10 winners and 6 honorable mentions.  The medical technology category was divided into a category for medicine & vaccines and a category for diagnostics & devices.  The winners of the pilot program include research institutions like University of California, Berkeley and industry leaders, such as Microsoft and Proctor & Gamble.  USPTO expects to open applications for the 2014 Patents for Humanity program in April.  The latest USPTO announcement states that the 2014 program will be structured similarly to the pilot program that was introduced in 2012, with a few changes based on the feedback from the pilot program.

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March 11th, 2014 at 9:33 am

As Patent Litigation Reaches “DEFCON 1,” Tech Companies Look for Alternatives

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Non-practicing entities (NPEs) are nothing new in the world of patent litigation, but this past October, NPE litigation reached a new level when the Rockstar Consortium filed an infringement suit in the Eastern District of TexasRockstar Consortium (not to be confused with Rockstar Games, a videogame developer) is not a well-known name to the public: the company doesn’t actually make anything. Instead, Rockstar makes money by licensing its large (approximately 4,000 strong) portfolio of patents and enforcing its intellectual property through legal action. Rockstar employs a small cadre of engineers and technicians to reverse-engineer consumer electronics products to determine whether they might infringe one of its patents. When an engineer identifies a potentially infringing product, Rockstar’s attorneys approach the alleged infringer, likely threatening legal action if a settlement isn’t reached. However, what distinguishes Rockstar from a run-of-the-mill NPE is the support that it has received from traditional technology giants. Rockstar was formed shortly after the bankruptcy of the former Canadian telecommunications giant Nortel Networks. Nortel auctioned off its stash of patents, and “Rockstar Bidco,” backed by the unliely alliance of Apple and Microsoft (among others), won the auction with a bid of $4.5 billion, beating Google after many rounds of bidding. After distributing approximately 2,000 patents directly to its sponsors, a newly minted “Rockstar Consortium” remained with a cache of 4,000 patents to enforce. Two years of anticipated litigation was finally realized when Rockstar asserted patent infringement contentions against Google, Samsung, and a number of other companies who manufacture Android smartphones. Technology industry commentators called the act “DEFCON 1” in the patent wars. Google now faces a well-funded opponent, supported by Google’s direct competitors, with a large cache of high-quality patents. While the exact implications of this litigation have yet to be determined, Google is certainly facing potential disruptions to the distribution of its Android mobile operating system, possible licensing deals that could seriously damage its future profitability, and the near-certainty of spending many millions of dollars in legal costs. Google’s recent cross-licensing agreement with Samsung suggests that it may be looking for alternatives to litigation, and it would probably make good business sense for Google to explore options for resolving this dispute out of court.
 

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February 18th, 2014 at 11:24 am

Coalition for Patent Fairness Attempts to Curb Inefficient Patent Litigation

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On February 5, 2014, Google and Cisco announced a long-term cross-licensing deal. The agreement permits either company to utilize the other company's patent portfolio. That day, Cisco also agreed to a similar cross-licensing agreement with Samsung. Last week, Google also reached a cross-licensing agreement with Samsung. Why are there so many of these cross-licensing agreements? It begins with intense competition in the technology sector. Companies with large patent portfolios have a financial incentive to sue other infringing companies to either procure licensing fees or protect market share. Of course, other companies may have large patent portfolios as well, and they can counter-sue for infringement of their patents. Thus, we have a form of mutual deterrence. Each company is infringing on patents of the other, and it is often impossible to predict how a judge or jury will decide the case. Companies don't deal well with uncertainty and often choose not to roll the dice. As a result, very few of these cases go to court. The cases that we do see involve highly sophisticated markets such as the smartphone battle between Samsung and Apple, which resulted in a near $1,000,000,000 judgement to Apple. There is another aspect to the patent litigation game. As mentioned above, large companies are deterred from suing each other because of the risk of countersuit. However, a large company could contract with a patent assertion company (or "patent troll") to sue the other corporation on its behalf. The company maintains anonymity and gains the desired market advantage. In these proxy lawsuits, it is often hard to determine the actual interested parties. Companies can in effect hire paid guns to do their dirty work. Fittingly, this practice is called "patent privateering." And to many, this is seen as inefficient and undesirable for the economy. The Coalition for Patent Fairness is such a group that believes that the current method of doing business  is broken. As stated on their website, the Coalition is "a diverse group of companies dedicated to enhancing U.S. innovation, job creation, and competitiveness in the global market by modernizing and strengthening our nation’s patent system." Google, Cisco, and Samsung are companies in the Coalition. By negotiating long-term cross-licensing agreements, these companies are announcing that they are tired of the gamesmanship and shadow tactics common in the technology industry, and they are choosing to compete in the marketplace. Hopefully, in time, more companies will follow their lead.  

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February 17th, 2014 at 11:55 am

Update on Bitcoin Regulation

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Since the last post on a proposal for Bitcoin regulation, another 300,000 Bitcoins were mined, [1] the Alibaba Group banned the use of Bitcoin on its e-commerce sites, [2] and the U.S. Department of Justice charged the vice-chairman of the Bitcoin Foundation in a money-laundering conspiracy. [3] Earlier last week, Benjamin Lawsky, New York State’s Superintendent of Financial Services, held a series of hearings on virtual currency regulations. Speakers included the Winklevoss brothers and the deputy U.S. attorney for the Southern District of New York. Notably, Mr. Lawsky announced his plans to roll out a “regulatory framework for virtual currency firms operating in New York” in 2014. [4] Although it is admirable that New York is taking the initiative, it remains to be seen whether or not state regulation is a practical option. New York’s regulatory framework for Bitcoin will be necessarily confined within its state borders. It is easy to imagine other states following suit, but enacting different laws, which would result in an inconsistent mess of legislation. On one hand, this could lead to loopholes and allow for regulatory arbitrage. On the other hand, this could become so frustrating as to discourage Bitcoin use altogether. After all, one of Bitcoin’s advantages is that is not subject to regulation. Subjecting Bitcoin businesses and users to multiple regulatory regimes might cripple the virtual currency altogether. As Mr. Lawsky explained, however, “Businesses can deal with regulation. What they can’t deal with is uncertainty." [5]

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February 5th, 2014 at 12:35 pm

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