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Penguin agrees to $75M settlement in Apple iBooks price fixing lawsuit

post #1 of 34
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Book publisher Penguin announced on Wednesday it has reached a $75 million "comprehensive agreement" with U.S. State Attorneys General and private class plaintiffs over e-book price fixing allegations connected to Apple and its iBookstore for iOS.

If accepted, the settlement will resolve all antitrust claims against Penguin related to e-book pricing. In a press release, Penguin's parent company, Pearson, noted it had made a $40 million provision for settlement in its 2012 accounts.

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Penguin already reached a separate settlement in December with the U.S. Department of Justice. Wednesday's latest agreement is related to the 33 individual states that joined in the antitrust suit.

The publisher also offered in April to end its e-book pricing agreements with Apple to appease regulators in the European Union. That deal allows retailers to set prices and discounts on digital books for two years.

Penguin was among five publishers who came under federal scrutiny after they agreed to a so-called "agency model" pricing agreement with Apple. Under that deal, the publishers were allowed to set fixed prices for content.

That was a change from the "wholesale model" preferred by online retailer Amazon, under which publishers suggest a price and booksellers are free to set their own prices and offer their own discounts. But publishers felt Amazon's low-margin strategy, in which the company would frequently undercut suggested prices, was harmful to the overall book selling business.While publishers have settled, Apple has held out, and the DOJ's civil trial is scheduled to begin on June 3.

Regulators, however, viewed the industry-wide switch to the "agency model" driven by Apple's iBookstore was harmful to consumers, prompting the antitrust lawsuits. While the publishers have reached settlements, Apple has chosen to stand its ground, and remains the subject of a DOJ complaint in the U.S. that is scheduled to go to a civil trial on June 3.

In court filings made last week, the DOJ accused Apple of being a facilitator in alleged collusion with major publishers to fix e-book prices. For its part, Apple has denied the allegations, saying it drafted separate consumer-friendly agreements with each publisher.

Last week the DOJ also published an email sent by late Apple co-founder Steve Jobs to then CEO of News Corp. James Murdoch. In the note, Jobs suggested that News Corp's HarperCollins simply "try" pricing titles at $12.99 and $14.99, but offered no assurance that the strategy would work.

"Heck, Amazon is selling these books at $9.99, and who knows, maybe they are right and we will fail even at $12.99," Jobs wrote. "But we're willing to try at the prices we've proposed. We are not willing to try at higher prices because we are pretty sure we'll all fail."

Following the announcement of Penguin's proposed $75 million settlement on Wednesday, Hagens Berman Sobol Shapiro, a consumer-rights law firm representing consumers in the case, issued a statement:

?This proposed settlement is a powerful demonstration of what is possible when federal, state and private class antitrust enforcement lawyers work together,? said Steve W. Berman, managing partner of Hagens Berman. ?In this case, the level of cooperation was unprecedented, and the results that we were able to deliver to the states and consumers demonstrate that.?
post #2 of 34

Better tax that settlement twice.

post #3 of 34
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Originally Posted by Tallest Skil View Post

Better tax that settlement twice.

Even with a 100% tax the money is going to the same place.

It's also so much less having settled than to have fought it. /s
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post #4 of 34

The publishers are caving not out of fear of the Feds, but from fear of Amazon's retribution for challenging their monopoly.

post #5 of 34
Another publisher settled. Clearly that means Apple is guilty¡

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post #6 of 34
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Originally Posted by GQB View Post

The publishers are caving not out of fear of the Feds, but from fear of Amazon's retribution for challenging their monopoly.

That seems plausible to me. That or they don't want the feds overturning some other stones.

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post #7 of 34
Apple needs to get off its idealistic high horse and put a lot more money into K Street. If they don't protect themselves the way other players do they will continue to be the go-to target for politicians.
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post #8 of 34
Quote:
Originally Posted by SolipsismX View Post


That seems plausible to me. That or they don't want the feds overturning some other stones.

 

They are settling because the publishing industry is on shaky ground already, thanks, in large part, to the control of Amazon over the industry. Rather face an even more draconian outcome, were they to lose, from a DoJ embarked on an irrational, myopic and possibly corrupt crusade, they are simply making a business decision to accept a penalty that won't destroy them immediately to avoid one that might.

 

This isn't about admitting guilt, it's about caving to bullying because they can't afford the resources to fight it. Thankfully, Apple does.

post #9 of 34
Quote:
Originally Posted by anonymouse View Post

They are settling because the publishing industry is on shaky ground already, thanks, in large part, to the control of Amazon over the industry. Rather face an even more draconian outcome, were they to lose, from a DoJ embarked on an irrational, myopic and possibly corrupt crusade, they are simply making a business decision to accept a penalty that won't destroy them immediately to avoid one that might.

This isn't about admitting guilt, it's about caving to bullying because they can't afford the resources to fight it. Thankfully, Apple does.

Possibly this explains Soli's sarcasm. I think we are all on the same page here.
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post #10 of 34

I'm still confused how this is illegal?  If you wanna sell with a different model, why is that illegal?  If it works, it'll sell.  if it doesn't work, it won't sell.

 

Tesla sells directly to consumers.  Apple sells directly to consumers.  But Dell sells via a middle man (i.e. best buy) and Chevys sell via local dealerships as middle men.  One isn't more illegal than the other.  They should be free to sell it how they want.

 

Okay, so usually when a corporation messes up, I'm in favor of punishing them.  But the whole ebook price fixing thing, I really don't see anything wrong here, especially b/c there's competition and not a monopoly.  I don't even think customers even care.  The only people who seem to be upset at this is greedy divisions of the government.

post #11 of 34
Quote:
Originally Posted by GQB View Post

The publishers are caving not out of fear of the Feds, but from fear of Amazon's retribution for challenging their monopoly.

I just don't buy that. These are very well connected deep pocket having publishers that have white shoe law firms on retainer capable of handling a federal case. I don't believe they settled because it was more costly to fight but because it was more costly to lose.
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post #12 of 34
Quote:
Originally Posted by Gordio View Post

I'm still confused how this is illegal?  If you wanna sell with a different model, why is that illegal?  If it works, it'll sell.  if it doesn't work, it won't sell.

Tesla sells directly to consumers.  Apple sells directly to consumers.  But Dell sells via a middle man (i.e. best buy) and Chevys sell via local dealerships as middle men.  One isn't more illegal than the other.  They should be free to sell it how they want.

Okay, so usually when a corporation messes up, I'm in favor of punishing them.  But the whole ebook price fixing thing, I really don't see anything wrong here, especially b/c there's competition and not a monopoly.  I don't even think customers even care.  The only people who seem to be upset at this is greedy divisions of the government.

What's illegal is that allegedly the publishers got together and forced Amazon to go with the agency model as well.
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post #13 of 34
anonymouse is 100% right. The settlements are less an admission of liability than they are a yielding before the cost run up even more. The book industry is in dire straights.
post #14 of 34
Quote:
Originally Posted by Gordio View Post

I'm still confused how this is illegal?  If you wanna sell with a different model, why is that illegal?  If it works, it'll sell.  if it doesn't work, it won't sell.

Tesla sells directly to consumers.  Apple sells directly to consumers.  But Dell sells via a middle man (i.e. best buy) and Chevys sell via local dealerships as middle men.  One isn't more illegal than the other.  They should be free to sell it how they want.

Okay, so usually when a corporation messes up, I'm in favor of punishing them.  But the whole ebook price fixing thing, I really don't see anything wrong here, especially b/c there's competition and not a monopoly.  I don't even think customers even care.  The only people who seem to be upset at this is greedy divisions of the government.

Slightly off topic ... Add to the crazy mix car dealers objecting to the Tesla sales tactics whereby they cut out the beloved car salesman / dealership business model! I was just reading about this and trying not to laugh too hard especially where they claimed this wasn't in the best interests of the public!
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post #15 of 34
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Originally Posted by digitalclips View Post


Slightly off topic ... Add to the crazy mix car dealers objecting to the Tesla sales tactics whereby they cut out the beloved car salesman / dealership business model! I was just reading about this and trying not to laugh too hard especially where they claimed this wasn't in the best interests of the public!

I know what your'e referring to.  Some state is trying to sue Tesla for not selling via local dealers.  That is still on going.

[quote]

What's illegal is that allegedly the publishers got together and forced Amazon to go with the agency model as well.[/quote]

Are you sure about this?  I think Amazon still uses the wholesale model (I may be wrong about this)

post #16 of 34
Quote:
Originally Posted by Gordio View Post

I'm still confused how this is illegal?  If you wanna sell with a different model, why is that illegal?  If it works, it'll sell.  if it doesn't work, it won't sell.

 

Tesla sells directly to consumers.  Apple sells directly to consumers.  But Dell sells via a middle man (i.e. best buy) and Chevys sell via local dealerships as middle men.  One isn't more illegal than the other.  They should be free to sell it how they want.

 

Okay, so usually when a corporation messes up, I'm in favor of punishing them.  But the whole ebook price fixing thing, I really don't see anything wrong here, especially b/c there's competition and not a monopoly.  I don't even think customers even care.  The only people who seem to be upset at this is greedy divisions of the government.

 

I may be wrong here but I think at its core the issue really is along these lines.

 

You make Widgets and sell them wholesale to Amazon for a price that you and Amazon have negotiated - you suggest to Amazon what you think a fair retail price is - but after Amazons buys x million Widgets from you they are free to price them however they like, including below their cost if so inclined. 

 

I want to sell your Widgets as well but am not interested in selling them for anything less than a 30% profit - and having a competitor willing to sell them at a 1% profit or at a loss means not only that I am unlikely to sell any but then my entire business will be suspect of inflated prices. 

 

You and I get together and work out a deal whereby I can make my 30% profit and agree not to undercut the retail price of your Widgets that I sell to anything less than your suggested retail - provided that you also go to Amazon and refuse to allow them to continue selling your Widgets at or below cost and follow the same pricing that I will use. 

 

And that last bit is the sticking point. 

 

If you enter into 12 different agreements with 12 different retailers and give them all different wholesale prices based on their volume - and they each set their retail price according to their own devices, there is nothing wrong with that. 

 

Should also not be a problem if all those 12 deals required they have a minimum price. 

 

What people don't like is if you get together with 1 of those 12 and secretly agree to a pricing model that will be required by all the others. 

 

Then again - from a consumer point of view - how would you ever know what pricing model was used or who had agreements with whom? Whether you are talking about state minimum on alcohol or tabacco (how is that NOT price fixing) or new cars, or commission on real estate. Whether any of these are formal written agreements, or unspoken traditions, etc.

post #17 of 34
Quote:
Originally Posted by Gordio View Post

I know what your'e referring to.  Some state is trying to sue Tesla for not selling via local dealers.  That is still on going.
Quote:
What's illegal is that allegedly the publishers got together and forced Amazon to go with the agency model as well.
Are you sure about this?  I think Amazon still uses the wholesale model (I may be wrong about this)

I thought the same thing but then I was given this link.

http://www.engadget.com/2010/04/01/amazon-agrees-to-agency-pricing-model-with-two-more-publishers/
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post #18 of 34
Quote:
Originally Posted by dasanman69 View Post


I just don't buy that. These are very well connected deep pocket having publishers that have white shoe law firms on retainer capable of handling a federal case. I don't believe they settled because it was more costly to fight but because it was more costly to lose.

 

 

It is quite possible the publishers are guilty, but Apple is not. Afterall, the publishers are all competitors with one another. Apple does not compete with the publishers, but with retailers like Amazon. So, if the publishers all got together and agreed to strike a deal with Apple, that would be illegal. Apple, however, in entering into the agreements would not have done anything illegal. 

 

Moreover, Apple is trying to strike one deal with all the publishers to keep the App Store simple. Nothing wrong with that either. 

post #19 of 34
Quote:
Originally Posted by Robin Huber View Post

Apple needs to get off its idealistic high horse and put a lot more money into K Street. If they don't protect themselves the way other players do they will continue to be the go-to target for politicians.

And then they will be bashed for their lobbying, paying off folks etc

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post #20 of 34
Quote:
Originally Posted by lilgto64 View Post


And that last bit is the sticking point. 

If you enter into 12 different agreements with 12 different retailers and give them all different wholesale prices based on their volume - and they each set their retail price according to their own devices, there is nothing wrong with that. 

Should also not be a problem if all those 12 deals required they have a minimum price. 

What people don't like is if you get together with 1 of those 12 and secretly agree to a pricing model that will be required by all the others. 

Actually what's illegal is if you and all 12 get together and hash out a deal. Like you said, you can hash out 12 individual deals with the same terms.
post #21 of 34
Quote:
Originally Posted by anonymouse View Post


This isn't about admitting guilt, it's about caving to bullying because they can't afford the resources to fight it. Thankfully, Apple does.

All settlements are,regardless of the case. Many folks forget this

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post #22 of 34
Quote:
Originally Posted by Gordio View Post

I'm still confused how this is illegal?  If you wanna sell with a different model, why is that illegal?  If it works, it'll sell.  if it doesn't work, it won't sell.

A main issue seems to be the most favored clause. But this was something Amazon had and got away with for years. Heck Amazon still has it. But no one seems to care about that or the predatory pricing claims etc
Edited by charlituna - 5/22/13 at 9:56am

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post #23 of 34
Quote:
Originally Posted by dasanman69 View Post

What's illegal is that allegedly the publishers got together and forced Amazon to go with the agency model as well.

Which has nothing to do with Apple and no one has proof otherwise.

If the publishers were pissed about Amazons price games and decided in pack to say they wanted the terms changed or they weren't renewing contracts that is on them. Especially if there is proof they had a meet etc. if it happened that they each on their own took this stance that's a different game.

And really the EU thing isn't that big of a victory since after two years price control goes back to the publishers.

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post #24 of 34
Quote:
Originally Posted by TBell View Post


It is quite possible the publishers are guilty, but Apple is not. Afterall, the publishers are all competitors with one another. Apple does not compete with the publishers, but with retailers like Amazon. So, if the publishers all got together and agreed to strike a deal with Apple, that would be illegal. Apple, however, in entering into the agreements would not have done anything illegal. 

Moreover, Apple is trying to strike one deal with all the publishers to keep the App Store simple. Nothing wrong with that either. 

I won't label anyone guilty that hasn't been proven guilty but I will say that there's a high probability that the publishers are. Most if not all of these publishers are in New York and in close proximity of each other. The CEOs all know each other quite well and they probably attend each other's parties and other functions. It's quite possible that they banded together and used a viable threat (Apple) to get more favorable terms.
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post #25 of 34
Quote:
Originally Posted by dasanman69 View Post

I just don't buy that. These are very well connected deep pocket having publishers that have white shoe law firms on retainer capable of handling a federal case. I don't believe they settled because it was more costly to fight but because it was more costly to lose.

I think you overestimate the financial strength of the publishers. Amazon has them by the short ones.
post #26 of 34
Quote:
Originally Posted by charlituna View Post

Which has nothing to do with Apple and no one has proof otherwise.

If the publishers were pissed about Amazons price games and decided in pack to say they wanted the terms changed or they weren't renewing contracts that is on them. Especially if there is proof they had a meet etc. if it happened that they each on their own took this stance that's a different game.

And really the EU thing isn't that big of a victory since after two years price control goes back to the publishers.

I never said Apple was actively in on it, but in cases like this is that they're determined on a "balance of probabilities”
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post #27 of 34
Quote:
Originally Posted by dasanman69 View Post


I thought the same thing but then I was given this link.

http://www.engadget.com/2010/04/01/amazon-agrees-to-agency-pricing-model-with-two-more-publishers/

Ok, then why isn't Amazon being investigated since it appears they did the same thing the DOJ is saying Apple did? Did those two publishers work independently with Amazon? Did they work together? 

post #28 of 34
Quote:
Originally Posted by rob53 View Post

Ok, then why isn't Amazon being investigated since it appears they did the same thing the DOJ is saying Apple did? Did those two publishers work independently with Amazon? Did they work together? 

Nothing wrong with agreeing with the agency model, but the publishers getting together to force that agreement is.
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post #29 of 34
Quote:
Originally Posted by Gordio View Post

I'm still confused how this is illegal?  If you wanna sell with a different model, why is that illegal?  If it works, it'll sell.  if it doesn't work, it won't sell.

 

Tesla sells directly to consumers.  Apple sells directly to consumers.  But Dell sells via a middle man (i.e. best buy) and Chevys sell via local dealerships as middle men.  One isn't more illegal than the other.  They should be free to sell it how they want.

 

Okay, so usually when a corporation messes up, I'm in favor of punishing them.  But the whole ebook price fixing thing, I really don't see anything wrong here, especially b/c there's competition and not a monopoly.  I don't even think customers even care.  The only people who seem to be upset at this is greedy divisions of the government.

 

Because most pro-Apple web sites that report on this leave out the part where the agreements between Apple and the publishers also dictated the prices Amazon was allowed to sell the books for (ie, not for less than the prices on iTunes). To use one of your examples, that would be like Best Buy dictating the price any other reseller of Dell computers was allowed to charge. So the comment above that "especially b/c there's competition" is no longer true because Amazon was no longer allowed to sell books at a lower price (at a loss if they wanted to). This reduces competition. I believe the whole "agency vs wholesale" thing has nothing to do with one being better or one being illegal and the other one not. Both are perfectly valid business models. The question is one of collusion. Did Apple orchestrate an industry-wide effort to increase prices to consumers (regardless of how they might have gone about doing it or what business models they followed)? Oil companies colluding to set higher gas prices, airlines getting together to coordinate higher airfares, etc, etc...these things should rightly piss off consumers. If (**IF**) Apple did the same thing, then shouldn't they be held accountable? I'm not saying Apple is guilty, but shouldn't we find out? Or are we giving Apple a free pass because they make all our favorite toys?
post #30 of 34
Quote:
Originally Posted by charlituna View Post


A main issue seems to be the most favored clause. But this was something Amazon had and got away with for years. Heck Amazon still has it. But no one seems to care about that or the predatory pricing claims etc

 

As I undertand it (could be wrong) the "most favored" clauses people refer to are about the prices the producer charges the reseller. Nothing to do with the prices to the consumers. So Amazon may have told the publishers that they want their best wholesale price offered to any other reseller. But to my knowledge, they've never gone farther and tried to dictate the lowest price another reseller could sell to the consumer. Each reseller is allowed to set their own profit margin. Apple is accused of going that one step further and dictating other resellers (ie, Amazon's) price to the consumer.
post #31 of 34
Quote:
Originally Posted by Wiggin View Post

Because most pro-Apple web sites that report on this leave out the part where the agreements between Apple and the publishers also dictated the prices Amazon was allowed to sell the books for (ie, not for less than the prices on iTunes).

They did no such thing.

The agreement simply said that if they couldn't offer a lower price to Amazon, they had to give Apple the same price.

Most Favored Nation clauses have been upheld by the US court system as being completely legal.
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post #32 of 34
Quote:
Originally Posted by Wiggin View Post

 

Because most pro-Apple web sites that report on this leave out the part where the agreements between Apple and the publishers also dictated the prices Amazon was allowed to sell the books for (ie, not for less than the prices on iTunes). To use one of your examples, that would be like Best Buy dictating the price any other reseller of Dell computers was allowed to charge. So the comment above that "especially b/c there's competition" is no longer true because Amazon was no longer allowed to sell books at a lower price (at a loss if they wanted to). This reduces competition. I believe the whole "agency vs wholesale" thing has nothing to do with one being better or one being illegal and the other one not. Both are perfectly valid business models. The question is one of collusion. Did Apple orchestrate an industry-wide effort to increase prices to consumers (regardless of how they might have gone about doing it or what business models they followed)? Oil companies colluding to set higher gas prices, airlines getting together to coordinate higher airfares, etc, etc...these things should rightly piss off consumers. If (**IF**) Apple did the same thing, then shouldn't they be held accountable? I'm not saying Apple is guilty, but shouldn't we find out? Or are we giving Apple a free pass because they make all our favorite toys?

 

 

You are referring to the most favored nations clause. However, Apple's agreement with the publishers did not require other retailors to charge the same price. It required publishers to make the price for a particular new release  book offered to Apple uniform with all retailers. Apple essentially said it does not want any books that other retailers can charge less or more for. Moreover, that clause benefits the publishers more than anybody else, so perhaps the publishers inserted that term. 

 

Further, the clause might seem anti-competitive in terms of Apple, but 1) Apple had no real market power over the publishers to force them to agree to those terms (Jobs email suggests as much), 2) the terms only applied to new books, and 3) other retailers could get around the terms by buying exclusive rights to a book. Amazon currently carries lots of books Apple doesn't. That is because it has exclusives. 

post #33 of 34
Quote:
Originally Posted by TBell View Post

 

 

You are referring to the most favored nations clause. However, Apple's agreement with the publishers did not require other retailors to charge the same price. It required publishers to make the price for a particular new release  book offered to Apple uniform with all retailers. Apple essentially said it does not want any books that other retailers can charge less or more for. Moreover, that clause benefits the publishers more than anybody else, so perhaps the publishers inserted that term. 

 

Further, the clause might seem anti-competitive in terms of Apple, but 1) Apple had no real market power over the publishers to force them to agree to those terms (Jobs email suggests as much), 2) the terms only applied to new books, and 3) other retailers could get around the terms by buying exclusive rights to a book. Amazon currently carries lots of books Apple doesn't. That is because it has exclusives. 

 

You said, "Apple essentially said it does not want any books that other retailers can charge less or more for."

That's an interesting take on it that I've never seen anyone else claim...that Apple simple said don't sell your book on iTunes if you can't guarantee Amazon won't sell it for less. That would be a convenient interpretation. BTW, as I understood it, it wasn't charge "less or more". It was strictly that they couldn't sell it for less than Apple.

Also, "It required publishers to make the price for a particular new release book offered to Apple uniform with all retailers."

Are you referring to the cost to the retailer or the cost to the consumer. If Apple is requiring uniform consumer prices for all retailers, that to me sounds a lot like price fixing. Granted, the price fixing would be by the publisher (perhaps why they've all settled), but is Apple potentially liable for orchestrating it?

Again, I'm not saying Apple is guilty, but if we were talking about an oil companies getting together and telling all the independent gas stations they had to have the same prices/gallon and it couldn't be less than the oil company's other retail outlets, we'd all be screaming for the goverment to at least take a look at what was going on.
post #34 of 34
Quote:
Originally Posted by Wiggin View Post

 

If Apple is requiring uniform consumer prices for all retailers, that to me sounds a lot like price fixing.

 

That's what the agency model is. By itself, there's nothing illegal about it because there is room to negotiate the wholesale prices. But when combined with the "most favored nation" clause, they wound up fixing both the retail price and the wholesale price. That's why there was an issue.

 

Whether the publishers coordinated this, and whether Apple was involved are the questions.

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