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back to article Jobs' 'incredibly stupid' prattlings prove ebook price-fix plot, claim Feds

Apple conspired with publishers to increase ebooks prices, costing readers “hundreds of millions of dollars”, an antitrust trial heard yesterday. In opening arguments reported by Reuters and others, Lawrence Buterman, a lawyer at the US Department of Justice, claimed Apple offered publishers a means to raise their prices from …

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Anonymous Coward

Surely by now Apple should realize they're up poop creek. I mean with every other publisher settling outside of court I can't help but imagine part of that settlement was. "Hand over any emails or correspondance between yoruself and Apple which corroberates the price fixing scandal"

Although personally I will admit that I approve of the agency model when it comes to digital products. I just wish there were something involved which put the prices lower than their paperback counterparts, along the lines of.

Books sold via the iBookstore must follow the following guidelines for prices

1: At least 10% cheaper than the paperback counterparts

2: A decrimanting price structure based on genre / version / publication date.

The second is simply because of the number of decade old C++ books out there still being sold for the full $30 while version 6 of the book which came out a few months back is only $24. The information is out-dated and supersceded so why charge more? On a paperback you print it with the price, so it's stuck at that price. eBooks however you can change dynamically as time goes by.

I imagine fiction books wouldn't be subject to a decrimenting price structure, although packages would be good, buy the full trilogy and get a 15% discount etc.

And yes I am basically applying the Steam store structure to an eBook store, what can I say? It works.

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Trollface

However, decades-old dictionaries are still fairly useful.

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Would be rather nice wouldn't it, if ebooks were priced according to what they really cost and what they really give you.

This short squirt of data cost less than a penny to reproduce and transmit. No printing costs, no distribution costs. You can't share it with friends unless you give them your device. If your device breaks you may be able to get another and a new download if we're still in business.

50% off seems a reasonable starting price. But obviously people will pay for the convenience, so they get away with charging more, for some reason.

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Anonymous Coward

Costs

Like many works of art, I imagine a large chunk of the cost of production is in the skill and knowledge of the creator(s), not in the distribution?

After all if creating world class quality books (or songs, or symphonies, or films) was that simple we'd all do it ourselves.

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Re: Costs

But at the same time those costs are normally in a single one off starting fee to buy the rights, normally a couple hundered, maybe a few thousand for more established authors, in the case of authors not established at all they actually pay the publisher. And after that all payments are royalty based, normally a fraction of the cost of the retail price, pennies per book / cd.

And generally the author is only paid up front if it's for a series of books.

So the fact that the author is still taking a cust is really a very minor one. (about 10% before tax I think I read, and I imagine that 10% is on the profit, not on the actual cost of the book itself, so a $7.99 book isn't 79c profit, it's probably closer to 29c)

The final costs are still very much in warehouse, distribution and production. Of course there are the added fees of proofreading etc, but more and more of this is being done electronically, and then fixed in later versions by hand as fans et al point out spelling mistakes.

With ebooks it suddenly became even easier to address these problems.

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Stop

Re: Costs

>> Like many works of art, I imagine a large chunk of the cost of production is in the skill and knowledge of the creator(s), not in the distribution?

>> After all if creating world class quality books (or songs, or symphonies, or films) was that simple we'd all do it ourselves.

I'm not saying there shouldn't be rewards to creating stuff, nor am I saying that anyone could do it. But rewards to the creator are not all that big a part of the book price. I have author friends and they don't get a huge chunk of the sale price whatever the medium, and my university professors would tell us that they got about 50p from a £20 book when we bought it for the course. They'd even give us our 50p back if we found an error.

Even so, what I am saying is that regardless of all that, if we factor out all of the physical reproduction and distribution costs, why the hell are ebooks *more* expensive? The only answer I can come up with is "the market will bear it", which I suppose is the basis of all pricing, really.

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Re: Costs

I didn't pay my publisher for my first book... In addition to the royalties (about $1.17 per book) they paid my expenses for the travel and reference materials I purchased, an investment I made on my own before I even decided to seek publication.

It's like anything else, you have to be careful about who you are dealing with, there are a lot of shady people in the publishing agency. You do not have to give your publisher anything to get published, don't get scammed.

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re: old dictionaries

Not in all cases: in the Netherlands they change the spelling of some words every few years; I suspect it is a deal to keep dictionary publishers in business: see

http://nl.wikipedia.org/wiki/Geschiedenis_van_de_Nederlandse_spelling

There were changes in spelling for some words (even quite common ones) in 1934, 1947, 1955, 1996, 2006

The French last changed spellings in 1990

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h3
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RE: David Hicks

Even worse is the situation with classics. (Stuff like Ulysses out of copyright on project Gutenberg). Google Play Books £8.99.

There was a time when Google would do something just to shake the market up (Like Amazon still does). Putting all the out of copyright books it has scanned on for free would do that. (Or even just the contents of project Gutenberg.)

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FAIL

Can only assume you dont buy second hand books

"On a paperback you print it with the price, so it's stuck at that price. eBooks however you can change dynamically as time goes by."

Many resellers charge less for common second hand books, and conversely rare / out of prints books can be sold for way in excess of the jacket price. The Jacket price is a suggested retail price if you don't want to pay what i charge then don't buy it, Same with ebooks

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Paris Hilton

Surely the problem is...

the closed market, not an enforced pricing scheme. If you don't like the price of a physical copy you can at least try a different bookstore, or look online, or look for used to try and get the price down. With an iPad, you can't just buy from a competing store (I don't think, correct me if I'm wrong) and, as such if you don't like the price you are out of luck. If eBooks could be purchased via alternative shops then the forces of competition could drive down prices if the demand was high enough. Mind you, I'm not an economic expert so I could be barking up completely the wrong tree!

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Facepalm

Re: those costs are normally in a single one off starting fee to buy the rights,

Wait a minute! You think a couple hundred bucks to an author who spent months working on a novel is appropriate, yet call me a greedy bastage for saying the publisher should be able to pay him a living wage?

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Re: the closed market, not an enforced pricing scheme.

Wrong on so many points.

There are competitors to Apple's iPad. Kindle is one of the primary ones. You don't have to buy from Apple to get the ebook. The difficulty does sort of lie within the combination of the agency pricing and the MFN clause. But what happened is the publishers finally started making money again so they only offered agency contracts to their other distributors when their old contracts expired. So there is no collusion to set prices, the market just worked out that way.

Increasing demand NEVER reduces prices, that's a function of increasing supply. Even the MFN clause doesn't stop prices from going down if supply increases. If I started a publishing company and offered Apple or any of the other vendors ebooks at an agency price of $7.99 they'd probably take it in a heartbeat. And if I had the resources to do that and could make a living at it I would. That nobody else is either indicates to me that the prices are at about what they need to be to support the market. Sort of like $1000/standard PC was the screwdriver shop price point about 10 years ago and it was $5000/standard PC 15 years ago.

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Re: Costs

>, I imagine a large chunk of the cost of production is in the skill and knowledge of the creator(s), not in the distribution?

Yes that's why authors typically get 95% of the cover price of the book

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MCG
WTF?

"On a paperback you print it with the price, so it's stuck at that price. eBooks however you can change dynamically as time goes by."

If only there was a way by which those dratted prices on paperbacks could be covered up with some sort of self-adhesive paper-based product with a different price printed on it.....

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JLV
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Books sold via the iBookstore must follow the following guidelines...

Sorry, too complicated and too much government intervention.

While I applaud the government for going after price-fixing, collusion, cartels and monopolies, it should stop there and not actively manage prices or offerings.

Not in the ebook industry and not in most industries.

Most of us are quite capable of recognizing a 10 yr old C++ book as being outdated, while cutting Gamma's & all's Design Patterns some slack, despite coming out in 94. Don't need a taxpayer-paid bureaucrat to do that, it's called common sense.

And I expect most of us to be clever enough not to buy books from iTunes either. Choice was poor last time I checked, price isn't likely to be stellar, collusion or not.

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Talking of e-book prices...

...I'm always a bit irritated when I get charged VAT for an e-book and not for the dead tree version. A quick look on the governments petition site reveals someone else has already had the same idea

http://epetitions.direct.gov.uk/petitions/47201

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Re: Talking of e-book prices...

Jonathan,

I agree that e-books VAT sucks.

The petition you link to is an ill informed petition with no chance of adoption any time soon.

VAT on e-books (as charged in the UK) is set at 20% by EU legislation and not by individual member states.

France and Luxembourg are currently challenging this with their reduced rate VAT. This case is currently going through the EU Court of Justice with the EU attempting to force France and Luxembourg to raise their tax on such items to 20%, as required by the EU.

Changing tax on e-books will require the majority of the 27 nations to agree on new taxation levels, therefore the petition you link can go nowhere fast.

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Re: Talking of e-book prices...

While all true, don't you think it is a good idea to support such petitions? While I am sceptical they can really enforce change, they can provide a barometer of public opinion. If 100,000 people signed that petition perhaps the UK would change it's position on the matter. Politicians are always after votes and this is something minor which would look good.

Then again I still think the best option is for publishers to have a "Double Read" (think double/tripple play on DVD's) feature involving the book and the ebook.

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a dubious claim

" no market newcomer - especially one facing a dominant player like Amazon at a time of falling prices - had ever been sanctioned for anticompetitive practices"

Apple may have been the newcomer, but the other firms in the cabal weren't. Apple is just unlucky (or hubristic) that by the time it came to court, the others had already made (bought) peace with the authorities.

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Joke

Comedy Hour?

You have to admire the shear skill that Apple's legal team showed in deadpan delivery of their comedy shots. Twisting the meaning, cor gov a laugh a minute.

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Anonymous Coward

Also in question are the "most favoured nation clauses" worked into the publishers' contracts with Apple, which stopped them from selling books to retailers at prices that undercut the prices agreed with Apple definately facilitated a conspiracy to fix prices unfairly high.

The evil, selfish, money grabbing, low life ba* tards.

More like we can't compete so lets change the game for force readers to pay more than they need to so we get a cut! Capitalist pigs!

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Meh

Most favoured nation clauses

Interesting. Amazon prevent me from selling my books cheaper elsewhere by reducing their price (and my income) to $2 below the price elsewhere. So, that's illegal is it?

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Anonymous Coward

Re: Most favoured nation clauses

no that's called competition exactly the opposite of what the rest of the people on here are talking about. If you signed an agreement with amazon, that amazon wouldn't sell it to anyone else cheaper you bought it for, it would be ANTI-competitive.

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Facepalm

Re: Most favoured nation clauses

The concept you're talking about is called "dumping" in an economic context, and it is indeed frowned upon for open markets.

But so are "favoured nation" clauses, especially if the "favoured nation" conspires with the publishers to raise prices across the board. It's kind of similar to how the Nazis gained power: hey, we have a Communist threat. We have here one Adolf Hitler that vows to get rid of them pretty quickly. Hey, let's put them in power, quick fix! Wait...

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Gimp

Re: Most favoured nation clauses

And the Godwin's Law award for this thread goes to Daniel B, for his skilfully non-confrontational slipping in of a whole fist full of Nazi Germany references. Heil!

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Holmes

I call Godwyn!

E.O.T.

Sorry Daniel B. Go to the back of the class and face the wall.

Closest icon to a pointy hat... No D.

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“That won’t be the case. The prices will be the same.”

So what did he mean? the same - at $9.99 or the same at $12.99 - $14.99

the first could be competitive, the 2nd could be fixing.

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Anonymous Coward

Re: “That won’t be the case. The prices will be the same.”

The full context for your quote is:

The Department of Justice cited statements made by the late Apple co-founder Steve Jobs to support its claims, including comments to the press after he unveiled the iPad, when he said that Apple’s ebook prices of $12.99 and $14.99 weren’t going to be higher than Amazon’s. When reporters asked him how iDevice ebooks would compete when Amazon was selling the digital works for $9.99, he replied: “That won’t be the case. The prices will be the same.”

I see no ambiguity there. Jobs is admitting to price fixing.

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Publishers

The fact that they rolled over doesn't really mean anything. Given the costs of litigation it's only corps like Apple who have deep enough pockets to take the guvmint on.

No conspiracy theory but I'd imagine there were more than a few frantic phone calls between the publishers CEO's wondering who was going to blink first. The book trade (especially here in the UK) is totally at the mercy of retailers, the ultimate losers being the authors of course. The agency model at least seems to have the possible advantage of a bit more money getting back to the publishers and thereby (yes, yes I know...) the authors.

It's going to be a really interesting case. If Apple wins what are the publishers going to do?

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Coat

Re: Publishers

Issue a stop-payment order?

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Let's not kid ourselves here

"Apple lawyers said that the Feds were twisting the facts to paint a “sinister” picture of Apple."

No one needs to twist any facts to make Apple look sinister. In fact, it's Apple's legal team who attempts to twist facts in order to do the opposite...

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Trollface

hang on a bloody moment...

"...the most favoured nation (MFN) clauses in Apple’s contracts..." - what? Last I checked, MFN was something the US government offered countries as a trade sweetener to oil diplomatic relationships. Are Apple saying that they're a government now, to offer such status to someone? I know that as a company, they've got more assets than a third-world despotic lunatic asylum, but talk about sheer arrogance!

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Re: hang on a bloody moment...

No, you've got it the wrong way round.

Apple isn't give Most Favoured Nation status, it's recieving Most Favoured Nation status from the publishers, although obviously Apple asked for it. It basically means that the publishers can sell to who they want to, but they will never offer a price to anyone which is lower than the price offered to Apple.

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Re: hang on a bloody moment...

Thank you for this observation but I wonder whether the MFN clause plus the agency model are not going to have a different effect: They are never going to ask for a price in retail with another party that is lower than their own price via the Apple store. Thus, regardless of how effective a retailer is, he could never have a rebate (for the number of copies sold) that allows him to undercut the Apple store.

Of course I don't know the clauses in question.

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WTF?

Re: hang on a bloody moment...

"It basically means that the publishers can sell to who they want to, but they will never offer a price to anyone which is lower than the price offered to Apple."

In other words, they're going to fix the price, or at least the price floor, at the level that Apple receives.

...why did Apple let this get to court...?

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Re: regardless of how effective a retailer is,...

Not at all.

If another retailer signed an agency agreement with different percentages based on sales volume, if he managed a better sales volume he could offer lower prices. The publisher would have to offer Apple the same agreement, but Apple would have to match the sales volume to get the discount.

For as much as I dislike Apple's my way or the highway approach to their hardware, I see nothing illegal about their agency agreement or the MFN clause.

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Trollface

Optional

Dear Apple,

You'reYour late supremo holding accidentally blurted it out wrong.

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Anonymous Coward

Surely the DoJ got some dirt on Apple from the publishers...

As part of the publishers settlement, weren't they also required to document whatever meetings, suggestions, emails, etc that Apple sent them, to induce them into the anticompetitive arrangement? If not, why the hell did the DoJ not insist on that as part of the settlement terms? What's with this "we'll pay a voluntary contribution with no admission of liability" bullshit that corporations always seem to get off the hook with...

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Anonymous Coward

Re: Surely the DoJ got some dirt on Apple from the publishers...

Squealed like pigs I expect.....

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Re: Surely the DoJ got some dirt on Apple from the publishers...

I'd guess the quote...

"In further evidence to support its allegations, the DoJ showed an email from Eliza Rivlin, then general counsel of publisher Simon & Schuster, who was horrified that Jobs had made the comments."

...would suggest at least one publisher handed over what the DoJ wanted.

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Alert

tooth and nail

Apple will fight this one to the bitter end. This isn't about books or money (the DOJ just wants an apology), but the ability to control the pricing of the music, apps, films, tv episodes and everything else it sells through iTunes.

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Re: tooth and nail

It seemed when I first read about it to be more about Apple being able to control the the price of books offered by other vendors. Surely they can offer the material through their iStore at whatever price they wish irrespective of what others are doing. They might even succeed in commanding a higher than average price due to other considerations like convenience and application lock in. I see no reason for anyone to consider that a problem.

What concerned the US Department of Justice, as I understand, is that they collaborated with the 5 publishers to set the price for all sellers at the same level, so that Barnes & Noble, for instance, would not be able to try to improve their market share by lowering the offering price.

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Re: tooth and nail

Apple loves fixed rate contracts and flat pricing. Music companies, for example, have long wanted to offer variable pricing within iTunes to maximise revenue from popular artists and bargain bucket the unpopular. Apple refused. Losing this could ultimately lead to the DOJ sitting in Apple's contract negotiations across the board to ensure future compliance which they would not want.

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Anonymous Coward

How does this work?

Sorry to post this question, but I did not understand two diagram in the document. In the PDF that is linked in the article (http://www.justice.gov/atr/cases/f297200/297258.pdf), on page 12 and 13 there is the pricing model that Amazon uses. It is listed as follows:

Original wholesale model for ebooks:

Publisher (example: List price: $25, Digital price: $20, Wholesale Retail price: $10)

|

V

Retailer (i.e. Amazon) (example: Retail price sold to consumers: $9.99)

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V

Consumers (example: Pays retail price: $9.99)

So the question is, how does Amazon make a profit?

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Re: How does this work?

"So the question is, how does Amazon make a profit?"

Barely, they even manage to lose money some quarters despite having billions in revenue.

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Anonymous Coward

Re: How does this work?

Amazon don't make a profit, this is one of the main points that upset the publishers. It is perfectly legal to make a loss on something to tempt punters to make other purchases. That is not anti-competitive but it does force your competitors to also make a loss in order to compete with you. The company that can best afford to absorb those losses wins - in this case Amazon win because they make profit on a wide range of goods whereas a company like Waterstones rely mainly on book sales so making a loss on every sale would hurt them a lot.

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Anonymous Coward

Re: How does this work?

In some cases they don't and will actually lose money on a sale to further their end goals of:

a) Starving competitors of sales because they have deeper pockets and can ride out lack of income for longer

b) Build up critical mass of people buying their eBooks in Kindle format rather than an alternative to get user lock-in to their ecosystem

These are arguably as bad as what Apple has done but, crucially, are well within the law and the accepted practices of free trade.

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Re: How does this work?

Nice inquiry, @AC. This is the essence of the whole case and the concerns Steve Jobs was negotiating with the book publishers, as I've been able to understand after doing some online research.

Amazon had, just before the iPad was announced in January 2010, a ~90% ebook market share using the wholesale model...and the publishers were really steamed about it.

As you rightly point out, the publisher CEOs were horrified at having zero control over industry pricing as ebooks proliferated via Amazon (and their fear of paper books going the way of the Dodo bird). Bezos was in the catbird seat, because his vision of zero profit is supported by Wall Street, so he can drive down pricing to 1¢/unit profit (or, even negative) while the Amazon stock price still goes up (giving him huge cash reserves).

Note also, that while the publisher CEOs were freaked, so, too, were physical book store owners (not the warehouse book stores, the million family-owned corner bookstores throughout the US). They can't stay open if they have to meet Amazon ebook pricing.

So, now, here comes Apple with their iPad and iBook store (and Steve Jobs as white knight) by offering an agency model to the publishers to give them flexibility to price as they would like: market pricing...as opposed to zero-profit Amazon pricing.

I'm fascinated by anti-trust law after following the Microsoft trial and reading about the IBM mainframe consent decree and the AT&T breakup. How can Apple be accused of collusion when they had zero market share in 2010, while Amazon has a 90% monopoly?

My guess is that the Eliza Rivlin testimony will be revealing if there was some backroom dealing, but I'm not so sure.

Here's the email thread from Steve Jobs to James Murdoch that is quite informing.

http://qz.com/87184/the-steve-jobs-emails-that-show-how-to-win-a-hard-nosed-negotiation/

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Pint

Re: How does this work?

in this case Amazon win because they make profit on a wide range of goods whereas a company like Waterstones rely mainly on book sales so making a loss on every sale would hurt them a lot.

Nicely put and that in a nutshell is the supermarket versus pub in the UK, though that's ok as we should not drink.

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