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Heritage on how conservatives should approach patent reform

July 02, 2015, 10:26 AM

The following post was co-authored by Zach Graves.

Patent reform bills have cleared markup this session in both the Senate Judiciary Committee (S.1137, the PATENT Act) and the House Judiciary Committee (H.R.9, the Innovation Act). While there are some lingering issues left to resolve, and others that were not tackled in this reform package, chances are high both bills will come to the floor in the coming months.

As the proposals continue to move forward, we’ve seen an uptick in expressions of concern — including, somewhat surprisingly, from conservatives who might normally favor litigation reform in other contexts – that the Innovation Act and the PATENT Act are somehow poised to undermine the U.S. patent system. (The American Conservative Union has characterized the legislation as an Obama-driven initiative to promote “a patent-free society.”)

We view these particular expressions skeptically. In our view, both the House and the Senate measures are aimed at litigation reform that, properly implemented, should lower burdens on both large patent holders and small, and on plaintiffs as well as defendants.

We’ve already debunked the myth that this year’s patent-reform initiatives are a left-wing idea; this particular approach to reform, aimed at simplifying and reducing the costs of what has been a particularly complex and unpredictable type of litigation, has deep roots of support on the right. We also think it’s worth taking a more detailed look at the reforms under consideration.

A good place to start is the Heritage Foundation’s 2014 paper, “A Balanced Approach to Patent Reform,” by John Malcolm and Andrew Kloster. The paper includes many valuable insights for conservatives thinking about how to approach the issue. Some insights we gleaned from Heritage:

There’s no categorical way to define ‘patent troll’

As we’ve long said, anyone can be a bad actor; think of “patent troll” as a verb rather than a noun. It shouldn’t matter if you practice your patents or not. In fact, non-practicing entities can and do play a valued role in creating healthy secondary markets. Thus, as Heritage writes, reforms should apply to everyone:

Judges should be empowered and encouraged to employ sanctions and bond requirements to deter abusive litigants of all types, not based on whether they are plaintiffs or defendants or whether they are patent assertion entities or ‘active users’ of a patent.

Patent litigation reform and tort reform

Conservatives long have sought to implement tort reform and deter trial lawyers. Patent-litigation reform is an extension of this principle. As the Heritage paper puts it:

This similarity between tort reform and patent reform is no accident; the lawsuits called ‘troll’ lawsuits in the patent context are quite often called ‘strike’ suits in other contexts. For many years, leading advocates of tort reform such as the American Tort Reform Association and the U.S. Chamber of Commerce have supported bonding requirements, limitations on discovery, heightened pleading, and loser-pays systems because such reforms deter frivolous lawsuits.

While patent-litigation reform issues can sound like general tort-reform issues, we also should bear in mind that patent litigation is not “typical,” as far as federal litigation goes. Patent pleadings in federal court can lead to difficult, opaque technical filings that even judges who are patent experts can find hard to understand.

For this reason, reformers both in Congress and in the federal courts have moved to create procedures to simplify and clarify patent cases. The goal is to ensure they can be ruled on more quickly in preliminary phases and that the costs of litigation processes like discovery can be contained. The Innovation Act and the PATENT Act are only the latest efforts to make patent cases more easily understandable and more easily handled. We believe this would benefit all parties involved, as well as non-parties looking for patent-law clarity.

Patent reform as a model for broader litigation reform

It’s not just about the patent system. Patent-litigation reform offers a case study for broader limitations on predatory trial lawyers:

As one prominent patent expert has testified, ‘[A] clear consensus exists across the patent community today that meritorious patents should be more easily, inexpensively and predictably enforced—and patents lacking merit should be more easily, inexpensively and predictably eliminated.’ These principles could be applied in any area of civil litigation…’Patent trolls” are not the only trolls out there. America’s judicial system is teeming with all kinds of abusive litigants, including personal injury trolls, class action trolls, and employment lawsuit trolls. Should patent reform be enacted, its effectiveness might well have a bearing on future civil justice reform efforts in other areas.

Fee-shifting is generally a good idea

Reasonable people may disagree about the right balance in shifting litigation fees: that is, whether fee-shifting measures go too far or not far enough. But broadly speaking, conservatives should be on board:

Some proposals involve shifting some or all of the costs of litigation to the loser of the lawsuit. This could include awarding actual attorney’s fees, reasonable attorney’s fees, or reasonable fees and other expenses. Fees could be awarded to all winners or only to winners when a judge finds that the loser’s litigation position was substantially unjustified. Some proposals have permissive joinder rules that allow defendants to add ‘interested parties’ to the litigation in certain circumstances. Such leniency would help to ensure that trolls cannot set up shell companies to litigate and then go belly-up when they lose…This sort of fee-shifting is generally a good idea so long as the court has discretion to require that each side bear its own costs when it determines that the non-prevailing party’s position was ‘substantially justified.’

In criticizing an earlier version of the Innovation Act, Heritage also makes a helpful point that Congress should be careful in defining what is covered under fee-shifting, so as not to leave unintended ambiguities:

The Innovation Act [of 2013] fails to define what “reasonable fees and other expenses … in connection with a civil action” related to patent infringement means. This language therefore might or might not be intended to include expenses related to post-grant review at the PTO…a lack of clarity will only invite costly litigation on these issues.

The ‘Patent and Copyright Clause’ (AKA the ‘Progress Clause’) isn’t just about property rights

America’s Founding Fathers, recognizing the importance of encouraging and fostering innovation, enshrined adequate incentives to do so in the Constitution. Specifically, the Patent and Copyright Clause provides: ‘The Congress shall have Power To…promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.’

As Heritage rightly states, the Progress Clause of the Constitution creates a dual mandate for the patent system, not only that there be strong and clearly defined property rights for innovators, but that they are applied in a way that fuels innovation and economic growth. Decreasing the costs and increasing the efficiencies in early-phase patent litigation – whether defending against or pursuing patent-infringement claims – serves both to strengthen property rights and to promote innovation.

Cato’s Brink Lindsey underscores this point, noting government policies aren’t necessarily free market just because they feature tradable property rights. Just look at taxi medallions.

Pro-innovation means pro-patent-litigation reform

Patent lawsuits have the same pitfalls as other civil lawsuits: Rapacious trial lawyers should be discouraged so that business can innovate without undue fear of court costs.

Nearly anyone who has ever read the technical filings in a patent case can sympathize with ongoing efforts to make the cases easier for judges and other lawyers to understand. We also sympathize with the paired goals of:

  • Limiting, as much as possible, the costs of defending meritless patent lawsuits; and
  • Protecting the rights of patent-holders, whether they are as big as an international search engine or as small as a single inventor toiling in a garage.

Anyone who holds patent rights could find himself or herself in the role of defending a patent or pursuing a patent-infringement case. The House and the Senate judiciary committees have committed themselves to enabling parties in patent cases to defend themselves or assert their patent claims with as much simplicity and clarity, and at as manageable a cost, as possible.

This year’s patent-litigation reform bills also aim to make the courts that hear patent cases function more efficiently and smoothly. That should empower rights-holders generally, even if it starves the feverishness of high-billing patent litigators, who successfully lobbied then-Senate Majority Leader Harry Reid, D-Nev., to kill off reform efforts in the last Congress.

Reasonable conservatives and libertarians may disagree about the particular details and balances struck by different provisions, but the larger mission of reform represents the general conservative values that should unite us.

This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.

Study shows Airbnb has positive economic impact for New Orleans

July 02, 2015, 8:00 AM

Like many cities, New Orleans has struggled with whether and how to crack down on short-term rentals such as those offered through services like Airbnb. Some neighborhood activists believe the rentals harm the neighborhood and property values. Meanwhile, rental owners believe they’re improving the local economy and providing a needed service.

An independent study performed by Inside Airbnb reveals that property owners have benefited from the growth in short-term rentals. Here are some of the facts they have discovered:

  • Property owners tend to make a little more than $2500 a month through rentals.
  • Two-thirds of properties are entire houses and apartments, the rest are either single rooms or shared rooms.
  • A little less than half of Airbnb hosts have multiple listings.
  • Those who rent out properties tend to be tourists.
  • The average nightly rental rate for Airbnb is $167 a night, compared to an average hotel room cost of $138 a night.
  • Airbnb properties are generally located in upscale sections of the city, such as the French Quarter and Uptown.

One of the concerns of neighborhood activists is that owners would prefer to use their properties for Airbnb rentals rather than long-term rentals to tenants. But in the case of New Orleans, most Airbnb listings are in sections of the city not known for affordable housing in the first place. Airbnb properties are not apparently playing a role in gentrification of poorer sections of the city — at least, not yet.

The target market for Airbnb in New Orleans are tourists who want the opportunity to stay in historic properties and have a firsthand experience of the history of New Orleans. These are properties that often are more expensive to maintain, due both to their age and to historic preservation rules. Space-sharing is a way keep those more expensive properties in commerce, instead of sitting fallow for long periods of time.

The report also show Airbnb has provided more accommodation options for tourists in general, which is important for the city’s numerous big events, such as Mardi Gras, Essence Festival, the Sugar Bowl and Jazz Fest. It allows the city to increase its available accommodations and allow more tourists to come into the city and to spend more money. The availability of Airbnb also serves as competition to the hotel/motel industry, which keeps the cost of hotel rooms in check for those who prefer that route.

Considering that most of the available Airbnb rentals in New Orleans are entire houses and apartments, it still provides a better bang for the accommodation dollar. As tourists get better value for their money, it leaves them more money to spend in the city. The obvious winners are local businesses and even the city government, which benefits from increased sales-tax revenue.

Despite Airbnb’s benefits to the city, members of the New Orleans City Council are planning new ordinances that would continue to restrict its use. Currently, short-term rentals are formally banned. New Orleans Councilwoman Stacy Head is proposing an ordinance that would legalize Airbnb, but with the catch though that it would outlaw renting entire properties and non-owner occupied properties through the service.

While legalizing and regulating Airbnb and other similar services would be an improvement over the status quo, the proposed restrictions are troubling. However, Head does offer one “carrot” to space-sharing renters that is intriguing. As a way to engage the Airbnb community in helping to bring New Orleans’ more than 10,000 blighted properties back into commerce, it would allow owners who agree to fix up the properties to use them for short-term rentals, for at least a few years.

The idea is that the space-sharing landlords would help stabilize property values and allow the neighborhoods in question to become more desirable, while simultaneously increasing the supply of affordable housing. This would in turn diminish the upward pressure on rental rates for long-term residential properties.

Regardless what direction the City Council goes on this particular ordinance, it appears that even the critics of Airbnb have conceded that it has a role to play in the future of New Orleans.

This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.

High stakes for online poker

July 02, 2015, 7:30 AM

With the future of online poker hanging in the balance, U.S. Rep. Joe Barton, R-Texas, refuses to fold.

Entrenched in a legislative showdown with Sen. Lindsey Graham, R-S.C., Barton recently introduced legislation to facilitate a national marketplace for online poker. H.R. 2888, also known as the Internet Poker Freedom Act of 2015, has the potential to create an annual multibillion dollar national industry, but the smug visage of crony capitalism seems to be standing in the way.

The bill is very similar to Barton’s last attempt to pass similar legislation in 2013, with some slight modifications. As Barton recently put it in an interview with the site CardsChat:

It’s the same as last year’s bill. We just clarified a few issues, rechecked with the stakeholders and made sure that the Indian tribes that are supportive are OK with the regulatory regime. We set up an Indian commission that is similar to the federal commission for the states.

H.R. 2888 would still legalize and regulate online poker at the federal level, while allowing willing states to opt-in so that operators would be licensed on a state-by-state basis. The bill also maintains penalties for unlicensed operators, programs to assist problem gamblers and mechanisms to keep out the underage.

For his part, Sen. Graham reintroduced his own piece of legislation, the Restoration of America’s Wire Act, or RAWA. Rep. Jason Chaffetz, R-Utah, reintroduced the House version in February. In March, R Street Executive Director Andrew Moylan testified about some of the ways RAWA would trample on states’ rights.

The bill would outlaw any betting using wire communication facilities that passed through, even just momentarily, any state where it is illegal, even if the activity is legal both in the place where the bet is being placed and the place where the bet is being logged. The law codifies what opponents of online gambling believe to be the correct interpretation of the 1961 Federal Wire Act. Excluding horse racing and fantasy sports, RAWA would effectively ban all forms of online gambling (including in New Jersey, Delaware and Nevada, where in-state online gambling is currently legal) and would even threaten to shutdown online sales by state lotteries in place like Georgia.

Graham’s motives have drawn major criticisms from the Poker Player Alliance, including claims of political opportunism and crony capitalism. Graham has aligned with a powerful anti-online gambling group led by billionaire casino tycoon and noted Republican donor Sheldon Adelson. Unless you live under a rock, it’s not news to anyone that Graham is seeking the 2016 Republican presidential nomination. Adelson has come out as an early and influential backer of Graham’s campaign.

In the face of such opposition, Rep. Barton has continued to push forward, advocating for H.R. 2888 as a better means to protect players from fraud and other security issues than existing frameworks and mechanisms. For the sake of poker players and free market advocates everywhere, hopefully Rep. Barton can take a page from Sen. Rand Paul’s book and “defeat the Washington machine.”

This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.

Kaiser Permanente’s not-so-negative take on smokeless tobacco

July 02, 2015, 7:00 AM

Kaiser Permanente might better call itself “Kaiser In Transition.”

A week ago I noted that the company’s website provides smokers with three grossly incorrect reasons to avoid e-cigarettes.  As it turns out, elsewhere on the same site, Kaiser makes a reasonably good case for the harm-reduction potential of smokeless tobacco.

“Smokeless tobacco products include chewing tobacco and snuff.  These products are less harmful than smoking cigarettes,” advises the Good Kaiser. It’s the first-ever admission by an American corporate health giant that smokeless tobacco use is less harmful than smoking.

After this promising start, Kaiser’s advice is less accurate. They claim with no scientific basis that smokeless tobacco is “just as addictive as cigarettes.” In fact, there is some evidence that smokeless tobacco has lower dependence than cigarettes.

They correctly note that smokeless tobacco is associated with”“[w]hite, leathery patches (leukoplakia) that form on the inside of the cheek or on the gum,” but the claim that these patches turn into mouth cancer is unfounded. As I explained in a review article in 1995, white patches from smokeless tobacco use are like calluses on the skin; they almost never turn into cancer. I have in the past refuted two other of Kaiser’s claims, regarding dental diseases and pancreatic cancer.

Kaiser’s discussion of tobacco harm reduction closes with a stunning admission:

A type of smokeless tobacco called ‘snus’ seems to have much less risk of harm. But it is not clear whether using snus causes no harm or risk.

This passage is powerful, because it can be reasonably interpreted to acknowledge that the health risks of snus may be minimal to nonexistent. I hope this marks the beginning of a new era of truthful and accurate descriptions of smokeless tobacco use and its health effects.

The ‘cyberporn’ scare of 1995, and the early Web’s corrective power

July 01, 2015, 10:34 PM

From The 1995 Blog:

One implacable critic of Rimm’s work was Mike Godwin, then staff counsel for the Electronic Frontier Foundation, who likened the study to surveying adult bookstores at Times Square and applying the findings to describe merchandise at Barnes & Noble stores. Godwin dissected Time’s cover story in an online article titled “journoporn,” a memorable contribution to what then was called a “flame war.”

401(k) investments a potential alternative to small-business loans, study finds

July 01, 2015, 10:29 PM

From NerdWallet:

A Washington, D.C.-based research group wants to make it possible for individuals to invest up to 10% of their 401(k) money in small businesses through intrastate crowdfunding websites.

In a June 2015 policy study, R Street Institute, which promotes free markets and limited government, proposed a change to federal labor regulations to allow such investment of retirement savings. Sound like a risky venture for retirement funds? To lessen the risk, the group proposed that securities purchased through the crowdfunding sites could be easily resold on secondary markets, making it easier for the investor to cash out.

The proposal aims to give small businesses a way to raise equity capital from ordinary investors in their local communities. It imagines a world where state crowdfunding platforms are “vibrant marketplaces where small companies can raise capital from their own communities,” author Oren Litwin writes…

…To lessen the investment risk, Litwin proposes that the investments be state-regulated and liquid, or easy for investors to cash out, but he also says he recognizes that some people might be wary of investing their retirement funds in a new venture.

“The risks involved are definitely different,” he told NerdWallet. “What I’m hoping to do is provide more options.”


A tale of two nations and one very important pig

July 01, 2015, 1:37 PM

We at the R Street Institute would like to wish our Canadian friends a happy Canada Day.

Institutionally, R Street owes a debt of gratitude to Canada. A former founding member of our governing board, David Frum, is Canadian and our current board chair, Marni Soupcoff, is the executive director of the Canadian Constitution Foundation. Editor-in-Chief R.J. Lehmann was briefly a Canadian resident and my presence at R Street, to the extent it is worthy of note, is a result of my father, Dave Adams, who is a Canadian by birth.

Today, the relationship between Canada and the United States is under-appreciated because of its remarkable stability. As neighbors, as partners in trade, as allies and as members of the Anglosphere, the United States and Canada share a bond unique among nations. But it wasn’t always that way.

Conflict between the United States and its neighbor to the north – be it flying a Union Jack or a dominion flag – has not been rare. But a relatively obscure conflict, one with only a single casualty, played a crucial but quiet role in the development of Canadian autonomy and the relationship the two countries enjoy today.

Known as the Pig War, roughly two decades before the date now celebrated as Canada Day, the United States and the British Empire nearly went to war over disputed territory in the San Juan Islands in the Pacific Northwest. The two powers mobilized sea and land forces in a border contest that was triggered by a pig.

The story goes that a recently settled U.S. farmer on an island slip between the United States and Britain’s Canadian territories arose one day to find a pig tearing up his crops. To end the feast, the farmer shot the pig. This is where the trouble began, because the pig was owned by an employee of the royally chartered Hudson’s Bay Co.

Upon learning of the pig’s demise, the HBC employee demanded $100 compensation for the pig. The U.S. farmer responded by claiming the pig had been trespassing. That straightforward legal claim led directly to weightier questions of state about who exactly was on whose land.

The United States sent in troops to substantiate its claim. The British sent in marines and a naval squadron to substantiate theirs. When news of the brewing conflict reached Washington and London, the powers agreed to a joint military occupation of the island.

That joint occupation was hardly contentious. U.S. and British soldiers interacted regularly and even held friendly games of cricket to pass the time. Eventually, 12 years later, an arbitrator decided the island should be ceded in its entirety to the United States. This was in 1872, five years after the British North American Act.

Canadians were, understandably, irked by what they saw as a betrayal by the British. Already unhappy with the Oregon Treaty, which established the western boundaries between the nations, Canadian sentiment was cemented by the surrender of territory in the San Juan Islands. As a result, Canada began agitating in earnest for greater autonomy from Great Britain. Sovereignty followed.

So, on this Canada Day, let us not forget the sacrifice made by that doomed pig and the independent and cooperative relationship that its end helped forge!

This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.

America’s Greece

July 01, 2015, 1:00 PM

The world is watching the situation in Greece closely, in the wake of the nation’s default last night on a $1.7 billion loan payment to the International Monetary Fund. European creditors continue to demand tax hikes and spending cuts, while Greek leaders threaten to put tough stipulations to a referendum this Sunday.

But America has a Greece-like problem too. Its name is Puerto Rico.

Puerto Rico is $72 billion in debt. When interest, pension obligations, the deficit and health care program shortfalls are added to the calculation, the number rises by nearly $100 billion more. For each person in the Puerto Rican workforce, there is $168,471 of debt.

Within one day of Gov. Garcia Padilla’s remark that the $72 billion was “not payable,” the price of some bonds decreased 12 percent, while the stock prices of bond insurers who secured the debt were down 23 percent. Policymakers in Washington and on the island are wrestling with how best to move forward. The good thing is that it appears the strategies used in the past are being left behind.

The Puerto Rican government commissioned a study to be conducted by Anne Krueger, a former World Bank chief economist, to analyze the commonwealth’s financial problems. The so-called Krueger Report, released June 29, outlined several key origins of the crisis, which actually caused the island’s economy to contract 1 percent per annum over the last decade. This is noteworthy because the commonwealth is suffering neither from civil strife nor a deep financial crisis.

The study cites a decline in investment by island residents, spurred by a sharp fall in home prices. Individuals and small businesses had less wealth to be pumped into the economy. The U.S. recession from 2007 to 2009 also contributed, as the states are the island’s largest trading partner. Puerto Rico’s inability to recover along with the U.S. mainland suggests structural problems.

The larger problem may be employment and labor costs, which thankfully seem to have possible solutions. Only 40 percent of the adult population (compared to 63 percent in the states) is employed. One reason is that the federal minimum wage represents 77 percent of Puerto Rico’s per capita income, whereas it is only 28 percent on the mainland. This suggests that the minimum wage is severely limiting employers’ ability to hire. Employers also do not hire because of strict regulation of overtime, vacation pay and dismissal.

What’s more, workers face bad incentives, as the public welfare system provides excessively generous benefits. Krueger writes:

One estimate shows that a household of three eligible for food stamps, AFDC, Medicaid and utilities subsidies could receive $1,743 per month–as compared to a minimum wage earner’s take-home earnings of $1,159

When safety nets exceed feasible wages, perverse incentives cause people to act in their own self-interest. Public policy must cut benefits to the unemployed to encourage them to work; at the same time, wage restrictions must be reevaluated to encourage employers to hire people.

A key contributor to the size of Puerto Rico’s deficit is public policy that makes municipal debt tax-exempt in the United States. Most economists would actually agree that, all things being equal, this is usually a sensible policy, as it prevents income from being taxed twice. But double taxation is a hallmark of the U.S. tax code, and the tax-exempt status, by creating incentives for investors to allocate resources to municipal debt, also makes it much easier for local governments to borrow.

It’s reasonable to ask whether, to stop the situation from getting any worse, the tax code should be changed so that new Puerto Rican bonds are not tax-exempt. That change shouldn’t be applied to current bonds, or the incentive would be for investors to dump them, raising the interest the commonwealth would have to pay and sinking it even further into the hole. Over the longer term, the United States should seek to stop taxing income both when it is earned and when it is saved.

Another contributor to Puerto Rico’s problems is the Jones Act, a 1920 law passed after World War One to protect against German U-boats. The law requires any trade between two U.S. ports to be conducted by American flagged vessels operated by U.S. citizens. Today, the law effectively protects shipping interests, but hurts both American consumers and producers of goods both on and off the island.

Because of the law, Puerto Rican goods cost more and Puerto Ricans pay more for goods made in the states, all other things being equal. The law makes electricity, a basic input of production, extremely expensive, because the commonwealth has to rely entirely on the states or other countries for oil. Congress should repeal this outdated legislation.

Puerto Rican public corporations are both troubled and large in number. The electric power authority owes about $9 billion in debt, $417 million of which is due this week. Legislators tried to assist these corporations with a law intended to skirt rules governing debt reconstruction. A federal court found the law violated the U.S. bankruptcy code, as Puerto Rican public corporations—unlike those in the states–are not able to use Chapter 9.

Democrats in Washington are pushing to expand Chapter 9 to Puerto Rico, which essentially would allow these companies to declare bankruptcy and restructure debts on their terms. Republicans argue that such an exception would infringe on investors’ rights. The White House has been rather silent, other than to say there will not be a federal bailout. While it is a good thing that Chapter 9 legislation likely will not pass, long-term reforms are needed. The Krueger Report suggests the government facilitate “a voluntary exchange of existing bonds for new ones with a longer/lower debt service profile.”

Finally, Puerto Rico got caught in a vicious circle. For years, the commonwealth borrowed to balance the budget, taking on more and more debt and constantly raising the budget deficit. It’s the same strategy Greece used to pay off their debts until European creditors cut off the spigot, forcing them to default the IMF loans. The U.S. federal government has its own history of borrowing to pay the national debt, which today is more than $18 trillion.

Like in Greece, it appears elected officials and the population at-large remain hesitant to raise taxes and/or cut discretionary spending, but progress has been made. Unlike in Greece, the commonwealth is not seeking new loans to pay off old ones.

The island uses our dollar, trades with our states and has borrowed our dollars without repaying them. Free markets and real solutions must be used to prevent Puerto Rico from becoming America’s Greece.

This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.

After Supreme Court’s mercury decision, what now for environmental law?

July 01, 2015, 10:55 AM

The U.S. Supreme Court’s decision in Michigan v. EPA will force the Environmental Protection Agency to reevaluate its recently promulgated rules governing mercury emissions by coal-fired power plants. But an even greater challenge to federal environmental legislation is on the horizon.

The victory for the court’s conservative wing has been overshadowed by the decision’s future policy implications. In August, the EPA is set to finalize regulations on greenhouse gas emissions known by the Obama administration as the Clean Power Plan. Those regulations have been a political touch-point for years and some critics believe that, as a matter of administrative law, the Michigan decision portends difficulty for those forthcoming rules.

Michigan-based legal challenges to those rules will be filed almost immediately by states like West Virginia, which stand to lose if the rules are imposed. Those states will be emboldened by the court’s decision in Michigan v. EPA because, while narrow, it could signal a new skepticism toward interpretive autonomy.

Twice in this term, the Supreme Court demonstrated willingness to circumscribe the authority of federal regulators. Notably, it did so both under a heightened standard of deference for agency activity, known as “Chevron deference,” as in this case, and in cases in which Chevron does not apply, such as King v. Burwell.

The trend toward narrowing agencies’ interpretive flexibility could be particularly pronounced in the context of environmental regulation because, as drafted, environmental laws like the Clean Air Act tend to be relatively imprecise. Hostile attorneys could revel in the statutes’ ambiguity as they draft challenges.

In 2007, the court’s majority held in Massachusetts v. EPA that the EPA has the authority to, and must, regulate greenhouse gas emissions and other toxic air pollutants like mercury. Since then, the EPA has acted to do just that under authority granted by the Clean Air Act. The Michigan decision did not dispute the ability of the EPA regulate mercury emissions. Instead, like the King decision, it focused on the process and judgment used by an agency as it interprets its enabling authority. New challenges are likely to test the authority and scope of federal environmental regulatory power constitutionally.

Law professor Jonathan Adler of Case Western Reserve Law School believes that federal environmental regulation is vulnerable to constitutional challenge in light of Chief Justice John Roberts’ famous opinion in the first Obamacare case, NFIB v. Sebelius.

Though NFIB was a case about how the Commerce Clause interacts with the Affordable Care Act’s individual mandate, the decision ultimately propounded a universal principle. A seven-justice majority held that the federal government had unconstitutionally attempted to coerce states into expanding their Medicaid eligibility by threatening to cut off all funding if they did not. Adler’s theory is that the interpretation crafted by Chief Justice Roberts could be applied to the conditional spending requirements present in legislation like the Clean Air Act:

“…[T]he Clean Air Act conditions the receipt of money for one program (highway construction) on compliance with conditions tied to a separate program (air pollution control). This may be problematic because a majority of the Court thought Congress was trying to leverage state reliance on funding for one program (traditional Medicaid) to induce participation in another program (the Medicaid expansion).”

Were such an interpretation adopted by the court, the EPA would be unable to implement and oversee various environmental standards. Areas of environmental regulation reserved to the federal government for decades could be returned to the states. It would be for them to act on their own.

Practically speaking, the benefits of environmental federalism could be great. States are closer to and better understand many of the local and regional environmental challenges they face. States also are at once better positioned to do good and less likely to do harm; the latter being a specialty of federal regulation. But if control over environmental regulation is bound again for statehouses, either as a result of federal regulatory limitation or constitutional necessity, the need for states to be prepared is growing.

Michigan v. EPA is not a momentous decision, but associated challenges to the federal environmental project could prove to be.

This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.

R Street welcomes expiration of Export-Import Bank

July 01, 2015, 8:35 AM

WASHINGTON (July 1, 2015) – The R Street Institute welcomed last night’s expiration of statutory authority for the Export-Import Bank, halting the bank’s ability to make new loans.

Created in 1934 to be the official export credit agency of the United States, the Export-Import Bank is a relic of the New Deal. For decades, it routinely has been reauthorized on grounds that it levels the playing field for small business, when it primarily funnels money to some of the largest corporations.

“By guaranteeing taxpayer-backed loans, the bank can provide financing below market value, a prime example of corporate welfare that puts politically connected businesses at an advantage,” said Nathan Leamer, outreach manager at the R Street Institute. “Government should not be in the business of picking winners and losers in the economy.”

Leamer warned that some of the bank’s supporters have pushed Congress to reauthorize Ex-Im by attaching language to the forthcoming federal highway bill or other unrelated legislation.

“We urge Congress to work on fostering economic growth for all Americans, and letting this symbol of crony capitalism stay relegated to the past,” said Leamer.


Je suis Uber

July 01, 2015, 8:00 AM

Imagine you are approaching an airport using your chosen transportation-for-hire service in a foreign city, when suddenly a brigade of angry, savage men start attacking your car with baseball bats.

Last week, this scary scene was a reality in Paris for many tourists. But the attackers weren’t a likely group of assailants; they were taxi drivers.

These torrid taxi drivers were protesting UberPop, the equivalent to UberX here in the United States. The drivers claim the service has threatened their jobs by taking away customers from licensed taxicabs, which resulted in their violent tirade against UberPop drivers. Yet after these displays of violence from taxi drivers, it is now two Uber executives who face criminal charges and Uber as a whole is facing a potential total shutdown in the country.

Uber France CEO Thibaud Simphal and Uber Europe General Manager Pierre-Dimitri Gore-Coty were both taken into custody Monday by French authorities for “running illegal taxi operations” and “concealing documents.” While authorities claim the arrests have nothing to do with the recent riots, the timing is beyond questionable.

The French government’s response to the violence has been, mindbogglingly, to call for police to crack down on Uber, seizing any vehicle caught operating the service. In support of this notion, French President Francois Hollande stated, “UberPop should be dissolved and declared illegal.”

For its part, UberPop doesn’t seem to be going anywhere any time soon, as Uber has stood by its stance that it has not yet been declared illegal by French courts.

While similar claims of “unfair competition” have been echoed in the United States, it would be hard to argue that any have as been as strong as the thuggish response in France. In reflection of the situation, Uber spokesman Thomas Meister stated:

There are people who are willing to do anything to stop any competition. We are only the symptom of a badly organized market.

This system of seeking to eliminate competition and consumer choice seems like something pulled from a libertarian nightmare; however, it is the sad reality of the French transportation-for-hire marketplace. Uber and its executives have been vindicated for having the audacity to provide a more efficient service at a cheaper price.

While arguments against UberPop for not requiring licenses are at least understandable, there are dozens of examples in the United States alone over the past few years where agreements have been reached to allow fair competition between all transportation-for-hire platforms.

Moving forward, Uber undoubtedly will be relentless in its fight to keep operating in Paris, as well as other French cities. Unfortunately, if the dystopian French state has anything to do with it, the company will be soon be facing the guillotine.

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The high cost of free college

July 01, 2015, 7:00 AM

While President Barack Obama was gathering victories critical to his legacy last week on Capitol Hill and at the Supreme Court, the D.C. Council worked on another of his priorities.

The council is considering making community college free for nearly all district residents. The plan would funnel federal funds, private donations and a hefty amount of local tax dollars to cover the full cost of tuition and mandatory fees at the University of the District of Columbia Community College (UDC-CC).

Seven of the 13 members of the council have co-sponsored the Community College For All Scholarship Amendment Act of 2015, introduced by Councilman Vincent B. Orange Sr. The bill requires that a student be a resident of the district, have graduated high school or obtained a GED and must maintain a minimum 2.0 grade-point average. Introduced in February, the measure was the subject of a public hearing last week. Public comments are open until July 7, after which the council will consider the legislation.

The goal of the program—to provide valuable skills and training to a millennial workforce—is a worthy one. However, the ends do not justify the proposed means.

The council’s proposal follows a plan laid out by the White House earlier this year. In early January, the president announced: “Put simply, what I would to do is to see the first two years of community college free for everyone who is willing to work for it.”

But by all measures, community college already is affordable, and students willing to work for it can gain an education on their own. What’s more, 57 percent of community college students already receive some form of state, federal or institutional aid. In fact, at UDC-CC, 70 percent of students already have tuition and fees completely covered by federal Pell grants. Making the UDC-CC free is merely going to benefit those who already could afford to attend.

This is a problem endemic to the Obama plan as a whole, as Vox’s Libby Nelson wrote when the plan was announced:

The program is more likely to directly benefit middle-class and wealthier students who are more able to afford tuition…at community colleges, it’s often living expenses and foregone wage, not tuition prices, that are the biggest financial barrier to attendance.

A secondary problem, both with the D.C. plan and the president’s proposal more generally is that it would extend scholarships for just two years. The Economist reports that only 20 percent of community college students complete their associate degree in less than three years. Not only would funding be cut off just when graduation is in sight, but one must question the wisdom of a huge investment in a school whose last published graduation rate was 12 percent.

According to the Washington Post, neither Orange nor any of his colleagues ever discussed the plans with officials at UDC-CC, which already receives $66 million in subsidies from the district. This lack of communication is troubling because the bill’s language requires students to “participate in mentoring and community service programs under the rules and regulations promulgated by UDC-CC.”

Offering community college at no cost does not guarantee job creation. To the extent that it spurs demand without either a price signal to mediate that demand or a commitment to invest a commensurate amount on the supply side, it is likely either to increase the cost of providing education, decrease the quality of the education provided or both.

Indeed, the primary effect of expanding the number of individuals who attend community college may primarily be to make an associate degree a prerequisite for an even larger number of low-paying jobs. The degree would merely signal to employers that a candidate can show up to work on time and complete assignments, without any assumed bump in productivity. The result is to further widen the gap between the haves and the have-nots.

Put simply, what I would like to see, contrary to the president’s stated goal, is for the first two years of community college remain affordable for everyone willing to work for it.

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As video on-demand expands, TV regulation should shrink

June 30, 2015, 8:14 AM

WASHINGTON (June 30, 2015) – On-demand services that stream video instantly over the Internet already are radically changing the way we watch television. But rather than expand regulatory authority for agencies like the Federal Communication Commission to cover these new services, we should re-examine whether existing rules still make sense in the age of “over-the-top” video.

That’s the conclusion of a new policy paper by R Street Institute Associate Fellow Steven Titch. In “TV regulation in the age of digital downloads,” Titch argues it may be time to scale back the FCC’s regulatory role, espe­cially in such areas as retransmission consent, must-carry and other programming requirements; resolution of content provider/content distributor disputes; content regulation; and regulatory fees.

In the past three years, the percentage of viewers watching live television has fallen from 89 percent to 80 percent, while Internet streaming has increased from 4 to 11 percent. According to a June 2015 pro­jection by investment banking firm FBR Capital Markets, if it continues its current rate of growth, top video streaming service Netflix within a year will surpass all of the four major broadcast networks – ABC, CBS, NBC and Fox – in the size of its 24-hour audience in the United States.

As such services continue to expand and grow, the paper cautions against expanding mandatory content ratings or other forms of content regulation to the Internet, noting that the market is already doing a good job of labeling content and offering parental controls to parents.

“If regulators stand aside and allow the market to work, there stands to be more competition and the greater consumer choices and programming diversity once envisioned for broadcast television,” Titch writes.

Titch also warns about a plan by FCC Chairman Thomas Wheeler to redefine “multichannel video programming distributor” – currently used to describe pay-TV operators who deliver content over cable and telephone lines – in ways that could end up applying the term to OTT video services.

“Netflix, Apple, Amazon, YouTube and Hulu are not cable TV companies or broadcasters,” Titch writes. “The idea that they somehow should pay local franchise fees or pay into the Federal Universal Service Fund is ludicrous.”

Titch also questions whether it still makes sense to require cable systems to carry local stations and set aside channels for public, educational and governmental use, particularly in a world in which many local stations have their own apps and every local agency can establish their own YouTube channels.

“Without any government oversight, YouTube and social media are meeting community needs for local news and information far better than PEG chan­nels ever did,” Titch writes.

TV regulation in the age of digital downloads

June 30, 2015, 8:00 AM

Television viewing must now be added to the long list of activities the Internet has changed. The time when audiences across the country simultaneously experienced a televised event—such as the Beatles on The Ed Sullivan Show or the finale of M*A*S*H— is almost entirely over. Today, such event viewing typically is limited to annual pageants like the Super Bowl.

The living room flat screen is now just one of a variety of ways to watch what we still call “television.” On-demand episodic series and digitally distributed movies can be streamed via the Internet anytime and anywhere on a smartphone or tablet, or simply downloaded for later viewing.

The rationale for broadcast regulation long has been based on scarcity. Simple physics limited the amount of spectrum available for television and radio broadcast. In passing the Communications Act of 1934, which created the Federal Communications Commission, the government maintained that limited spectrum justified broadcast regulation in the public interest.

The Internet has obliterated scarcity. Today’s video on-demand platforms allow anyone to produce and distribute content. That’s why extending the FCC’s broadcast authority to Internet television should be considered carefully. Old rationales for regulation no longer apply and may be obsolete. If imposed on new models of video entertainment and information, they likely would be counterproductive to the growth and expansion of these new platforms.

The nearly century-old broadcast model—in which a radio or television station dictated a programming schedule around which listeners and viewers planned their evenings—is dying. It is being replaced by an unprecedented set of choices and methods consumers have when it comes to accessing their favorite programming. According to a June 2015 projection by investment banking firm FBR Capital Markets, if it continues its current rate of growth, top video streaming service Netflix within a year will surpass all of the four major broadcast networks – ABC, CBS, NBC and Fox – in the size of its 24-hour audience in the United States.

Terms like “binge viewing” and “spoiler alert” have become part of the modern vocabulary. The programming grid found online and in daily newspapers serves today less as a calendar and more as a download menu for a digital video recorder.

The trend has not escaped notice of the Federal Communications Commission. The FCC has suggested extending its regulatory reach to companies that distribute video entertainment over the Internet, or “over the top” (OTT), independent of local broadcast stations and local cable franchises. These companies could include Netflix, Hulu and Amazon, which to varying degrees, offer viewers a selection of movies and television shows for monthly “all-you-can-view” subscription rates. They also will include forthcoming services like Apple TV, which will introduce a level of content aggregation. This September, Apple plans to begin offering 25 broadcast and cable channels via the Web, simulcasting the same content at the same time it is transmitted by conventional networks.

In addition, the TV and cable networks themselves have begun to make programming available over the Internet in real-time. Of these entries, ESPN was considered the most significant, because it brought live sports, traditionally thought to be among cable companies’ biggest competitive advantages, to OTT.

Meanwhile, Google’s YouTube not only offers free content to viewers, but an extremely cost-effective platform for independent content producers, who can create YouTube channels to grow their viewer base. Most YouTube downloads are free, as the platform is built to monetize advertising, but Google has begun to experiment with subscription models, as well.

This paper will look at the how the OTT trend is changing television viewership; how it brings competition in the form of choice and value differentiation; and how it serves as an example of a market-engineered response to changing customer tomer demands. It will recommend that, rather than rush to expand regulatory definitions, the FCC go slow, allowing consumer decision-making to direct the evolution of OTT providers and services. In fact, as alternative methods in program distribution challenge broadcast and cable, it may instead be time to scale back the FCC’s regulatory role, especially in such areas as:

  1. Retransmission, must-carry and other programming requirements;
  2. Resolution of content provider/content distributor disputes;
  3. Content regulation; and
  4. Regulatory fees.

Letter to D.C. Council on e-cigarette taxes

June 30, 2015, 7:30 AM

My name is Dr. Edward Anselm and I am a senior fellow with the R Street Institute, a D.C.-based free-market think tank that takes a pragmatic approach to public policy. I also serve as medical director for Health Republic Insurance of New Jersey (HRINJ) and am an assistant professor of medicine at the Mount Sinai School of Medicine. I have a 30-year history of tobacco-control advocacy and running smoking-cessation programs.

The D.C. Council currently is considering a proposal that would increase significantly taxes on e-cigarettes. I urge you and your colleagues to look at all available information before making your decision on this important measure.

Electronic cigarettes, also known as electronic nicotine-delivery systems (ENDS), do not contain tobacco. They provide nicotine to users who are unable or unwilling to quit smoking cigarettes, in much the same way as pharmaceutical nicotine gums, patches, lozenges and inhalers. As such, I believe they should be taxed at the same rate as these other over-the-counter nicotine-delivery products, and not at the much higher rate proposed by the council.

There are more than 77,000 adult smokers in the District of Columbia, accounting for roughly 16 percent of the adult population. As many as half of these smokers use electronic cigarettes. Communities considered “marginalized” – such as the poor, high school dropouts and the LGBT community – tend to have higher rates of smoking. Tobacco use among people with mental illness is double that of the general population, which makes sense, as nicotine is both an antidepressant and a stimulant. Taxes on e-cigarettes are thus regressive.

There is no evidence to support claims by some tobacco-control advocates that e-cigarettes are as dangerous as, or more dangerous than, tobacco cigarettes. It’s also untrue that their benefits are unproven or that they have been shown to recruit teens to a lifetime of nicotine addiction.

ENDS provide a safer alternative, allowing smokers to obtain nicotine with a far lower risk of death and disease. The three studies published thus far on the role of ENDS in smoking cessation, summarized in a recent Cochrane Review, all show positive results. Even those smokers the studies examined who did not quit were shown, on balance, to reduce their consumption of regular cigarettes. This is consistent with a recent Reuters survey showing the majority of e-cigarette users are dual users.

Some also allege e-cigarettes attract teens to nicotine addiction. But we now have substantial evidence, even without legally imposed restrictions on marketing, that this is not the case. Use by teen nonsmokers is almost all single experimentation or occasional social use, often with zero-nicotine e-cigarettes.

Taxing e-cigarettes as if they were tobacco cigarettes will not benefit public health. All it will do is protect both tobacco cigarettes and makers of pharmaceutical nicotine products from competition from these remarkably safe alternatives. Taxing e-cigarettes the same as tobacco cigarettes will send the message to smokers that they might as well keep smoking.

California committee stands up to the fourth branch of government

June 30, 2015, 7:00 AM

Like other myths and fairy-tales meant to conceal and excite, California’s school children are taught to believe that there are three branches of government. In fact, there clearly are four.

Though a putative part of the executive branch, agencies are the constituent parts in an administrative state that constitutes a de facto fourth branch of government, with quasi-judicial, executive, and legislative powers that they exercise with great autonomy. Keeping this fourth branch of government in check is an effort that the Legislature increasingly is willing to defer.

That made it something of a surprise when members of the Assembly Insurance Committee recently called the California Department of Insurance to task for an obscure proposed regulatory action. In a June 8 letter from Chairman Tom Daly, D-Anaheim, the committee expressed concerns about Insurance Commissioner Dave Jones’ decision to pursue policy changes that would limit the availability of auto insurance discounts.

Specifically, committee members urged the commissioner to abandon his attempt to deprive Californians of so-called “affinity group” discounts. The letter makes it known they feel the department lacks legal authority to undertake the change and that it would not be in the best interests of their diverse constituents.

The concern is warranted. The CDI’s course of action is inexplicable, in light of its claim to be defending the public’s interest. What’s particularly encouraging about the committee’s letter is that it demonstrates interest not only in the agency’s operational and legislative activity, but also its regulatory activity. Effective governmental oversight demands attention to both.

While it’s yet to be seen whether the CDI will heed the committee’s advice, the panel’s willingness to go on record with its concerns should counsel caution. The quasi-legislative power that department wields is not exercised in a vacuum.

The power of the fourth branch of government can be intimidating, both to citizens and to legislators. But questioning agencies’ purported expertise is vital to ensure the actual will of the people, and not simply that of agency staff, is ensconced in law. Californians have every reason to hope that Daly’s letter is a sign of more oversight to come.

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Supreme Court missed opportunity to clarify copyright law in API case

June 29, 2015, 3:13 PM

WASHINGTON (June 29, 2015) – The U.S. Supreme Court’s decision earlier today not to hear arguments in Google Inc. v. Oracle America Inc. represents a missed opportunity to clarify copyright law, according the R Street Institute.

“The Supreme Court has taken the wrong path today in denying certiorari in the Oracle case, which centers on whether application programming interfaces (APIs) should be protectable as copyrighted works under the Copyright Act,” said Mike Godwin, R Street’s general counsel and director of innovation policy. “While the Federal Circuit held that APIs can be copyrightable, we have taken the opposite view: that APIs are more like functional descriptions, like the recipe for your favorite dish, than they are the kind of creative expression that copyright law is designed to protect.”

The case has been remanded to the district court, which will determine whether “fair use” or other defenses may apply in favor in Google’s favor, Godwin said.

“It’s the nature of such legal defenses that, even if Google wins those arguments, the resulting decisions may not provide the kind of broad clarity we would hope to see in copyright cases involving primarily functional or specifications-oriented aspects of programming code,” he added. “In the long term, we hope the federal courts, perhaps with the help of Congress, strike a balance in favor of more specific, creativity-oriented copyright protection.”

R Street praises Supreme Court for affirming cost-benefit analysis in rulemaking

June 29, 2015, 3:12 PM

WASHINGTON (June 29, 2015) – The R Street Institute welcomed today’s U.S. Supreme Court decision affirming the requirement that federal agencies consider costs before determining whether a rule is worthwhile.

In Michigan v. EPA, the court ruled that the Environmental Protection Agency unreasonably interpreted the Clean Air Act when it decided to set limits on power plants’ toxic pollutant emissions without first considering the costs to industry.

“We are pleased the Supreme Court clearly believes agencies are responsible for determining how a rule would impact the economy before determining that the rule is worthwhile,” said Catrina Rorke, director of energy policy and senior fellow of the R Street Institute. “In a situation like this, markets matter, too. If the costs are exorbitant and the benefits small, we should clearly consider whether a course of action is appropriate.”

The court found the EPA did not weigh the likely costs in its initial determination of whether to move forward with the rule. Only after the rule was crafted did the EPA examine costs, which amounted to $9.6 billion annually for coal-power generators.

Previous data compiled by the American Action Forum showed that utilities planned to close at least 24 coal-fired power plants as a result of the rule, amounting to 12.6 gigawatts of generation capacity and nearly 2,000 lost jobs.  The Supreme Court ruled that it was neither rational nor appropriate to impose billions of dollars in economic costs in return for a few dollars in health or environmental benefits.


SCOTUS sides against EPA and environmentalists

June 29, 2015, 9:20 AM

From Red Millennial:

In 2012, there was a significant backlash from a group of Latino Democrats in the California Assembly, who were worried that California’s Cap-and-Trade law would hurt poor and middle-class Hispanics. Democrat Henry Perea proposed Assembly Bill 69, which would establish a three-year suspension on the cap-and-trade program’s requirement to buy permits for transportation fuels.

Nikki Haley signs bill legalizing TNCs in South Carolina

June 29, 2015, 8:00 AM

While the country was focused this past week on the flag that flies above the South Carolina statehouse, important work was being done inside its doors.

In a major victory for ridesharing, Gov. Nikki Haley has signed a bill creating a permanent regulatory framework for transportation network companies, with real solutions to ensure public safety while at the same time promoting free markets. The measure, H. 3525, also overrides a more restrictive ordinance regulating TNCs in the City of Charleston.

It marks quite a turnaround from five months ago, when the state Public Service Commission issued a cease-and-desist order (rescinded after just two weeks) that Uber must stop operating within the state. It’s a turnaround even from earlier this month, when an earlier version of the bill failed in the state House of Representatives by a 23-81 vote. Uber has been operating on a temporary license that was set to expire June 30, had Haley not signed the bill.

With the deal, TNC frameworks have now passed in nearly two dozen states, marking another sign that we’re finally moving past the debate over whether or not these companies are safe for consumers and fair for drivers. The regulations passed in South Carolina take measures to ensure the companies are safe, while allowing drivers to decide for themselves whether or not the platforms are fair.

The new law requires that drivers must have primary insurance coverage, on their own or through the TNC, that acknowledges they are covered as a TNC driver. The insurance must provide at least $50,000 of per-person liability, $100,000 of per-incident liability and $50,000 of property damage coverage. Drivers also must obtain background checks, cannot be registered sex offenders or can’t have intoxicated driving convictions within the past ten years.

There are other requirements that don’t exactly appear necessary from a safety and consumer protection perspective, but ultimately proved crucial to getting a compromise bill passed. For instance, drivers must display a removable indicator on their car that they are a TNC operator and vehicles must pass a 19-point safety inspection. The bill also requires TNCs to apply for permits with the state’s Office of Regulatory Staff and drivers who have loans on their cars must tell the loan-holding entity they drive for a TNC.

It’s not perfect, but the good news is that TNC drivers now have a green light in South Carolina.

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