Thursday, October 7, 2010

Intellectual Property under NAFTA, Investment Protection Agreements and at the WTO

Allen Z. Hertz was senior advisor in Canada's Privy Council Office serving the Prime Minister and the federal cabinet. Earlier he was in the Foreign Affairs Department where he advised on intellectual property rights. He participated in treaty negotiations, including for the North American Free Trade Agreement (NAFTA), and represented Canada at the World Trade Organization (WTO) and the World Intellectual Property Organization (WIPO). He wrote the 1987 federal Green Paper on "Semiconductor Chip Protection in Canada" and was founding editor of "Computer Law: A Report for Business and the Professions." He taught history and law at universities in New York, Montreal, Toronto and Hong Kong. As an undergraduate he was at McGill University, and then did graduate work at Columbia University where he received an M.A. and a Ph.D., in history. Dr. Hertz also has international law degrees from Cambridge University and the University of Toronto.

This posting contains Parts I and VI of "Shaping the Trident: Intellectual Property Rights under NAFTA, Investment Protection Agreements and at the WTO," which first appeared in 1997 in Volume 23 of the Canada-United States Law Journal, 261. The article was part of the Proceedings of the Canada-United States Law Institute Conference on NAFTA Revisited. The views expressed were those of the author in his personal capacity, not those of the Government of Canada. This article is current up to May 1996. Parts II-V appear in separate postings on this website.

Presidents Salinas and Bush and Prime Minister Mulroney witness
 the initialing of the NAFTA Draft Legal Text, San Antonio, Texas, October 7, 1992


The North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)[1] together with various investment treaties are contributing to the implementation of a new tripartite strategy for the protection of intellectual property rights (IPRs). The hypothesis is that countries which are net exporters of technology and copyright product now see optimal IPRs protection in the shape of a trident.

The centre prong is effective dispute settlement for the substantive IPRs in NAFTA, TRIPS, the Paris Convention for the Protection of Industrial Property, and the Berne Convention for the Protection of Literary and Artistic Works.[2]

The left prong is made up of the investment disciplines set out in NAFTA, the Energy Charter Treaty,[3] a possible Multilateral Agreement on Investment (MAI) and a growing network of Bilateral Investment Treaties (BITs) and Foreign Investment Protection Agreements (FIPAs), all of which define "investment" as implicitly or explicitly including IPRs.

The right prong is the non-violation complaint alleging nullification or impairment of benefits, first fully elaborated under the 1947 General Agreement on Tariffs and Trade (GATT) and now incorporated in both NAFTA and the WTO Understanding on Rules and Procedures Governing the Settlement of Disputes.

Creating this trident seems to be the goal of the net exporters seeking ever higher levels of protection for their valuable IPRs. For the net exporters, the trident is a cleverly-crafted instrument, the three prongs of which would ideally be available in any fully integrated trade agreement with interlocking provisions on investment, IPRs, and dispute settlement.

All of these aspects are examined here and in the companion postings that appear on this website. See Part 2: IPRs and binding dispute settlement; Part 3: IPRs and the non-violation complaint; Part 4: IPRs and international investment protection; and Part 5: the NAFTA cultural industries exception.

What is Intellectual Property?

For the scope of IPRs, reference can be made to the NAFTA definition which speaks of "copyright and related rights, trademark rights, patent rights, rights in layout designs of semiconductor integrated circuits, trade secret rights, plant breeders' rights, rights in geographical indications and industrial design rights."[4]

IPRs are commonly understood to be intangible property because the relevant rights refer to an asset which is incorporeal. Furthermore, IPRs are always concerned with information in the sense that IPRs focus on rights with respect to the use of information. An IPR is typically articulated negatively as a right to prevent the relevant information's unauthorized use and positively as the right to authorize its use via licensing or assignment. Each IPRs law (e.g., Canada's Copyright Act) can be understood as a special regime of rights with respect to an information category which is authoritatively defined, e.g., by the statutory criteria determining a literary work's eligibility for copyright protection.

Fitting within the usual domestic criteria for the relevant IPRs regime are the following examples of pure information: (a) the unique form of expression embodied in the pattern of ones and zeros of an original computer program; (b) a secret process for blending scotch whiskey; (c) the semiotic of a trademark associated with an individual manufacturer's business; or (d) the particulars of a pharmaceutical invention.

Even the proto-IPR implicit in the 1992 Biodiversity Convention's recognition of a State's sovereign right to its genetic resources is in part a claim to rights in information, i.e. rights in connection with the distinct genetic pattern embodied in a DNA sequence drawn from a plant or animal, said to originate in that State's territory.[5]

IPRs law can, therefore, be seen as a significant category of information law, alongside generally newer subsets including laws relating to official secrets, data protection, credit reporting, privacy, and access to information. Seeing IPRs regimes as a species of information law helps to explain why IPRs are skyrocketing in importance now that we live in the "information age" or the "knowledge society" where manufacturing is being eclipsed by services and factory labourers are becoming fewer than knowledge workers.[6]

Options for Treating Foreign Right Holders

Apart from setting minimum standards for the protection and enforcement of domestic IPRs, international IPRs conventions inter alia focus on the treatment of foreign right holders. Treaties and domestic law generally include one or more of the following possibilities for the treatment of foreign right holders with respect to a given IPR:

(i) National treatment -- We[7] treat a foreign right holder under our law the same way we treat our own nationals. {The foreign national's country may not provide the relevant right or may provide it to a greater or lesser extent than we do.}[8]

(ii) Most-favoured-nation treatment (MFN) -- A foreign right holder receives treatment no less favourable than the treatment we give nationals of any other foreign country. {The foreign national's country may not provide the relevant right or may provide it to a greater or lesser extent than we do.}[9]

(iii) Formal reciprocity -- We treat a foreign right holder the same way we treat our own nationals if the foreign national's country provides national treatment to our nationals. {The foreign national's country may provide our nationals with a right that is greater or lesser than the right we provide.}[10]

(iv) Material reciprocity -- We allow the foreign right holder the benefit of the right in our law only if, and to the extent that, his country's law provides the relevant right to our nationals. {As long as the relevant right is provided, the extent of protection in the foreign country may diverge substantially from what we provide to our own nationals.}[11]

(v) Reciprocal rights -- We allow a foreign rightholder the full benefit of the protection of the right in our law only if his country's law offers our nationals the protection of a right substantially equal to the one that our law provides. {The right provided by our law and by the foreign country's law must be fairly similar.}[12]

NAFTA's Intellectual Property Role

With respect to IPRs, NAFTA closely tracks the language of the 1991 Dunkel draft of the TRIPS negotiating text.[95]  Therefore, TRIPS and NAFTA's Chapter 17: Intellectual Property are, with regard to most subject matter, textually close enough to ensure that, in many cases, interpretations of the meaning of the one would be directly relevant to the elucidation of the other. IPRs-related findings of eventual NAFTA panels may, therefore, powerfully influence TRIPS interpretation and vice versa. But, NAFTA will probably make its own distinctive mark on international IPRs developments, because in some significant respects NAFTA embodies TRIPS-plus features.

For WTO Members, TRIPS applies the key national treatment obligation subject to the many exceptions already provided in the Paris, Berne, and Rome Conventions and the Washington Treaty on Intellectual Property in Respect of Integrated Circuits. Moreover, in respect of performers, phonogram producers, and broadcasters, TRIPS national treatment applies only to the rights which TRIPS specifically provides.[96] These many qualifications contrast sharply with NAFTA which establishes a sweeping national treatment requirement[97] which, subject to a few specific exceptions,[98] applies to all the domestic IPRs a NAFTA Party adopts or maintains.

Also in terms of substantive obligations, NAFTA adds a number of significant TRIPS-plus features. For trade secrets, both TRIPS and NAFTA require confidentiality for undisclosed test data submitted to governments for approving the marketing of pharmaceutical or agricultural-chemical products that utilize new chemical entities.[99] However, NAFTA goes further by also requiring non-reliance. For normally at least five years, NAFTA Parties are not to rely on the first applicant's confidential test data to approve a second applicant's request for approval to market a generic copy of the first applicant's product.[100]

Unlike WTO Members, NAFTA Parties have to protect encrypted program-carrying satellite signals.[101]  This obligation reflects protection which had already been available under United States and Canadian law.[102]  The NAFTA provision is broad enough to cover the contemporary phenomenon of direct broadcasting by satellite which is specifically excluded from the scope of the 1974 Brussels Convention Relating to the Distribution of Programme-Carrying Signals Transmitted by Satellite.[103]

NAFTA goes a long way toward closing alleged gaps in the Berne Convention for the Protection of Literary and Artistic Works. For example, a technology-specific reference to "broadcasting" has raised serious questions about the adequacy of Berne rights for the protection of text and data bases on the Internet.[104]  In recent negotiations, some have even suggested that Berne "communication" does not extend beyond real time[105] because of the relatively narrow range of technology extant when the Berne language was adopted.[106]  In other words, Berne communication rights are said to apply only where a person directly communicates the work for simultaneous reception by others. This interpretation is troubling because, with respect to communication, it would exclude from Berne Convention rights and obligations the key configuration of a solitary midnight user accessing a work previously placed in a data base.

Whether or not these are really Berne lacunae, the holes are filled by NAFTA which not only requires each Party to give effect to the substantive provisions of the 1971 Paris Act of the Berne Convention[107] but also adds an entirely separate and, therefore, contemporary right to authorize or prohibit the communication to the public of all kinds of literary and artistic works embodying "original expression."[108]  For a NAFTA Party volunteering to apply to all categories of works[109] a domestic understanding of "the public" broad enough to include the network situation of a number of individuals accessing the same work at different times and places, this generous communication right[110]  appears to supply whatever might be missing from the Berne Convention. This aspect is crucial to copyright in the global information infrastructure where works will increasingly be commercialized via the world's expanding information highway.

IPRs as an "investment" is another significant feature present in NAFTA which defines "investment" as including "intangible property."[111]  Therefore, all the IPRs a NAFTA Party adopts or maintains are automatically included within the ambit of the NAFTA investment-protection provisions. By contrast, the WTO Agreement on Trade-Related Investment Measures (TRIMS) only applies to investment measures with respect to trade in goods[112] and does not include a definition of "investment" after the fashion of NAFTA. According to Canada, TRIMS was one of the "disappointments" of the Uruguay Round.[113] This website hosts a companion posting on IPRs and Investment Protection that has much more to say about the important conjunction between investment obligations and IPRs.

NAFTA's TRIPS-plus provisions are likely to have a substantial impact on the development of international IPRs norms. There is a general influence because NAFTA standards are now a significant part of what the United States seeks in bilateral agreements. Furthermore, NAFTA has had a profound influence on the formulation of Canada's Model Foreign Investment Protection Agreement (FIPA) which continues to be the starting point for a number of ongoing negotiations. Current examples are the FIPAs which Canada recently concluded with South Africa and the Philippines.

NAFTA also may exercise a specific influence via the accession of new Parties. April 1995 witnessed the inauguration of quadrilateral talks to explore the possibility of Chile's accession to NAFTA. For the moment, the accession process is stalled due to Congress' failure to give President Clinton the Fast Track authority which Chile deems to be essential for continuing serious and substantive negotiations. Nonetheless, the prospect of NAFTA expansion has greatly stimulated Latin American interest in NAFTA's Intellectual Property Chapter.

This Latin American focus on NAFTA applies in other exercises as well. For example, NAFTA and other IPRs norms will be thoroughly studied in the current efforts to develop a Free Trade Agreement of the Americas (FTAA) by the year 2005.[114]  This process was inaugurated at the December 1994 Miami summit of Western Hemisphere leaders. At a June 1995 Denver meeting, the hemisphere trade ministers approved the principle of establishing an IPRs Working Group which was created in March 1996 at their second meeting in Cartagena.[115]  As in the Chilean accession process, comparison of TRIPS and NAFTA standards with the realities of Latin American regimes will greatly expand mutual understanding and knowledge of comparative IPRs law. For example, IPRs enforcement in Canada and the United States is principally a question of civil remedies.[116]  By contrast, in many parts of Latin America, IPRs are normally enforced via a combination of administrative, criminal, and civil remedies.[117]  One way or another, higher levels of protection and enforcement are bound to result from this ambitious hemispheric initiative.

[Parts II-V appear as separate postings on this website.]


The Trident of Intellectual Property Protection

Countries which are net exporters of technology and copyright product have come to see optimal protection of IPRs in the shape of a trident. The substantive IPRs provisions in treaties like TRIPS, NAFTA, and the Paris and Berne Conventions make up the centre prong. On the left is the prong of investment disciplines in NAFTA, the Energy Charter Treaty, a possible MAI, and the growing network of BITs and FIPAs, all of which sweep up IPRs as an "investment." The prong on the right is the non-violation complaint as part of dispute settlement, whether under NAFTA or at the WTO.

There are interpretations of NAFTA which are consistent with this trident approach. Some would argue that "use" is the idea that links the substantive IPRs in the NAFTA Intellectual Property Chapter with the disciplines in the Investment Chapter and NAFTA, Annex 2004: Nullification and Impairment. For the United States as a net-exporter of technology and copyright product, the trident's purpose is to ensure that possible governmental barriers to the use of IPRs in the territory of another NAFTA Party can be challenged by investor/State arbitration on the one side[297] and by State-to-State non-violation complaints on the other side. In the middle, the trident would offer the possibility of State-to-State complaints for violations of the Intellectual Property Chapter's requirements with respect to acquisition, maintenance, protection, and enforcement.

The ways of commercially exploiting IPRs are rapidly changing with the introduction of innovative technologies. Countries which are net exporters of technology and copyright product are therefore eager for the international adoption of new mechanisms to ensure that economic rewards flow back to IPRs owners. The net exporter countries see new opportunities in integrated trade agreements with interlocking provisions on investment, IPRs, and dispute settlement. This is an environment in which wide-ranging investment obligations and the possibility of both violation and non-violation complaints can marry the minimum international standards which are the staples of the traditional IPRs convention.

The evolution of such highly sophisticated IPRs protection strategies means that policy makers in other countries have to respond with serious thinking about the dangers of over-protecting IPRs.[298]  In addition to worrying about defending the rights of IPRs owners, governments have responsibilities to guard other interests, e.g., the legitimate needs of social policy, health protection, and consumers. If shaping and sharpening the trident is the goal of some countries, negotiators for other countries must be vigilant and inventive.

Challenging a negotiation's overall architecture is not always possible or desirable. Therefore, substantial energy and creativity must be directed to developing, and winning international acceptance for, appropriate limitations and exceptions for insertion into investment instruments and integrated trade agreements. In preparing positions, negotiators must make very careful assessments of national interests to identify where domestic discretion must be preserved. For some, this might mean exceptions, limitations, or reservations for cultural industries and necessary health-related measures. However, other negotiators may come to the table with different ideas reflecting the special needs of their countries.


1. As of March 29, 1996, one hundred and nineteen countries and territories were WTO Members and were, therefore, Party to TRIPS.

2. One hundred and thirty-six and one hundred and seventeen States are now Party respectively to the Paris and Berne Conventions which are both administered by the World Intellectual Property Organization (WIPO). See WIPO Document 423E (Jan. 1, 1996) States Party to the Convention Establishing the World Intellectual Property Organization and/or the Other Treaties Administered by WIPO: Status on January 1, 1996, at 4-9. [hereinafter WIPO Doc.]

3. Energy Charter Treaty [Lisbon, Dec. 17, 1994] 34 I.L.M. 360 (1995). See Thomas W. Waelde, International Investment Under the 1994 Energy Charter Treaty, 29 J. World Trade 572 (1995).

4. NAFTA, art. 1721(2). Except for the NAFTA definition's explicit reference to plant breeders' rights, the NAFTA definition is the same as the definition of IPRs in TRIPS, Article 1(2). Although the TRIPS definition does not specifically refer to plant breeders' rights, WTO Members are required to protect plant varieties "either by patents or by an effective sui generis system or by any combination thereof." See TRIPS, art. 27(3)(b), which corresponds to the last sentence of NAFTA, art. 1709(3).

5. 1992 Rio Convention on Biological Diversity, Preamble; arts. 2-4; 15(1), (7); 16(3); 19.

6. In developed countries, knowledge workers are said now to make up approximately one third of the total workforce, with another third providing skilled services. In developed countries, the percentage of workers actually "making or moving things" was over 50% in 1950, dropped to 20% by 1990, and is expected to fall to 10% by 2010. See Peter Drucker, Post-Capitalist Society 40, 64 (1993).

7. For ease of presentation, "we" and "our" here refer not specifically to Canada, but rather to the domestic perspective from any country contemplating the treatment of foreign right holders.

8. National treatment's meaning and purpose is explained by Stephen M. Stewart, International Copyright and Neighbouring Rights, 38-43 (2d ed. (1989)). WIPO's Director of Copyright, Mihaly Ficsor explores national treatment in WIPO Document 8352D/COP/0595D (May 27, 1993) Statement on the Questions Concerning National Treatment in Respect of a Possible Protocol to the Berne Convention. The Berne and Paris Conventions require foreign right holders to receive "the same protection" as nationals. By contrast, NAFTA article 1703(1) and TRIPS, article 3(1), require "treatment no less favourable." NAFTA and WTO panels may some day show this distinction to be of some significance.

9. On MFN clauses, see Arnold Duncan, Lord McNair, The Law of Treaties 272-305 (1961). An MFN requirement features in neither the WIPO treaties nor NAFTA's Intellectual Property Chapter. However, there is an MFN requirement in TRIPS, article 4. On MFN in the GATT, see John H. Jackson, The World Trading System: Law and Policy of International Economic Relations 133-48 (1989).

10. Formal reciprocity is a possibility under Canada's Copyright Act, Section 5(2): "Where the Minister certifies by notice, published in the Canada Gazette, that any country that is not a Berne Convention country grants or has undertaken to grant, either by treaty, convention, agreement or law, to citizens of Canada, the benefit of copyright on substantially the same basis as to its own citizens . . . , the country shall, for the purpose of the rights conferred by this Act, be treated as if it were a country to which this Act extends . . . ." With respect to record performers' secondary use rights, NAFTA art. 1703(1), appears to require at least formal reciprocity: "a Party may limit rights of performers of another Party in respect of secondary uses of sound recordings to those rights its nationals are accorded in the territory of such other Party."

11. "Material reciprocity has been described as tit for tat." See Stewart, supra note 8, at 41. The secondary use (broadcasting and any communication to the public) of sound recordings is covered in Rome Convention, art. 12. However, art. 16(1)(a)(iv) permits a Party to opt for material reciprocity by notifying the U.N. Secretary-General that: "as regards phonograms, the producer of which is a national of another Contracting State, it will limit the protection provided for by that Article to the extent to which, and to the term for which the latter State grants protection to phonograms first fixed by a national of the State making the declaration . . . ."

12. Reciprocal rights is a possibility under Canada's Copyright Act, Section 5(2): "where the Minister certifies by notice, published in the Canada Gazette, that any country that is not a Berne Convention country grants or has undertaken to grant, either by treaty, convention, agreement, or law, to citizens of Canada, . . . copyright protection substantially equal to that conferred by this Act, the country shall, for the purpose of the rights conferred by this Act, be treated as if it were a country to which this Act extends . . . ."

[Notes numbers 13-94 appear in Part II which a separate posting on this website.]

95. MTN. TNC/W/FA (Dec. 20, 1991) GATT Secretariat UR-91-0185.

96. TRIPS, art. 3(1).

97. NAFTA, art. 1703: National Treatment.

98. For example, NAFTA, art. 1703(1), says, in respect of secondary use (broadcasting or other public communication) of sound recordings, a Party may limit the rights of another Party's performers to those rights its nationals are accorded in the territory of such other Party. For the cultural industries, there is between Canada and any other NAFTA Party also the exception in NAFTA, Annex 2106, considered in Part 5 below.

99. TRIPS, art. 39(3), and NAFTA, art. 1711(5).

100. NAFTA, art. 1711(6). However, subject to this provision, each Party may implement abbreviated approval procedures on the basis of bioequivalence and bioavailability studies.

101. NAFTA, art. 1707: Protection of Encrypted Program-Carrying Satellite Signals.

102. The 1991 changes to Canada's Broadcasting Act and Radio-communication Act are explained by the Department of Communications, Decoding the Law on Decoding (1991) and Distribution Undertakings and the Broadcast Act (1991).

103. The Brussels Convention does not apply where the originating organization's signals are intended for direct reception by the general public (art. 3).

104. The wide-ranging right of public performance in Berne, article 11, applies only with respect to dramatic, dramatico-musical, and musical works. For the broader category of "literary and artistic works," article 11bis provides rights of broadcasting and communication to the public of the broadcast of the work. However, article 11bis rights seem not to apply to the nonbroadcasting network situation of an electronic data base from which a work may be transmitted entirely by wire, i.e. via modem and telephone lines. See Masouye, supra note 28, at 64-69 (1978).

105. Conventional broadcasting may be considered to be "real time" because reception occurs virtually simultaneously with the origination of the transmission embodying the communication.

106. "Communication" was absent from the Berne Convention until the 1928 Rome Act which introduced art.11bis (1) stipulating that "authors of literary and artistic works shall enjoy the exclusive right of authorizing the communication of their work to the public by broadcasting." With the same language carried forward to the current 1971 Paris Act, the 1948 Brussels Act, article 11(1)(ii), gave authors of dramatic, dramatico-musical and musical works the exclusive right of authorizing any "communication to the public of the performance of their works." Similarly, the text of article 11bis in the current 1971 Paris Act dates from the 1948 Brussels Act.

107. NAFTA, art. 1701(2)(b).

108. NAFTA, art. 1705: Copyright.

109. NAFTA, art. 1721: Definitions, provides an open (i.e. inclusive) definition of "public" applying to dramatic, dramatico-musical, musical and cinematographic works. For other kinds of literary and artistic works (e.g., computer programs, legal and financial data bases, etc.), the author's exclusive right to authorize or prohibit the work's communication to the public does not have to be read in accordance with the article 1721 definition.

110. NAFTA, art. 1705(2)(c).

111. NAFTA, art. 1139: Definitions.

112. WTO Agreement on Trade-Related Investment Measures, art. 1.

113. Canada, Dept. Foreign Aff. Int'l Trade, Agreement Establishing the World Trade Organization: Canadian Statement on Implementation, Canada Gazette, Part 1, Dec. 31, 1994, at 4855: "The TRIMS Agreement fails to capture the importance of foreign direct investment as an agent of international integration and economic development. There is still need for a multilateral investment code that addresses the full range of issues related to discriminatory regulation of the conduct of business. The comparable chapter in NAFTA is much further along in capturing the reality of the global economy." WTO Member trade ministers will soon be examining the possibility of enhanced investment disciplines within the WTO framework.

114. Ongoing FTAA developments regarding IP and other topics are weekly reported in detail from Washington in an authoritative newsletter entitled Inside NAFTA. This key publication covers NAFTA implementation and dispute settlement as well as trade policy in the Americas. From the same publisher comes Inside U.S. Trade which is invaluable with respect to the WTO and global aspects of the United States' participation in the world trading system.

115. Joint Declaration, Summit of the Americas, Second Ministerial Trade Meeting, Cartagena, Colombia, March 21, 1996. The IPRs Working Group will create an inventory of the hemisphere's IP agreements, treaties and arrangements, including all international conventions to which countries are Parties; compile an inventory of the hemisphere's IP protection laws, regulations and enforcement measures and, on the basis of this information, identify areas of commonality and divergence; recommend methods to promote the understanding and effective implementation of TRIPS; identify possible areas for technical assistance involving both IPRs administration and enforcement; analyze the implications of emerging technologies for FTAA IPRs protection; and make specific recommendations on how to proceed in building the FTAA in this area.

116. For Canadian enforcement, see Gordon F. Henderson, Intellectual Property Litigation, Legislation and Education: A Study of the Canadian Intellectual Property and Litigation System, Report for Department of Consumer and Corporate Affairs (1991).

117. For example, see the central role played by administrative sanctions and criminal offences in Title 7, Chapters II-III of Mexico's industrial property law (Ley de fomento y proteccion de la propiedad industrial). In Chile, the possibility of civil compensation for the IPR owner depends on a prior administrative or criminal finding of a violation of the copyright law (Derecho de autor) or the industrial property law (Normas aplicables a los privilegios industriales y proteccion de los derechos de propiedad industrial).

[Notes numbers 118-206 are in Parts III-V as separate postings on this website.]

297. Without prejudice to the possibility of a NAFTA Party using State to State dispute settlement under Chapter 20 to enforce rights under the Investment Chapter. See NAFTA, art. 1115.

298. Over-protection may also be a significant danger in the domestic context. For a relevant warning, see Paula Samuelson, "The Copyright Grab," Wired, Jan. 1996, at 135-38, 188-91.

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