Understanding the new Defend Trade Secrets Act

On May 11, 2016, President Obama signed into law the Defend Trade Secrets Act of 2016 (“DTSA”). The DTSA is designed to take effect immediately. The text of the DTSA is available here.

What is the DTSA?

The DTSA is a new federal law designed to curtail unfair competition by creating a civil cause of action for misappropriation of trade secrets. Legal commentators have described the law as the most significant expansion of federal intellectual property law in over fifty years. The statute’s core provision provides that: “An owner of a trade secret that is misappropriated may bring a civil action under this subsection if the trade secret is related to product or service used in, or intended for use in, interstate or foreign commerce.”

What does the DTSA mean for employers?

  • Access to federal court. Prior to the enactment of the DTSA, there existed no federal civil cause of action for trade secret theft. As a result, a patchwork of state law governed misappropriation litigation. While the general acceptance and adoption by states of the Uniform Trade Secrets Act resulted in some uniformity, differences in state trade secret misappropriation law of significant consequence remain. The DTSA does not preempt this state law; its enactment is instead expected to result in the development of a body of uniform federal trade secrets misappropriation law that complements existing state law.
  • Access to new civil seizure remedy. The most significant difference between the DTSA and existing state trade secret misappropriation law is that, under the DTSA, a court can impose an ex parte civil seizure of property. Upon a showing of “extraordinary circumstances,” a federal court may issue an order seizing such property as is “necessary to prevent the propagation or dissemination of the trade secret.”
  • No adoption of inevitable disclosure doctrine. Under the inevitable disclosure doctrine, a plaintiff may prove misappropriation of trade secrets by establishing that a former employee’s new employment is such that he or she will inevitably rely on or use the plaintiff’s trade secrets. Many states have rejected this doctrine. The DTSA is designed to ensure that the doctrine is not introduced in states that have rejected it. The statute forbids injunctions that “conflict with an applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business” or that limit employment based “merely on the information the person knows.”
  • New notice to employees required. The DTSA includes a whistleblower protection provision that provides immunity for disclosure of trade secrets: (a) to government officials or an attorney solely for the purpose of reporting or otherwise investigating a suspected violation of law, or (b) in a complaint or other document filed under seal in a lawsuit or other proceeding. Employers must give notice of this immunity from criminal and civil liability in “any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” Employers who fail to comply with this requirement cannot recover punitive damages or attorneys’ fees that may be available in an action against the employee under the DTSA.

What should employers do now?

Employee misappropriation of confidential and trade secret information poses a growing threat to employer investment in innovation and competitive market position. The DTSA is a new tool that employers may use to access federal courts to manage and eliminate employee misappropriation of trade secrets. In light of its recent enactment, we recommend that employers consider the following actions:

  • Review existing policies regarding confidential and trade secret information and existing employee confidentiality agreements to ensure compliance with the DTSA’s new employee notice requirement.
  • Recognize that the DTSA does not lessen the burden of establishing the existence of a protectable trade secret. In this regard, the most important action that an employer can take is to identify its trade secret information and to take reasonable measures to keep the information secret. Such measures may include implementing policies restricting the use and disclosure of confidential and trade secret information, requiring employees to sign confidentiality agreements, marking trade secret information as “confidential,” and restricting access to confidential and trade secret information.
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Employer Compliance with Texas’ New Open-Carry Law

Texas House Bill No. 910, effective January 1, 2016, allows handgun license holders in Texas to carry a holstered handgun openly anywhere that a concealed handgun is permitted. Employers’ existing policies prohibiting guns on employer property are lawful under the new open carry law, and Texas law already requires private property owners that want to keep guns from their property to notify the public “orally or by written communication” that guns are prohibited. Although the notice aspect of the law has not changed, the precise wording of the notice to prohibit handguns has changed.

While the new statute allows property owners – or those with authority to act for the owner – to communicate the prohibition “orally” or in writing, the most effective form of communication to visitors will probably be the statutorily-prescribed signage. Beginning January 1, 2016, to prohibit the open carry of handguns, a sign must specifically state as follows:

“PURSUANT TO SECTION 30.07, PENAL CODE (TRESPASS BY LICENSE HOLDER WITH AN OPENLY CARRIED HANDGUN), A PERSON LICENSED UNDER SUBCHAPTER H, CHAPTER 411, GOVERNMENT CODE (HANDGUN LICENSING LAW), MAY NOT ENTER THIS PROPERTY WITH A HANDGUN THAT IS CARRIED OPENLY.”

“DE ACUERDO CON LA SECCIÓN 30.07 DEL CÓDIGO PENAL (INGRESO SIN AUTORIZACIÓN DE UN TITULAR DE UNA LICENCIA CON UNA PISTOLA A LA VISTA), UNA PERSONA CON LICENCIA SEGÚN EL SUBCAPÍTULO H, CAPÍTULO 411, CÓDIGO DEL GOBIERNO (LEY SOBRE LICENCIAS PARA PORTAR PISTOLAS), NO PUEDE INGRESAR A ESTA PROPIEDAD CON UNA PISTOLA A LA VISTA.”

A sign must display word for word the exact language above to convey proper notice. In addition, the notices must be contained on separate signs, in English and Spanish, in contrasting colors with block letters at least one inch in height, and displayed in a conspicuous manner clearly visible to the public. The State does not itself make these signs available; they must either be created by the property owner or purchased from a third party.

To the extent a property owner also wants to prohibit concealed carry of handguns, below is the additional signage requirement to do so. These signs must be posted in addition to the no-open-carry signs:

“PURSUANT TO SECTION 30.06, PENAL CODE (TRESPASS BY LICENSE HOLDER WITH A CONCEALED HANDGUN), A PERSON LICENSED UNDER SUBCHAPTER H, CHAPTER 411, GOVERNMENT CODE (HANDGUN LICENSING LAW), MAY NOT ENTER THIS PROPERTY WITH A CONCEALED HANDGUN.”

“DE ACUERDO CON LA SECCIÓN 30.06 DEL CÓDIGO PENAL (INGRESO SIN AUTORIZACIÓN DE UN TITULAR DE UNA LICENCIA CON UNA PISTOLA OCULTA), UNA PERSONA CON LICENCIA SEGÚN EL SUBCAPÍTULO H, CAPÍTULO 411, CÓDIGO DEL GOBIERNO (LEY SOBRE LICENCIAS PARA PORTAR PISTOLAS), NO PUEDE INGRESAR A ESTA PROPIEDAD CON UNA PISTOLA OCULTA.”

As with the open-carry signs, a concealed-carry sign must display word for word the exact language above to convey proper notice and follow the other rules noted above with respect to English and Spanish versions, contrasting colors, block letters, letter size, and conspicuous posting.

In addition to posting the signs, employers desiring to prohibit open and/or concealed carry of guns may want to develop a policy prohibiting the practice to put employees clearly on notice.

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Managing employees with psychiatric disabilities

Today I had the honor of speaking on a panel with three distinguished advocates for disability rights, Lewis Bossing of the Bazelon Center for Mental Health Law, Brian East of Disability Rights Texas, and Christopher Kuczynski of the U.S. Equal Employment Opportunity Commission.

Here are eight things employers need to know when managing employees with psychiatric disabilities:

1. Employees with psychiatric disabilities, such as depression, anxiety disorder, PTSD, OCD, social anxiety disorder, and bipolar disorder, are underrepresented in the workplace. There is no evidence that these employees are any more prone to outbursts than other employees.
2. Relatively simple accommodations for employees with psychiatric disabilities include:
• Providing written instructions, task lists, a calendar, or other reminders for employees who have concentration problems
• Reduce distractions for employees through the use of space enclosures or a private office, and allowing them to play music or use headphones
• Assist employees to divide projects into smaller tasks, and to make daily to-do lists
• Schedule regular “check-in” meetings for larger projects
• For stress relief, allow longer breaks, time off for counseling, all questions to be answered by one favored supervisor, and additional time to learn new tasks
• Provide positive reinforcement and set clear expectations
(Thank you to Brian East for these suggestions, and to the Job Accommodation Network for additional resources.) More difficult accommodation requests include requests for extended leave, job reassignment, and telecommuting. I recommend asking for legal advice when considering these requests.
3. Sometimes coworkers question why an employee is receiving special treatment. Take a proactive approach and train all employees on the ADA and accommodation process. Employers cannot disclose the existence or nature of an employee’s disability to her coworkers, but can reference the accommodation process.
4. I often hear from clients that an employee appears “depressed” or “bipolar.” Assuming that an employee has a psychiatric impairment can result in liability under the ADA, if the employer “regards” the employee as disabled.
5. The ADA does not require employers to put up with bad behavior from any employee, even a disabled employee. Employers may hold disabled employees to the same performance standards as non-disabled employees. But they may be required to accommodate employees to allow them to meet those standards.
6. Always take an employee’s request for help with a job due to a medical issue seriously. The law requires employers to engage with employees to discuss job accommodations, even if the employer doesn’t agree to an accommodation. Document all conversations with employees, and ask the employee to fill out a form when requesting an accommodation.
7. Employers can request medical documentation of the existence of a disability, and the need for a particular accommodation. Just don’t ask for more, i.e. complete medical records. I recommend using a form or letter that the employee gives to her doctor.
8. If you believe that an employee’s disability makes him a threat to himself or the workplace, or renders him unable to do his job, you can require a fitness for duty exam. This is a tricky area of the law, and I recommend seeking legal counsel before acting.

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EEOC Issues Controversial Guidance on Pregnancy Discrimination

The U.S. Equal Employment Opportunity Commission (“EEOC”) issued updated Enforcement Guidance on pregnancy discrimination on July 14, 2014, over the objection of two of the Commissioners.  Along with the updated Guidance, the EEOC also issued a Q&A and a Fact Sheet for employers.  Together, these documents confirm the EEOC’s broad interpretation of the Pregnancy Discrimination Act (“PDA”) and coverage of pregnancy under the Americans With Disabilities Act (“ADA”).  The following are some of the key points contained in the Enforcement Guidance:

  1. The PDA protects workers from discrimination based on a current pregnancy, a past pregnancy, and an intention to become pregnant.
  2. Lactation or breastfeeding is a pregnancy-related medical condition and is thus covered by the PDA.
  3. An employer is required to treat a worker temporarily unable to perform the functions of her job because of a pregnancy-related condition in the same manner it treats other workers similar in their ability or inability to work, whether by providing modified tasks, alternative assignments, or fringe benefits such as disability leave and leave without pay.
  4. Employers are required by the PDA to offer light duty assignments to pregnant workers if light duty assignments are provided to non-pregnant workers who have similar work restrictions.
  5. An employer may not refuse to treat a pregnant worker the same as other workers who are similar in their ability or inability to work by relying on a policy that makes distinctions based on the source of a worker’s limitations (e.g., a policy of providing light duty only to workers injured on the job).
  6. An employer may not compel a worker to take leave because she is pregnant, as long as she is able to perform her job.
  7. As with other fringe benefits, employers who offer health insurance must include coverage of pregnancy, childbirth, and related medical conditions.
  8. Parental leave (as opposed to leave to recover from pregnancy/childbirth) must be offered on the same basis to both male and female workers.
  9. Pregnancy-related impairments may be disabilities within the meaning of the ADA, and thus must be reasonably accommodated.
  10. Hostile work environment claims may be based on pregnancy

Interestingly, the United States Supreme Court has also signaled its intent to weigh in on the interpretation of the PDA in the next term.  On July 1, 2014, the Court agreed to hear the case of Young v. UPS. The issue in Young is whether an employer must provide accommodations to pregnant employees with work restrictions on the same basis that it provides accommodations to non-pregnant employees with similar work restrictions, e.g., light duty assignments without regard to the source of the work restriction.

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New Limits On General Personal Jurisdiction: Where Is An Out-of-State or Foreign Corporation “At Home”?

One of the first questions that must be asked (and answered quickly) when a lawsuit is filed in federal court is whether personal jurisdiction may be exercised over the defendant.  Personal jurisdiction may be predicated on either specific jurisdiction or general (or “all purpose”) jurisdiction.  Specific jurisdiction focuses on the defendant’s contacts with the state in which it is sued and the conduct alleged.  General jurisdiction, on the other hand, is premised on the defendant’s contacts with the forum state, irrespective of whether those contacts relate to the claims being asserted.  General jurisdiction is often phrased as whether the defendant is “at home” in the forum state, usually meaning the place of incorporation or a principal place of business.  If so, it can potentially be sued in its “home” location for conduct that occurred anywhere in the world.

Significant decisions defining the scope of general jurisdiction have been relatively few.  That changed on January 14, 2014 with the U.S. Supreme Court’s potential game-changer in Daimler AG v. Bauman. The question answered by the Court in Daimler was whether the conduct of a foreign corporation’s U.S. subsidiary may subject the foreign corporation to suit in any state in which the U.S. subsidiary makes substantial sales.   Until Daimler, there was a dispute among the circuit courts whether the conduct of a subsidiary may be attributed to a parent corporation for purposes of establishing personal jurisdiction.

In a unanimous decision, the Court said “No.”  Justice Ginsburg explained that whether or not the sales of the U.S. subsidiary in the forum state (California) could be attributed to the parent corporation, Daimler, was inconsequential.  The only relevant issue was whether Daimler itself was “at home” in California.  Because Daimler was not incorporated in California and did not have a principal place of business in California, the Court concluded there was no general jurisdiction over it in California.   The Court reasoned that outside of an “exceptional” case, general jurisdiction will generally be limited to the places where a corporation is incorporated and its principal place of business.  In a significant footnote, the Court recognized that “[g]eneral jurisdiction . . . calls for an appraisal of a corporation’s activities in their entirety, nationwide and worldwide.  A corporation that operates in many places can scarcely be at home on all of them.”

The Bottom Line for Employers: Corporations with national and international operations should carefully scrutinize the personal jurisdiction allegations asserted against it.  If a corporation is sued in a state in which it is not incorporated and does not have a principal place of business, Daimler makes it unlikely (outside of the undefined, “exceptional“ case) that general personal jurisdiction will exist over it.  It also establishes that corporations are not “at home” in every state in which they (or a subsidiary) engage in substantial business, thus significantly narrowing the forums available to plaintiffs in lawsuits against out-of-state and foreign corporations.

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Fifth Circuit Court of Appeals Holds that Title VII and the PDA Cover “Lactation Discrimination”

In Equal Employment Opportunity Commission v. Houston Funding II, Ltd., No. 12-20220 (May 30, 2013), the Fifth Circuit ruled that Title VII of the Civil Rights Act and the Pregnancy Discrimination Act (“PDA”) prohibit discrimination against women who are lactating or expressing milk. It held that lactation is a “related medical condition” to pregnancy and childbirth under the PDA. See 42 U.S.C. § 2000e-(k) (discrimination on the basis of sex includes, but is not limited to, “on the basis of pregnancy, childbirth, or related medical conditions”). The appeals court reversed the trial court’s holding that the PDA did not protect women from discrimination on the basis of lactation.

In this case, the plaintiff had alleged that she was fired after she informed a manager that she intended to return to work, and requested use of a back room to express milk. Upon hearing this request, the manager told her that her job had been filled. She subsequently received a letter terminating her for job abandonment. The appeals court rejected the company’s claim that this was “breast pump discrimination” unprotected under the PDA. The court further found that the ex-employee had presented sufficient evidence that the termination reason was pretextual, including that she had remained in weekly contact with the company during her maternity leave, and that the manager had told her she may need extra leave if she was still breastfeeding.

Notably, the appeals court stated that Title VII and the PDA cover a “wide[] range of employment decisions entailing female physiology,” and cited to precedent that found unlawful a policy that did not allow post-partum women to return to work until they had sustained a normal menstrual cycle. It is unclear how far this language could reach, for example, to women who have health problems related to other aspects of their reproductive systems.

Bottom Line for Employers: Employers may not take an adverse action against a woman because she is lactating, or on the basis of other as-yet undescribed conditions that relate more generally to “female physiology.” The Fifth Circuit made clear in this decision that Title VII and the PDA do not require special accommodations to women due to pregnancy and related medical conditions, including special accommodations for lactation. However, under amendments to the Fair Labor Standards Act (the “FLSA”), at a minimum employers must provide rest breaks and a clean, secure area for new mothers to express milk.

A link to the opinion is here: http://www.ca5.uscourts.gov/opinions/pub/12/12-20220-CV0.wpd.pdf

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Update Your Company’s Fair Credit Reporting Act Summary of Consumer Rights Form Prior to January 1, 2013

The government is changing your hiring process.  The federal Fair Credit Reporting Act (“FCRA”) requires that employees and job applicants provide written consent before an employer can use a third party credit reporting agency to obtain a credit report, including a criminal background check.  In addition, before an employer can take an adverse employment action against an individual on the basis of information learned through a credit report, it must provide him/her with a copy of the FCRA’s Summary of Consumer Rights form.

When the new Consumer Financial Protection Bureau recently took over enforcement of the FCRA from the Federal Trade Commission, it revised several key forms to reflect this change, including the required Summary of Consumer Rights form.  Use of the new Summary of Consumer Rights form, available here, is mandatory beginning January 1, 2013.

Bottom Line for Employers:

Employers need to update their Summary of Consumer Rights form by January 1, 2013 to be in compliance with the FCRA.  Please note that some states have additional credit and background check procedures, which should also be reviewed periodically for compliance.

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Common Sense Tips to Keep Your Company Out of the Courtroom

A couple of months ago, the South Texas College of Law held its annual, highly-regarded Employment Law Conference.  Three lawyers who represent employees talked about common mistakes they see employers make, and also what facts persuade them to bring lawsuits.  These plaintiffs’ lawyers talk to many employees about unfair treatment at work, but only a few of these discussions actually turn into lawsuits.  Here is what they said about employer behavior that gets companies sued:

1.   Most employees go to see plaintiffs’ lawyers because they feel they have been treated unfairly, not illegally.  But even though these employees may have no legal claim, a smart plaintiffs’ lawyer will ask them about other issues unrelated to unfair treatment, like how they are paid.  And it is much more likely that a company is violating a wage and hour law than an EEO law.

Tip:  Keep your employees and ex-employees out of plaintiffs’ lawyers’ offices.  And this can help by treating them fairly, consistently, and kindly, even at the moment of termination.

2.    A bad termination process can screw up an otherwise great discipline process.  Plaintiffs’ lawyers ask specific questions about the termination process to potential clients.  They look for termination reasons that don’t match what happened.  Or terminations that are based on facts and investigations that occur AFTER the employee is terminated.

Tip:  Take your time in terminating an employee, and make sure you have the ACTUAL reason for discharge well-stated in termination documentation.

3.    Plaintiffs’ lawyers are sensitive to how companies investigate employee complaints.  They find it suspicious when companies don’t talk to the people whom the complaining employee identifies as important witnesses.  Or when the company concludes no wrongdoing occurred, despite bad facts.

Tip: Make sure that you have closed all loops in an investigation, which includes talking to the person accused of wrongdoing, and talking to everyone (within reason) identified by other key witnesses.  Keep notes and records of these conversations.

4.    Watch out for inconsistent policy decisions.  These plaintiffs’ lawyers love to ask managers in their deposition what policy the employee violated that led to termination.  Many times, the manager can’t fully explain the policy.  Or the terminated employee points to others who were not fired for violating the same policy, a key type of evidence in discrimination and retaliation cases.

Tip:  Read any policy before you fire or discipline someone for breaking it.  Sometimes it doesn’t say what you think it says.  And check to see how the company has treated others for similar violations.

5.    FLSA suits are still strong.  A wage and hour lawyer talked about his favorite types of overtime lawsuits these days:

–  Off the clock work.  Time spent preparing for work pre- and post-shift, like logging on to a computer to be ready to start work at 8 a.m. sharp.

–  Travel time.  The rules for travel pay are complex.  In particular, time spent traveling between jobs during the day is regularly compensable.

–  Tip pools.  It’s easy to break the rules.

–  Independent contractors.  Often they meet the “employee” test and are due overtime.

– Assistant managers & financial services employees.  These employees may be non-exempt.

Tip:  Don’t put off that FLSA self-audit.

And take to heart the plaintiffs’ lawyers’ parting words:  “We’re teaching companies to follow the law …. One lawsuit at a time.”

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SEC Declares Dodd-Frank Act Whistleblower Bounty Program “Open for Business,” Issues First Program Award

On August 21, 2012, the U.S. Securities and Exchange Commission awarded its first ever whistleblower bounty under the Dodd-Frank Act.  The bounty, awarded to a whistleblower who provided the Commission with documents and information that expedited its investigation of fraud on investors, was awarded just over one year after the SEC’s Dodd-Frank whistleblower regulations took effect.

The SEC did not release any details on the company implicated in the fraud or the substance of the whistleblower’s report.  The Commission’s press release stated that the whistleblower’s assistance ultimately resulted in a court ordering over $1 million in sanctions and that the whistleblower will receive the maximum bounty of 30% of the sanctions collected.  The whistleblower has currently received only $50,000 because the SEC has collected only $150,000 of the total sanctions imposed.

Mary L. Schapiro, SEC Chairman, stated that “[t]he whistleblower program is already becoming a success.”  Sean McKessy, Chief of the SEC’s Whistleblower Office, added that since the bounty program was established in August 2011, about eight tips a day have been submitted to the SEC.  He also stated that “[t]he fact that we made the first payment after just one year of operation shows that we are open for business and ready to pay people who bring us good, timely information.”

The SEC’s first bounty award makes real the incentive for whistleblowers to report suspected fraud and compliance-related issues directly to the SEC.  In light of this, employers should review their compliance reporting policies and consider making revisions that stress the value and importance of internal reporting.

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Recent Department of Labor Decision Makes Sarbanes-Oxley Whistleblower Retaliation Complaints a Concern for Private Firms that Contract with Public Companies

Spinner v. David Landau & Associates, ARB Case Nos. 10-111, 10-115 (May 31, 2012) is only the most recent in a series of Department of Labor Administrative Review Board (“ARB”) decisions expanding the anti-retaliation protections afforded employees under section 806 of the Sarbanes-Oxley Act (“SOX”).  What makes Spinner significant is the fact that it is the first decision to conclude that SOX protections can, under certain circumstances, extend to employees of private firms.  Also significant is the fact that, in reaching its conclusion, the ARB explicitly refused to adopt the reasoning of a previously issued First Circuit Court of Appeals decision that reaches the contrary conclusion.

The Decision

Spinner arose from a SOX retaliation complaint filed by an internal auditor employed by a private auditing firm.  He alleged that the firm terminated his employment after he reported internal control and reconciliation problems at a public company that had engaged the firm to provide auditing services.

After its initial investigation of the complaint, the DOL determined that the Complainant, as a contractor of a public company, was covered by SOX but that the employer had avoided liability by establishing that it would have terminated his employment even if he had not engaged in protected activity.  The Complainant appealed to an Administrative Law Judge, and the employer moved for summary decision, arguing that, as an employee of a private firm, Complainant was not covered by SOX’s anti-retaliation protections.  The ALJ granted the employer’s motion, and the Complainant appealed to the ARB.

On appeal, the ARB reversed the ALJ, concluding that SOX’s whistleblower protection provision covers employees of privately held contractors and subcontractors of public companies. As support for its conclusion, the ARB found that neither the plain language nor legislative history of SOX indicates that Congress intended the statute’s protections to extend only to employees of public companies. Significantly, the ARB discussed and declined to adopt the First Circuit’s recently issued analysis in Lawson v. FMR LLC, 670 F.3d 61 (1st Cir. 2012), which held, in a case of first impression, that SOX’s whistleblower protections do not apply to employees of private firms that contract with public companies, noting that Spinner did not arise in the First Circuit and, as a result, that it was not bound by Lawson.

Spinner’s Implications

Spinner’s import is clear: private firms that contract with public companies must take appropriate measures to prepare to handle SOX whistleblower retaliation claims.  Such firms should immediately become familiar with SOX and implement procedures for the receipt and treatment of retaliation complaints.

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