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So the implication of the article is that Microsoft deliberately made a YT app that they knew Google would be forced to C&D just so they could use that as a cog in a PR campaign? Seems penny wise pound foolish if true.

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No, they got tired of begging Google for a Youtube app for close to three years for Windows Phone, so they went ahead and made one so that Windows Phone users will finally have a good app instead of getting frustrated by Google's deliberate strategy to make Windows Phone less attractive.

And Google wants to pull away that app from WP users by using legal bullying tactics.

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