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There are two things that concern the duplicate content issue in seo: the duplicate content filter and penalty.

The duplicate content filter

The first one is a filter in Google ranking and indexing algorithms that strives to find replicates of information and filter them out. The filtering means that when two similar documents on separate URl addresses are found, Google determines which document is more important, which one is the “original” and which one is a copy. Next, the duplicated document is removed from indexes and only one document is presented in search engine results.

Filtering is not so dangerous to websites as its goal is to keep the indexes clean and out of duplicated content which in many cases is spam. That way Google serves more relevant information and keep records of original content.

This filtering means, for instance, that if your site has articles in “regular” and “printer” versions and neither set is blocked in robots.txt or via a noindex meta tag, we’ll choose one version to list.

The duplicate content penalty

Beside filters Google uses a special penalty which results in “appropriate adjustments in the indexing and ranking of the sites involved” in the duplicate content procedure. “As a result, the ranking of the site may suffer, or the site might be removed entirely from the Google index, in which case it will no longer appear in search results.”

So, for instance, Google finds two identical websites with the same content and discovers that this situation was made on purpose and not by accident. In most cases its about scraped content, spam attempts, doorway pages, too much similar content on two websites etc. At that time Google determines the original source of the content and adjusts the web pages rankings for certain keywords. The penalty concerns only certain pages involved in duplicate content, not whole websites.

If you see sudden fall in rankings for certain keywords or if you see some pages of your website not showing in results or showing on far places in results you may be experiencing a duplicate content penalty.

The most dangerous manifestation of duplicate content penalty is when your home page or other most important pages of your website get penalized. In that case your home page (which usually attracts the biggest number of visitors and gets the highest rankings in search engines) will not show on high positions for desired keywords or may not appear at all. In that situation you may loose a lot of potential customers and traffic.

Nevertheless
“…we prefer to focus on filtering rather than ranking adjustments … so in the vast majority of cases, the worst thing that’ll befall webmasters is to see the “less desired” version of a page shown in our index” - Google Webmaster Central.