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Dropped third is in place when 1) there are two outs, OR 2) there are less than two outs and first base unoccupied at time of pitch.
It's easy to remember this when you think of not providing an advantage to the defense. For example, it there was 1 out with bases loaded, the catcher would always drop the third strike, then get an easy double play by stepping on home and throwing to first. So rule in place to avoid this advantage.
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