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The Sherlock Holmes star is expected to play the central role of the drug-taking detective in Inherent Vice.
The period film set in the 1960s has been adapted from the novel by experimental writer Thomas Pynchon.
Downey Jr was able to sign up to the film after dropping Disney's Oz, the Great and Powerful, according to Risky Business.
Paul Thomas Anderson, who directed There Will Be Blood, is also working on a second film alongside the Pynchon adaptation, which will star regular collaborator Philip Seymour Hoffman.
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