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This is in Blink implementation, but not in the spec: https://code.google.com/p/chromium/codesearch#chromium/src/third_party/WebKit/Source/core/html/HTMLTitleElement.cpp&l=55
Why blink has that? I could imagine someone want to override normal <title>. Also, the less special cases web components stuff has, the better.
Though, setting document.title becomes a bit odd if title can be in the shadow dom.
Content in the shadow DOM should by default act "like normal". For a <title> that means that if the Document is in the <title>'s parent chain, and there are no <title>s "ahead of it" in document order, then it affects the Document's title. Otherwise it does not. Shadow DOM never has a Document in its parent chain, and so it should not affect the Documents title. If you want to build your own custom <title> element, then you can do that by using the Custom Elements spec and set Document.title.
Also note that we should not set the "in document" flag for Shadow content in Gecko. That has a very random set of effects. What effects it has is very Gecko specific and changes over time depending on how we implement various elements.
*** This bug has been marked as a duplicate of bug 22361 ***