Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_04-cv-04347/USCOURTS-cand-3_04-cv-04347-1/pdf.json

Nature of Suit Code: 410
Nature of Suit: Antitrust
Cause of Action: 15:2 Antitrust Litigation

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

FINANCIAL & SECURITY PRODUCTS

ASSOCIATION, a not-for-profit corporation,

Plaintiff,

 v.

DIEBOLD, INCORPORATED, an Ohio

corporation, erroneously sued as DIEBOLD,

INC.,

Defendant. /

No. C 04-04347 WHA

ORDER DENYING MOTION FOR

PRELIMINARY INJUNCTION

INTRODUCTION

In this antitrust action, plaintiff seeks a preliminary injunction. Because this order finds

that plaintiff has failed to demonstrate a likelihood of success on the merits, irreparable injury,

that the balance of hardships tips sharply in its favor or that relief is necessary for advancement

of the public interest, the preliminary-injunction motion is DENIED.

STATEMENT

Plaintiff Financial & Security Products Association (“FSPA”) is a non-profit

organization bringing this lawsuit on behalf of its members. Its members include, among other

entities, several third-party maintenance companies (“TPMs”) that service automated teller

machines (“ATMs”) manufactured by others. Defendant Diebold, Incorporated is one such

manufacturer of ATMs. In addition to new ATMs, Diebold also sells refurbished ATMs, spare

parts and repair services.

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The complaint, filed on October 14, 2004, alleges (1) monopolization in violation of § 2

of the Sherman Act, (2) attempted monopolization in violation of § 2 of the Sherman Act and

(3) unfair competition in violation of California Business & Professions Code §§ 17200 et seq.

FSPA seeks injunctive relief and disgorgement of profits; the complaint does not seek damages. 

This action arises out of alleged changes in Diebold’s policies with respect to certain parts,

diagnostic software and technical manuals. Specifically, the complaint alleges that Diebold

previously had an “open-door policy” on servicing by TPMs, allowing virtually unlimited

access to spare parts and diagnostic software (Compl. ¶ 13). Now, Diebold has allegedly closed

that door, at least with respect to a special upgrade now underway.

In 2003, Visa and MasterCard announced that all ATM owners would soon be required

to upgrade their machines to conform with a new mandatory encryption standard known as the

Triple Data Encryption Standard (“3DES”), which would allow for more secure transactions. 

All 3DES upgrades must be completed by December 31, 2005; most ATM owners are currently

in the process of upgrading (Mercina Decl. ¶¶ 4–5, Exh. A).

To meet this new security standard, Diebold developed its EPP4 keypad. Although

initially Diebold permitted TPMs to purchase EPP4 keypads, it changed its policy in 2004, so

only Diebold personnel could install this part. Its website indicated that this policy was

necessary both because (1) it was required by Visa and MasterCard to track the locations of its

EPP4 keypads and (2) it wished to protect its proprietary technology and prevent third parties

from unlocking patented software features that were not licensed by the ATM owner (Hahm

Exh. B). In March 2005, however, in response to customer complaints, Diebold changed its

policies to allow TPMs to purchase EPP4 keypads, provided that they enter into a licensing

agreement (Ducey Decl. ¶ 24, Exhs. G & H). FSPA contends that the agreement terms are

onerous to TPMs (see Hahm Exh. K). In response, Diebold points out that 3DES-compliant

alternatives are available from at least two sources, ATM Exchange and PI Systems (Mercina

Exhs. B & C). It argues that these alternatives are adequate substitutes, such that a TPM can

still provide upgrades for owners of Diebold ATMs, even if the TPM declines to enter into a

licensing agreement to obtain EPP4 keypads.

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In addition, FSPA alleges that while Diebold’s diagnostics software was previously

protected with the password “000000,” certain tools in a software application called TCS+ are

now protected with real passwords. Diagnostics software is used by technicians to pinpoint the

source of error in a malfunctioning ATM. Diebold asserts that basic diagnostic tools are still

available and that only advanced software features it was developing for its new Opteva line of

ATMs are password-protected (Mercina Decl. ¶¶ 12–19). Diebold also points out that the

TCS+ password would be provided at no charge to any TPM that enters into a license

agreement for the diagnostics software (see Hahm Exh. L; Lucas Decl. ¶ 7).

Finally, FSPA argues that Diebold has also recently changed its policies with regard to

its technical documentation for ATMs. Now, manuals are only provided if the TPM enters into

yet another licensing agreement (see Hahm Exh. M). FSPA argues that the terms of this license

are so unfavorable to TPMs that it would eliminate all profits from servicing Diebold ATMs

(McLaughlin Reply Decl. ¶ 10; Mulder Reply Decl. ¶ 11; Womack Reply Decl. ¶ 10). Diebold

counters that manuals are not required to service ATMs; rather, they merely make a

technician’s job easier. In fact, when Diebold technicians service ATMs made by other

manufacturers, they often do so without the benefit of such manuals (Bucci Decl. ¶¶ 16–17).

FSPA now moves for a preliminary injunction which would enjoin Diebold from all of

the aforementioned conduct and require it to revert to its pre-2004 “open-door” policies. 

Diebold argues that its new policies were enacted to protect its intellectual property rights in its

next-generation Opteva ATMs. In particular, Diebold points to copyright protection and six

patents (all issued in 2003 or later) that apparently cover the diagnostic software and operational

software employed by its Opteva ATMs as well as the method of encryption made possible by

its EPP4 keypad (Ducey Exhs. A–F). FSPA has not challenged the validity of Diebold’s

intellectual property rights.

ANALYSIS

1. LEGAL STANDARD.

To obtain a preliminary injunction, the traditional equitable factors considered are: 

(1) whether there is a strong likelihood of success on the merits, (2) the possibility of

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 The Supreme Court has identified certain factors which must be evaluated on a case-by-case basis to

determine whether a proper party is bringing the private antitrust lawsuit: (1) the nature of the plaintiff’s alleged

injury; (2) the directness of the injury; (3) whether the harm is speculative; (4) the risk of duplicative recovery;

and (5) the complexity in apportioning damages. Eagle v. Star-Kist Foods, Inc., 812 F.2d 538, 540 (9th Cir.

1987)(citing Associated Gen. Contractors of Calif., Inc. v. Calif. State Council of Carpenters, 459 U.S. 519,

538–45 (1983)). Because a private lawsuit under § 16 “raises no threat of multiple lawsuits or duplicative

recoveries,” unlike a § 4 case, some of these factors would not be relevant to determining standing in such

actions. Cargill, Inc. v. Monfort of Colo., Inc., 479 U.S. 104, 111 n.6 (1986).

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irreparable injury to plaintiff if the preliminary relief is not granted, (3) a balance of hardships

favoring the plaintiff, and (4) (in some cases) the public interest. Alternatively stated, the

moving party must demonstrate either (1) a likelihood of success on the merits and the

possibility of irreparable injury, or (2) the existence of serious questions going to the merits and

the balance of hardships tips sharply in its favor. Johnson v. Cal. State Bd. of Accountancy, 72

F.3d 1427, 1430 (9th Cir. 1995). These are not two separate tests. Rather, “[t]his analysis

creates a continuum: the less certain the district court is of the likelihood of success on the

merits, the more plaintiffs must convince the district court that the public interest and balance of

hardships tip in their favor.” Southwest Voter Registration Educ. Project v. Shelley, 344 F.3d

914, 917–18 (9th Cir. 2003). Under either formulation of this standard, however, a significant

threat of irreparable harm must be shown. Big County Foods, Inc. v. Bd. of Educ. of the

Anchorage Sch. Dist., 868 F.2d 1085, 1088 (9th Cir. 1989). 

As described below, this order finds that FSPA has failed to meet its burden. 

Accordingly, preliminary injunctive relief is inappropriate.

2. LIKELIHOOD OF SUCCESS ON THE MERITS.

a. Standing.

At the outset, this order questions whether FSPA has standing to seek an injunction on

behalf of its members. Standing in antitrust cases “requires an inquiry beyond that performed to

determine standing in a constitutional sense.”1 Bubar v. Ampco Foods, Inc., 752 F.2d 445, 448

(9th Cir. 1985). Private actions to enforce antitrust laws are authorized by Sections 4 and 16 of

the Clayton Act. Because the complaint does not seek damages, this order focuses on the latter,

which allows private actions for injunctive relief “against threatened loss or damage by a

violation of the antitrust laws.” 15 U.S.C. 26. To have standing under § 16, a plaintiff must

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 An earlier Eighth Circuit decision did hold that an association “otherwise appropriate to present the

issues involved should not be precluded from bringing § 16 actions.” Associated Gen. Contractors of N. Dakota

v. Otter Tail Power Co., 611 F.2d 684, 690 (8th Cir. 1979). Yet, this decision was written before Cargill and

did not refer to Brunswick at all.

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demonstrate (1) a threatened loss or injury cognizable in equity (2) proximately resulting from

the alleged antitrust violation. Rohnert Park v. Harris, 601 F.2d 1040, 1044 (9th Cir. 1979). 

An antitrust plaintiff must allege “antitrust injury, which is to say injury of the type the antitrust

laws were intended to prevent and that flows from that which makes the defendants’ acts

unlawful.” Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977)(noting that

antitrust laws are intended to protect competition, not competitors)(emphasis in original). 

Regardless of whether the action proceeds under § 4 or § 16, the Supreme Court has reinforced

that “the plaintiff must still allege an injury of the type the antitrust laws were designed to

prevent.” Cargill, Inc. v. Monfort of Colo., Inc., 479 U.S. 104, 111 (1986).

Here, FSPA does not allege that it has suffered or will suffer from any antitrust injury

itself. Rather, it asserts that it will indirectly be harmed as its members are negatively affected

by Diebold’s policy changes (see Vrabec Decl. ¶ 5; Murray Exh. F at 29:8–16). In other areas

of the law, the Supreme Court has said that an association has Article III standing to bring suit

on behalf of its members if: (1) its members would otherwise have standing to sue on their

own; (2) the interests it seeks to protect are germane to the organization’s purpose; and

(3) neither the claim asserted nor the relief requested requires the participation of individual

members. Hunt v. Wash. State Apple Advertising Comm’n, 432 U.S. 333, 343 (1977). But, no

appellate authority has ever extended this rule to override the Brunswick/Cargill requirements

under the federal antitrust laws.

Southwest Suburban Board of Realtors v. Beverly Area Planning Association, 830 F.2d

1374 (7th Cir. 1987) is the closest case of any such extension.2

 The Southwest Surburban

decision, however, ultimately found that the plaintiff lacked standing because the Hunt factors

were not met. Id. at 1380–81. Significantly, the Seventh Circuit stated it was “skeptical

whether [the association] could meet the third part of the Hunt test in light of the Cargill

decision requiring § 16 plaintiffs to demonstrate the threat of antitrust injury.” Id. at 1381. So

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 Even if representational standing is appropriate in § 16 cases, it is unclear whether the interests of

only some members (i.e., TPMs) are germane to FSPA’s overriding purposes, when many of its members are

not even involved in the ATM industry. Moreover, while the fact that FSPA only seeks injunctive relief (rather

than damages) “substantially lessens the need for individual member participation,” establishing antitrust injury

involves complex questions of fact that will likely require proof from individual members, unlike the questions

of law presented in the typical agency review cases in which representational standing is now well established. 

Compare Southwest Suburban Bd. of Realtors v. Beverly Area Planning Ass’n, 830 F.2d 1374, 1381 (7th Cir.

1987).

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too here. In the absence of clear Ninth Circuit or Supreme Court authority extending Hunt to

antitrust cases, this Court is reluctant to ignore the Brunswick/Cargill requirement that a

plaintiff must prove it has or will suffer antitrust injury itself. This alone is dispositive.3

b. Monopolization and Attempted Monopolization.

Even assuming the FSPA has standing, it is also far from certain that plaintiff will

succeed on the merits, at least on the record currently before the Court. Section 2 of the

Sherman Act, if read literally, broadly provides that monopolization or attempted

monopolization is illegal. 15 U.S.C. 2. Yet, merely possessing a “monopoly in the popular

sense” is not enough to violate § 2, unless the monopolist “has acquired or maintained his

strategic position, or sought to expand his monopoly, or expanded it by means of those

restraints of trade which are cognizable under § 1.” United States v. Griffith, 334 U.S. 100, 106

(1948).

To prove monopolization, a plaintiff must prove that the defendant has monopoly power

(i.e., the power to control prices or to exclude competition) in the relevant market; that such

power was willfully acquired or maintained; and that plaintiff sustained antitrust injury. 

Proving attempted monopolization requires a plaintiff to show a specific intent to control prices

or to destroy competition; predatory or anticompetitive conduct directed to accomplishing that

end; a dangerous probability of success, and antitrust injury. Conduct that is found not to be

willful acquisition or maintenance for a charge of monopolization cannot be predatory in a

charge of attempted monopolization either. Supermarket of Homes, Inc. v. San Fernando

Valley Bd. of Realtors, 786 F.2d 1400, 1404–05 (9th Cir. 1986).

With respect to whether Diebold possesses monopoly power, the parties disagree as to

how the relevant market should be defined. Because of differences between ATMs made by

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 Plaintiff further argues that the sale of new Diebold parts, especially EPP4 keypads, is a market in

which Diebold (naturally) has 100% market share. This definition of the relevant market is rejected because

there are numerous sources for used Diebold parts, which are essentially equivalent for purposes of refurbishing

or servicing ATMs.

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 The word “monopoly” is used cautiously. While a patent confers an exclusive right to make, use or

sell the patented items, such an exclusive right does not automatically translate in to a “monopoly” under the

antitrust laws. That is a more complicated question. A monopoly for antitrust purposes presupposes a

cognizable product market. For example, if the relevant product market were “computers,” a patent on

“computer chips” would not be a relevant monopoly.

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different manufacturers, spare parts for Diebold machines are not interchangeable with parts for

other ATMs. Thus, plaintiff argues that the relevant market is spare parts and services for

Diebold ATMs.4

 Defendant counters that ATM owners are sophisticated customers that engage

in life-cycle pricing (i.e., calculating the total cost of purchasing equipment and servicing it

during its lifetime), such that alternative brands and refurbished machines are also considered at

the time of purchase. If so, then the relevant product market is ATMs, of which Diebold is only

one brand. This order defers ruling on which proffered market definition is correct, because

plaintiff has not sufficiently demonstrated that it is likely to succeed in proving the other

elements of a § 2 violation.

A primary obstacle that plaintiff will need to overcome in succeeding on the merits is

the fact that Diebold’s ATM and associated software appear to be protected by several

recently-issued patents. A patent, is by its very nature, a lawful monopoly, at least for the

duration of the patent term.5

 FSPA does not challenge the validity of defendant’s patents, nor

does it allege any fraudulent procurement or misuse of patent rights, which would be actionable

as antitrust violations. See Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382

U.S. 172 (1965). In addition, Diebold’s manuals and software are also protected by copyright

law.

In attempting to harmonize the “obvious tension” between intellectual property and

antitrust laws, both of which serve the public interest, the Ninth Circuit has adopted the

following rebuttable presumption: while the unilateral refusal to license a patent or copyright

could constitute exclusionary conduct, “a monopolist’s ‘desire to exclude others from its

[protected] work is a presumptively valid business justification for any immediate harm to

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consumers.’” Image Tech. Servs. v. Eastman Kodak Co., 125 F.3d 1195, 1218 (9th Cir. 1997)

(internal citation omitted). Here, FSPA has not successfully rebutted Diebold’s explanation that

its policies were enacted to protect its intellectual property rights (as well as reduce the risk of

identity theft).

As for the alleged antitrust injury, this order notes that the anticompetitive effects, if

any, of Diebold’s new policies are not likely to be felt throughout the entire aftermarket of

servicing and maintaining Diebold ATMs. FSPA’s allegation boils down to a claim of

decreased competition for the specific service of upgrading Diebold ATMs with EPP4 keypads,

a one-time event for any particular machine, which is set to be completed by December 31,

2005. The Court doubts whether a relevant market could be defined as narrowly as this. The

record does not demonstrate that TPMs are in danger of losing contracts for ATM servicing or

maintenance more generally, even for servicing or maintaining Diebold ATMs. Put differently,

Diebold’s new policies will not eliminate competition except, if at all, as to installing a single

component and only between now and the end of the year.

Moreover, even as to 3DES upgrades, plaintiff’s case for injury to competition is not

powerful, although it is plausible. Plaintiff’s best argument is that Diebold will sell the EPP4

part and installation know-how to TPMs only at list prices, which would be cost-prohibitive. 

Therefore, no TPM will be able to compete with Diebold in the upgrade to EPP4 keypads, or so

it is argued. But the argument is based on the assumption that TPMs cannot raise their prices to

end users to cover the additional costs. This is a fast glide over thin ice. The record does not

convincingly prove up this assumption. TPMs already price their services as much as 10-20%

below Diebold. They may be able to pass on the incremental expenses and still make a profit,

for all the record shows. Only experience under the Diebold regime will tell the tale. Right

now, all we have is speculation of doom. This is not enough to warrant the drastic remedy of a

mandatory preliminary injunction to regulate Diebold’s policies and price structures.

c. Unfair Competition.

As the same conduct is alleged to be both an antitrust violation and unlawful or unfair

business acts in violation of California Business & Professions Code §§ 17200 et seq., the Court

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need not conduct a separate analysis. “To permit a separate inquiry into essentially the same

question under the unfair competition law would only invite conflict and uncertainty and could

lead to the enjoining of procompetitive conduct.” Chavez v. Whirlpool Corp., 113 Cal. Rptr.2d

175, 184 (Cal. App. 2d Dist. 2001). Regardless, this order notes that FSPA is more likely to

demonstrate that it has standing to represent its members with regard to a § 17200 claim than

under the more rigorous test for antitrust.

3. IRREPARABLE INJURY.

Not only has FSPA failed to demonstrate a likelihood of success on the merits, but it has

also failed to prove that irreparable injury will result if a preliminary injunction is not granted. 

Irreparable harm must not be speculative or merely alleged to be imminent; in other words, “a

plaintiff must demonstrate immediate threatened injury as a prerequisite to preliminary

injunctive relief.” Caribbean Marine Servs. Co. v. Baldridge, 844 F.2d 668, 674 (9th Cir.

1988)(emphasis in original). While the threat of being driven out of business would be

sufficient to establish irreparable harm, mere loss of revenue is not; such injury would be

compensable in damages. Am. Passage Media Corp. v. Cass Commuunications, Inc., 750 F.2d

1470, 1473–74 (9th Cir. 1985).

Again, this order stresses that FSPA has not attempted to prove that it will suffer any

irreparable injury itself. Instead, FSPA proffers declarations regarding four of its members,

TPMs that were allegedly negatively affected by Diebold’s policies: (1) Atlanta Computer

Group; (2) Genpass Service Solutions; (3) Shields Business Solutions; and (4) FiSource (see

Adlerman Decl., Mulder Decl., Shields Decl., and Womack Decl., respectively). Yet, close

examination of their statements reveals that FSPA essentially argues that these TPMs are only

at risk of being driven out of the business of servicing Diebold ATMs, not being driven out of

business altogether.

Indeed, while some TPMs indicated they have lost contracts to service Diebold

machines, others could not identify any particular deals lost as a result of Diebold’s policies,

much less that they were at risk of being driven out of business (Murray Exh. A at 146:6–19;

Exh. D at 100:15–21). All four indicated that they, like most TPMs, refurbished or serviced

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ATMs made by other manufacturers as well. One TPM, (Advent), even characterized itself as a

“growing business” (Murray Exh. B at 48:1–2). Even for the two TPMs that did lose some

customers, it was admittedly a small percentage of their overall business (Murray Exh. C at

93:7–125:6 [lost contracts on approximately 25 out of 1000 ATMs serviced]; Exh. E at

206:11–207:12 [lost contracts on fewer than 100 out of 6500–7000 ATMs serviced]). No TPM

has indicated that its business depended exclusively on servicing only ATMs made by Diebold.

As such, the injuries suffered by TPMs appear wholly financial in nature. FSPA has

failed to meet its burden of demonstrating that any of its members are at risk of going out of

business or otherwise suffering irreparable harm. (Although some TPMs made conclusory

allegations of irreparable harm to good will and reputation, FSPA has proffered no evidence in

support of these claims.)

Diebold’s new policies may render it more difficult for TPMs to install EPP4 keypads, if

their customers so desire; at least, that is the allegation. There is some evidence to support this,

but at this point, an injunction would be premature and anticipatory. Again, the actual effects of

Diebold’s policy changes are still unknown. FSPA assumes that TPMs cannot raise the prices

they charge to end-users to cover their costs. It assumes that the 3DES-compliant alternatives

are not viable in the marketplace. These assumptions may eventually prove correct, but this

record is not convincing enough. At this point, it would be rash to enter a mandatory injunction

to regulate the terms and conditions of Diebold’s policies. If it turns out that plaintiff’s

predictions are correct, then its member TPMs (or ATM owners) could bring their own lawsuits

to recover damages to the extent that they are able to prove an antitrust injury.

4. BALANCE OF HARDSHIPS AND PUBLIC INTEREST.

The foregoing is sufficient. Although it is unnecessary to assess the remaining criteria

for a preliminary injunction, this order notes that plaintiff fails to demonstrate that the balance

of hardships tips strongly in its favor. The balance of the hardships tips, if at all, in defendant’s

favor. If this injunction were granted, Diebold would essentially be forced to give up its

intellectual property rights. Under plaintiff’s proposed return to an “open door” policy, it would

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have to grant royalty-free licenses to any TPM that requested access to its proprietary materials.

Allowing defendant to enforce its patents and copyrights also serves the public interest.

CONCLUSION

For the reasons stated above, plaintiff's motion for a preliminary injunction is DENIED. 

If plaintiff ultimately prevails after a trial on the merits, the question of injunctive relief would

be revisited at that time. As it was not necessary to rely upon any evidence to which objections

were raised, this order declines to rule on those objections.

IT IS SO ORDERED.

Dated: July 8, 2005 WILLIAM ALSUP

UNITED STATES DISTRICT JUDGE

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