Diebold Inc. v. Qsi, Inc.

DIEBOLD INCORPORATED, et al., Plaintiffs, v. QSI, INC., Defendant.

CASE NO. 5:16-cv-02481

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF OHIO EASTERN DIVISION

July 28, 2017

MAGISTRATE JUDGE KATHLEEN B. BURKE

MEMORANDUM OPINION AND ORDER

I. Introduction

Plaintiffs Diebold Incorporated and Diebold Self-Service Systems (collectively, "Diebold") supply end users, such as banks, with Diebold-branded Automated Teller Machines ("ATMs"). They also own copyrights to certain ATM software programs. Defendant QSI, Inc. ("QSI"), is a third party servicer of ATMs and buys parts from Diebold.

Diebold's Complaint accuses QSI of copyright infringement, misappropriation of trade secrets, and breach of contract. Doc. 1. Diebold alleges that QSI improperly made copies of Diebold's copyrighted ATM software programs. Doc. 1. QSI has filed a counterclaim, seeking a declaratory judgment that the licensing agreements Diebold enters with end users authorize QSI to make backup copies. Doc. 12. QSI alleges that, as an agent of its end user customers, it is a third party beneficiary of the licensing agreements, which allow end users to create backup copies of the software programs. Doc. 12, p. 8, ¶¶ 13-14, and p. 10, ¶ 23. QSI further alleges that Diebold personnel knew of, and acquiesced in, QSI's creation of backup copies, which it left in the possession of the end users. Id., p. 8, ¶ 15.

Diebold has filed a Motion to Dismiss QSI's Counterclaim ("Motion") under Fed. R. Civ. P. 12(b)(1). Diebold has submitted with its Motion a copy of the master licensing agreement it enters with end users. Diebold argues, based on the terms of that agreement, that QSI lacks standing to assert its Counterclaim, and the Court thus lacks subject matter jurisdiction, "because QSI is neither a party to nor a third-party beneficiary under the license agreements." Doc. 15, p. 1. The Motion has been fully briefed.

As is more fully explained below, Rule 12(b)(1) does not permit a factual attack on the Court's subject matter jurisdiction that implicates the merits of the claim sought to be dismissed. Because the Motion is such an attack, it fails. Accordingly, the Court DENIES Diebold's Motion to Dismiss.

II. Background

Diebold's Complaint: Diebold alleges that it is the owner of all right, title and interest, including copyrights, in numerous computer programs used with ATMs. Doc. 1, p. 2, ¶¶ 9-10. Diebold refers to its alleged copyrighted works of computer software collectively as "Agilis Computer Programs". Doc. 1, p. 2, ¶ 10. Diebold asserts that Diebold and QSI were parties to a Parts Supply Agreement, which allowed QSI to purchase ATM parts but prohibited any unauthorized possession or use of Diebold's Agilis Computer Programs, or any other Diebold software. Doc. 1, p. 3, ¶ 12. Diebold alleges that "contrary to the provisions of the Parts Supply Agreement, QSI has and continues to engage in the practice of possessing and using Diebold's Agilis Computer Programs and other software residing on Diebold brand ATMs owned bybanks." Doc. 1, p. 3, ¶ 13. Also, Diebold alleges that "QSI's regular practice is to have its technicians copy Diebold's software, including the Agilis Computer Programs, on to laptop computers or other storage devices, which are then used by QSI's technicians to provide service and maintenance for Diebold brand ATMs, all in violation of the Parts Supply Agreement and Diebold's copyrights." Doc. 1, p. 3, ¶ 15.

QSI's Counterclaim: QSI asserts that it "has service and maintenance agreements with various end users of Diebold ATMs[]"¹ and "[f]or QSI customers who have entered into a Diebold master licensing agreement, QSI provides comprehensive service and maintenance, including creation of backup copies of the Agilis Computer Programs, in accordance with their particular master licensing agreements." Doc. 12, p. 8, ¶¶ 10-11. Further, QSI asserts that "[a]s an agent of end users of Diebold ATMs who have entered into master licensing agreements QSI is a third party beneficiary of those agreements[]" and "QSI has created backup copies of Agilis Computer Programs in full conformity with the master licensing agreements entered into by its customers, which allow an end user of Diebold ATMs to create backup copies of Agilis Computer Programs to be possessed and used by that end user in the event a Diebold ATM's software 'crashes.'" Doc. 12, p. 8, ¶¶ 13-14. QSI also alleges that it created backup copies of the software, which it left with the end users, "with the full knowledge, acquiescence and even explicit instruction of Diebold software support personnel." Id., p. 8, ¶ 15.

QSI's Prayer for Relief seeks a judgment:

declaring that the [Diebold] master licensing agreements . . . grant QSI the authority to create backup copies of the Agilis Computer Programs to be possessed and used by . . . end users in the event aDiebold ATM's software crashes and that QSI's previous and current use of the . . . Programs otherwise comports with applicable law.

Doc. 12, p. 11, ¶ 5.

Diebold's Motion to Dismiss: Diebold's Motion is a factual, as distinguished from a facial, attack under Fed. R. Civ. P. 12(b)(1) on the Court's subject matter jurisdiction. Doc. 15-1, pp. 4-5. The Motion relies on evidence, specifically the terms of the Diebold Comprehensive Agreement ("DCA"),² to argue that QSI is not a third-party beneficiary under that agreement and therefore lacks standing to bring its counterclaim. See id., pp. 1-3, 6-7.

In its Motion, Diebold states, "When most customers purchase ATMs from Diebold they typically enter into" the DCA, which "includes provisions that address the licensing terms for the ATM software." Id., p. 2. Diebold contends that those provisions provide that the "only entity that receives a license and any rights related to Diebold's software is the Customer, i.e., the entity that is actually a party to the agreements[,]" "only the Customer is authorized to make a backup copy of the ATM software, and the Customer is only allowed to make one backup copy[,]" and "Customer agrees not to transfer the Software to anyone other than Diebold, not to lend, rent, or lease any of the Software, not to allow a third party to operate or access the Software, and not to move a copy of the Software from one computer or device to another." Id., pp. 6-7 (emphasis in original). In reliance upon those provisions, Diebold argues that "[t]he express terms of the [DCA] clearly establish that Diebold had no intention that QSI or any other third party should benefit in any way from its customer contracts . . . [and] preclude theCustomer from allowing any third party - such as QSI - from accessing and making backup copies of the Diebold software." Id., p. 7.

QSI opposes Diebold's Motion, arguing that it has Article III standing to assert its counterclaim and that "[a]s an authorized agent for Diebold's Customers, under the terms of the [DCA], QSI has the authority to create backup copies of the Agilis Computer Programs to be possessed and used by those Customers in the event a Diebold ATM's software crashes." Doc. 18, pp. 1-2, 4.

III. Law and Analysis

A. Standing

Article III of the Constitution limits a federal court's jurisdiction to consideration of cases and controversies. Lujan v. Defenders of Wildlife, 504 U.S. 555, 559 (1992). "Standing is an essential and unchanging part of the case-or-controversy requirement of Article Lujan, 504 U.S. at 560, and is a jurisdictional requirement, National Organization for Women, Inc. v. Scheidler, 510 U.S. 249, 255 (1994); see also Binno v. American Bar Association, 826 F.3d 338, 344 (6th Cir. 2016) ("Standing is, of course, a threshold requirement for federal jurisdiction."). Thus, a "litigant [must] have 'standing' to challenge the action sought to be adjudicated in the lawsuit." Valley Forge Christian College v. Americans United for Separation of Church and State, Inc., 454 U.S. 464, 471 (1982). "The term 'standing' subsumes a blend of constitutional requirements and prudential considerations[.]" Id.

"[T]he irreducible constitutional minimum of standing contains three elements." Lujan, 504 U.S. at 560; see also Valley Forge Christian College, 454 U.S. at 472. First, the party must have suffered an injury in fact, i.e., an invasion of a legally protected interest, which is concrete and particularized and actual or imminent as opposed to conjectural or hypothetical. Lujan, 504U.S. at 560. Second, there has to be a causal connection between the injury and the conduct complained of, i.e., the injury must be fairly traceable to the conduct of the opposing party. Id. Third, it must be likely, as opposed to only speculative, that the injury will be redressed by a favorable decision. Id. at 561. The burden of establishing these elements rests with the party invoking federal jurisdiction. Id.

In addition to the constitutional requirements, federal courts also take into account prudential considerations when considering the question of standing. Valley Forge Christian College, 454 U.S. at 474-475; see also Smith v. Jefferson County Bd. of School Com'rs, 641 F.3d 197, 206 (6th Cir. 2011) (discussing prudential requirements for standing developed by the Supreme Court). First, a party generally must assert its own legal rights and interests and cannot base its legal claim on the legal rights and interests of third parties. Valley Forge Christian College, 454 U.S. at 474. Second, a party's claim must be more than a generalized grievance. Id. at 474-475. Third, a party's "complaint [must] fall within 'the zone of interests to be protected or regulated by the statute or constitutional guarantee in question.'" Id.

The Declaratory Judgment Act expressly refers to the constitutional requirement of standing, stating that, "in a case of actual controversy within its jurisdiction . . . any court of the United States . . . may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief...