Diebold Incorporated et al v. QSI, Inc.

Filing 37

Memorandum Opinion and Order denying Diebold's Motion to Dismiss (Doc. 15 ) QSI's declaratory judgment Counterclaim for lack of subject matter jurisdiction. Magistrate Judge Kathleen B. Burke on 7/28/2017. (D,I)

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

DIEBOLD INCORPORATED, et al.,

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Plaintiffs,
v.
QSI, INC.,
Defendant.

I.

CASE NO. 5:16-cv-02481

MAGISTRATE JUDGE
KATHLEEN B. BURKE
MEMORANDUM OPINION
AND ORDER

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

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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 by

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banks.” 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 a

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Diebold and QSI apparently compete with respect to servicing Diebold-branded ATMs. QSI’s Chief Executive
Officer states, in his Declaration submitted with QSI’s Opposition Brief, that end users often “lack the in-house
expertise to provide service for their ATMs, and customarily enter into service agreements either with the
manufacturer or with a third party service provider such as QSI.” Doc. 18-1, p. 2, ¶ 4.
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Diebold 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. 151, 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 the

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Diebold has attached a copy of the DCA to the Motion accompanied by a declaration of its attorney attesting to its
authenticity. Docs. 15-2, 15-3. Diebold states that the DCA “is what QSI refers to in its counterclaim as the
‘Diebold master licensing agreement.’” Doc. 15-1, p. 3. QSI has submitted a Declaration agreeing that the DCA
submitted by Diebold “is in material form the same as the agreement referred to in QSI’s Counterclaim and as to
which QSI seeks a declaratory judgment” and that “the terms at issue in this action are identical to the terms” in the
DCA submitted by Diebold. Doc. 33-1, p. 1, ¶ 3.
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Customer 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.
A.

Law and Analysis

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 III[,]” 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, 504

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U.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 is or could be sought.” Medlmmune, Inc. v.
Genentech, Inc., 549 U.S. 118, 126 (2007) (quoting 28 U.S.C. § 2201(a)). Thus, “[w]hen
seeking a ruling under the Declaratory Judgment Act, [a party] must also demonstrate standing
pursuant to the statute.” Motsinger v. Nationwide Mut. Ins. Co., 920 F.Supp.2d 637, 642-643 (D.
S.C. 2013) (addressing constitutional and Declaratory Judgment Act standing). “[T]he phrase
‘case of actual controversy’ in the [Declaratory Judgment] Act refers to the type of ‘Cases’ and

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‘Controversies’ that are justiciable under Article III.” Medlmmune, 549 U.S. at 126 (internal
citations omitted). Thus, “[t]o establish standing under the Declaratory Judgment Act, there
must be an ‘actual controversy’ in a constitutional sense.” Ampro Industries, Inc. v. Dr. Farrah
Gray Pub., LLC, 2013 WL 5426257, * 2 (W.D. Tenn. Sept. 26, 2013) (relying on National Rifle
Ass’n of America v. Magaw, 132 F.3d 272, 279 (6th Cir. 1997)). To determine whether a
declaratory judgment action satisfies the case or controversy requirement, the question is
“whether the facts alleged, under all the circumstances, show that there is a substantial
controversy, between parties having adverse legal interests, of sufficient immediacy and reality
to warrant the issuance of a declaratory judgment.” Medlmmune, Inc., 549 U.S. at 127 (relying
on Maryland Casualty Co. v. Pacific Coal & Oil, Co., 312 U.S. 270, 273 (1941)).
B.

Motion to Dismiss standard
A party may challenge a federal court’s jurisdiction under Fed. R. Civ. P. 12(b)(1)

through either a facial attack or a factual attack. Gentek Bldg. Products, Inc. v. SherwinWilliams Co., 491 F.3d 320, 330 (6th Cir. 2007); see also Vantu v. Echo Recovery, L.L.C., 85
F.Supp.3d 939, 941 (N.D. Ohio 2015).
“A facial attack on the subject-matter jurisdiction alleged in the complaint questions
merely the sufficiency of the pleading” Gentek Bldg. Products, Inc., 491 F.3d at 330. Thus,
“[w]hen reviewing a facial attack, a district court takes the allegations in the complaint as true[.]”
Id. If the allegations in the complaint “establish federal claims, jurisdiction exists.” Id.
In contrast, when a factual attack on the court’s subject-matter jurisdiction is made, “no
presumptive truthfulness applies to the allegations.” Id. “[T]he district court must weigh the
conflicting evidence to arrive at the factual predicate that subject-matter does or does not exist.”
Id. “[T]he district court has wide discretion to allow affidavits, documents, and even a limited

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evidentiary hearing to resolve jurisdictional facts.” Id. “But a district court engages in a factual
inquiry regarding the complaint’s allegations only when the facts necessary to sustain
jurisdiction do not implicate the merits of the plaintiff’s claim.” Gentek Bldg. Products, Inc.,
491 F.3d 330 (internal citations omitted and emphasis supplied). Thus, “[i]f . . . an attack on
subject-matter jurisdiction also implicates an element of the cause of action, then the district
court should ‘find that jurisdiction exists and deal with the objection as a direct attack on the
merits of the plaintiff’s claim.’” Id. (emphasis in original) (internal citations omitted); see also
Vantu, 85 F.Supp.3d at 942 (“Rule 12(b)(1) does not permit a factual attack on the court’s
subject-matter jurisdiction when, as is the case here, the attack ‘implicates the merits of the
plaintiff’s claim.’”) (quoting Gentek Bldg. Products, Inc., 491 F.3d at 330); Nadeau v. Nye, 934
F.Supp.2d 932, 936 (N.D. Ohio 2013) (relying on Gentek Bldg. Products, Inc., 491 F.3d at 330);
American Civil Liberties Union v. Mote, 423 F.3d 438, 441, n. 1 (4th Cir. 2005) (When declining
to decide the question of standing, the court stated, “when the contested basis for jurisdiction is
also an element of a plaintiff’s federal claim . . . the claim should not be dismissed for lack of
jurisdiction.”).
C.

Analysis
Among its claims, Diebold asserts that QSI infringed Diebold’s copyrights by copying,

reproducing and/or distributing Diebold’s unpublished copyrighted Agilis Computer Programs.
Doc. 1, p. 4, ¶ 17. In its Counterclaim, QSI asserts that:
There exists between QSI and Diebold a substantial controversy regarding the
scope of permissible activities of QSI under the master licensing agreements
entered into between Diebold and end users of Diebold ATMs regarding use of the
Agilis Computer Programs [and] [t]he controversy between the parties is of
sufficient immediacy to justify exercise of this Court’s discretion under 28 U.S.C.
§ 2201 and Federal Rule of Civil Procedure 57 to issue a declaratory judgment
regarding the scope of permissible activities of QSI under the master licensing

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agreements entered into between Diebold and end users of Diebold ATMs
regarding use of the Agilis Computer Programs.
Doc. 12, p. 10, ¶¶ 21-22.
Diebold’s Motion challenges QSI’s standing to assert its Counterclaim, arguing:
QSI is not a third-party beneficiary to Diebold’s licensing agreements with its
customers, and therefore QSI has no standing to assert its counterclaim for a
declaration of rights under those agreements. QSI simply has no rights and
therefore no standing to assert any, and its counterclaim should be dismissed with
prejudice.
Doc. 15-1, p. 6.
The Court finds that the facts alleged in QSI’s Counterclaim “show that there is a
substantial controversy, between parties having adverse legal interests, of sufficient immediacy
and reality to warrant the issuance of a declaratory judgment.” Medlmmune, Inc., 549 U.S. at
127. Thus, QSI has standing to seek a ruling under the Declaratory Judgment Act, 28 U.S.C. §
2201. See e.g., Motsinger, 920 F.Supp.2d 637, 642-643 (denying motion to dismiss and holding
that insurer had standing to assert counterclaim seeking a declaratory judgment regarding
insured’s entitlement to Class I policyholder status where the insured’s claim to that status was
based on her alleged common law marriage). Oppenheimer v. Maestro Music, Inc., 2015 WL
12086085, * 4 (N.D. Ga. June 5, 2015), is a case that bears some factual similarity to this one
and is also instructive. Plaintiff Oppenheimer alleged that defendant Maestro Music infringed
his copyrights to photographs of live musical performances. Maestro Music filed a declaratory
judgment counterclaim alleging that Oppenheimer had uploaded his photographs to two websites
and that Maestro’s use of the photographs was lawful either through a license or implied license

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with the websites. The Court denied Oppenheimer’s motion to dismiss the counterclaim,
rejecting his argument that defendant lacked standing. 3
Diebold argues that QSI is neither a party to nor an intended third-party beneficiary under
the DCA and therefore lacks standing to assert its counterclaim. Doc. 15-1, pp. 5-7. QSI
contends that it satisfies the requirements for Article III standing, arguing that (1) Diebold’s
lawsuit against QSI constitutes a “concrete and particularized” actual injury-in-fact; (2) the
injury is traceable to Diebold by virtue of Diebold’s filing of its Complaint; and (3) a decision
favorable to QSI on its declaratory judgment counterclaim, i.e., that it is a third-party beneficiary
of the DCA, will redress QSI’s injury. Doc. 18, p. 4. Diebold does not challenge these
assertions nor does Diebold specifically discuss or address Article III standing. Instead, Diebold
relies on an Ohio court of appeals’ decision for the proposition that, “As a general rule a nonparty may not assert contract rights unless it is a third-party beneficiary under the contract or
such standing is conferred by statute.” Doc. 15-1, p. 5 (citing and quoting City of Akron v.
Castle Aviation, Inc., 1993 WL 191966, at *2 (Ohio Ct. App. June 9, 1993).
Diebold correctly states that, under Ohio law, a non-party to a contract generally must be
a third-party beneficiary of the contract in order to have enforceable rights under the contract.
See Castle Aviation, Inc., 1993 WL 191966, at *2; see also Huff v. FirstEnergy Corp., 130 Ohio
St.3d 196, 200 (2011). However, “Rule 12(b)(1) does not permit a factual attack on the court’s
subject-matter jurisdiction when . . . the attack ‘implicate[s] the merits of the plaintiff’s claim’.”
Vantu, 85 F.Supp.3d at 942 (quoting Gentek Bldg. Products, Inc., 491 F.3d at 330). For
example, in Vantu, 85 F.Supp.3d at 941, defendant argued that, because it was not a “debt
collector” under the FDCPA, the court lacked subject matter jurisdiction to hear a claim alleging

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The plaintiff challenged standing on the basis that the defendants’ asserted injury was speculative. Oppenheimer,
2015 WL 12086085, * 3.
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that it violated the FDCPA. The court rejected the defendant’s argument, concluding that
whether the defendant was, in fact, a debt collector went to the merits of the plaintiff’s FDCPA
claim, not the court’s power to adjudicate the claim.
Similarly, here, the question whether QSI is a third-party beneficiary of the DCA or
otherwise lawfully made backup copies of Diebold’s software goes to the merits of QSI’s
counterclaim, not the Court’s ability to adjudicate the claim. The answer to that merits question
will be determined at a later date. For the reasons set forth herein, at this juncture, dismissal
based on lack of standing is not warranted.
IV.

Conclusion

Based on the foregoing analysis, the Court finds that it has jurisdiction over QSI’s
Counterclaim. Accordingly, Diebold’s Motion to Dismiss (Doc. 15) QSI’s declaratory judgment
Counterclaim for lack of subject matter jurisdiction is DENIED.

July 28, 2017

______________________________
Kathleen B. Burke
U.S. Magistrate Judge

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