ATM Services Lose Bid To Stop Diebold Service Policy

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A federal court last week denied a request by the nation's ATM servicers to block a Diebold policy requiring the servicers to provide maintenance and upgrades, including those on the mandated Triple DES security standard, through the nation's leading ATM manufacturer.

In denying the Financial & Security Products Association's request for a preliminary injunction against the Diebold policy, the U.S. District Court for the Northern District of California ruled that the trade association representing more than 350 ATM servicers failed to demonstrate a likelihood of success on the merits of its suit, but deferred final judgment on the case.

The group is challenging a Diebold policy that originally barred third-party servicers from buying, installing or performing maintenance on the company's EPP4 keypad, required for Triple Data Encryption Standard upgrades, but now allows outsiders to perform the work as long as they pay a licensing fee. The ATM servicers argued the policy amounted to a restraint of free trade under the Sherman Antitrust Act, because the keypads are necessary to upgrade a large portion of the nation's 250,000 ATMs by the Dec. 21 deadline set by Visa and MasterCard for Triple DES compliance.

A Diebold spokesperson said the company applauded the court decision as a protection of its patent on ATM parts and equipment and noted that Diebold has changed its policy in an effort to satisfy both its customers and its business partners, including the third-party maintenance providers.

"What it (the ruling) means is the court found that Diebold's practices are fair and reasonable and that we have the right to control over our service policies. It's as simple as that," said Joseph Richardson, spokesperson for the ATM manufacturer.

Representatives of the servicers' group were not prepared to comment last week on the court ruling.

Diebold, the biggest provider of ATMs to the U.S. market, originally developed the EPP4 keypad to meet the Triple DES standard. While Diebold originally allowed third-party maintenance firms to purchase the keypads, the company changed it policy in 2004 so that only Diebold personnel could install the part. Diebold said the policy was required by Visa and MasterCard to track the locations of the keypads and because the company wanted to protect its proprietary technology and prevent third parties from unlocking patented software features that were not licensed by the ATM owner.

Policy Change In March

After protests from both customers and ATM servicers, Diebold changed the policy in March to allow servicers to purchase the keypads, as long as they entered a licensing agreement and paid a licensing fee.

The servicer group claims the licensing terms are too onerous.

But Diebold says if the servicers find the terms of the required license agreement unacceptable, Triple DES alternatives are available from at least two other sources, ATM Exchange and PI Systems, which provide adequate substitutes to the company's keypads.

Diebold, which has manufactured as many as half the nation's ATMs either under its own name or the InterBold partnership with IBM, has already serviced 30,000 ATMs for the Triple DES upgrade and has contracts for as many as 20,000 more, Richardson said.

In last week's ruling, the federal court suggested that the market the servicers' group claims Diebold is manipulating is a narrow one and does not qualify under the Sherman Act.

"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 to be completed by Dec. 31, 2005," the court ruling sad. "The court doubts whether a relevant market could be defined as narrowly as this. The record does not demonstrate that (the servicers) 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."

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