Third-Party ATM Maintenance Firms Cry Foul

ATM repair and maintenance is a lucrative business: Start with about $750 per bank-owned ATM for simple fixes such as paper jams and $1,500 per ATM for additional repairs and maintenance. Multiply that by approximately 380,000 ATMs in the U.S., and that's approaching a billion-dollar market.

But banks are paying too much for ATM service, argues the Financial & Security Products Association (FSPA; Albuquerque, N.M.), a trade association for third-party maintenance firms. The FSPA filed a suit in the U.S. District Court in San Francisco alleging that ATM manufacturer Diebold (Canton, Ohio) has engaged in anti-competitive behavior by requiring banks to go to the company for upgrades and advanced maintenance on its new Opteva-branded ATMs. "It was suggested that Diebold, for Opteva and later models, was going to refuse to sell parts to third-party providers and refuse to provide access to the codes you need to access the diagnostic software," says Fred Wich, vice chairman of FSPA member Bantek West (Denver).

Diebold clarified its position with a statement that indicated that it will sell parts directly to customers, which could then use a third party for installation. Similarly, it will provide access to its "standard service diagnostics" to customers, which could again choose an independent service provider. But the company will not make its "advanced diagnostic tools" available to either customers or third parties, citing an investment of "significant financial and intellectual resources" toward the development of those advanced tools, thus laying the groundwork for an intellectual property defense. The company also will require that Diebold technicians perform Triple-DES upgrades, as per security procedures that require manufacturers to track the sale of encryption devices.

Wich argues that an ATM should be open at the customer's request to upgrade and repair without permission from the manufacturer. Furthermore, he adds, banks should be able to install their own choice of operating system on their ATMs without having to rely on the one shipped by the manufacturer. "It's insane for a Bank of America to have five different operating systems for their ATM fleet because they have five different types of ATMs out there," Wich insists. "The software decision has to move away from the hardware decision."

Legal Wrangling

Shubha Ghosh, a law professor at the University of Buffalo, notes the similarities between the Diebold case and landmark antitrust cases involving Kodak and Xerox. In 1992, the Supreme Court found that Kodak had monopolized the aftermarket for service on its machines by denying access to spare parts to independent service organizations, setting a precedent that a manufacturer can have a monopoly in the service market even if it does not have a monopoly on the device market.

Another pertinent legal issue is whether companies have a duty to cooperate with competitors, notes Ghosh. "Courts have sometimes said that if you have cooperated with a competitor, and if you then back out in a way that creates an anticompetitive situation, then the person with the market power would have to have some sort of a business justification for why they're not cooperating, or why they stopped cooperating," he says.

What's Mine Is Mine

Finally, there's the intellectual property question, a defense that was ultimately unsuccessful for Kodak. However, Xerox won a similar case by claiming that the patents on its machines constituted business justification for denying independents access. Whereas the Kodak case was heard in the U.S. Court of Appeals in San Francisco, Xerox's case was heard in the Federal Circuit Court, created in 1982 exclusively to hear patent and trademark appeals. "The federal circuit tends to be very pro-patent," remarks Ghosh.

As the plaintiff, the FSPA filed its case in the U.S. District Court in San Francisco. From Diebold's standpoint, moving the case to the Federal Circuit might be difficult due to a 2001 Supreme Court ruling. "In order for the Federal Circuit to hear these appeals involving patents, it has to be a patent infringement suit - it can't be an antitrust suit," says Ghosh. "If it was just an antitrust suit that raises patent issues ... that's not enough to get an appeal on the Federal Circuit."