NDS rips piracy suit by Canal Plus

Accusations of corporate espionage called 'baseless'

PARIS — News Corp.’s NDS subsid Tuesday denounced a lawsuit by Canal Plus as “outrageous and baseless,” blaming the French pay-TV group’s piracy problems on inferior technology and bad management. He said NDS will file a counterclaim after it fully reviews the Canal suit.

Canal, owned by Vivendi Universal, has accused software and encryption concern NDS of corporate espionage by spending millions of dollars to break the code to Canal’s “smart card” in 1998, then disclosing it on a Web site.

The cards, inserted into set-top boxes, protect digital signals from being received by non-paying users. After the code appeared on the site, DR7.com, millions of counterfeit cards flooded black markets in territories using Canal Plus digital systems in Europe, the U.K. and Malaysia, according to the civil suit filed in the U.S. District Court in San Jose, Calif., this week.

Canal is seeking $1 billion in damages.

In a harsh counterattack, NDS CEO Abe Peled called Canal a victim of its own incompetence. “The clear evidence here is that the pirate community targeted Canal Plus early in 1998 and succeeded without any help from anyone, particularly NDS,” he said in a statement. Canal didn’t protect its cards, which can always “be hacked if left in the field long enough,” he added.

Peled said Canal, “recognizing the inferiority of their own access technology,” approached NDS late last year with the idea of merging the two companies.

Canal Plus stands by the allegations in its lawsuit. “The statements made by Mr. Peled today are simply untrue and we look forward to presenting the evidence supporting our claims to the court,” the company said.

Canal Plus and its subsidiary Canal Plus Technologies claim that NDS set up a sophisticated multimillion-dollar operation at its Israel-based research lab to deliberately break the code to Canal Plus’ smart card. The 21-page complaint alleges NDS violated the RICO Act, the Copyright Act and the California Unfair Competition statute.

Francois Carayol, exec VP of Canal Plus Group and CEO of Canal Plus Technologies, filed in California since the alleged handover of the digital file containing the extracted software occurred in the state. Canal Plus filed a civil lawsuit rather than pursue criminal charges since “that’s the easiest way to get an injunction against them to immediately stop this unlawful and anti-competitive activity,” he said.

“This is not hacking for sport,” Carayol stated. “This is part of a conspiracy to enhance NDS’ competitive position at the expense of Canal Plus.”

Carayol speculated that NDS might be out to get Canal Plus for having beaten out U.K.-based NDS for the ITV Digital contract in Britain in 1998.

NDS, the market leader in the conditional access software domain, has 27.3 million subscribers worldwide who receive TV protected by its systems. Canal Plus Technologies currently serves 12.5 million viewers.

Carayol acknowledged that Canal Plus had evidence to prove that it was an NDS corporate decision to crack Canal’s previously unbroken code and turn it over to the Web site, not the work of a company rebel or disgruntled employee. He added that Canal Plus lawyers met with NDS management to “try to work out an amicable solution” but were unsuccessful.

The suit comes at a critical time for Canal Plus, which had its management upbraided last week by Viv U chairman Jean-Marie Messier in an interview in French daily La Tribune.

Messier said the paybox, which had an operating loss of $430 million in 2001, needed to get its act together by 2004. However, Canal Plus Technologies is one of Canal Plus Group’s most profitable units.

Carayol said Canal Plus will begin exchanging subscriber smart cards for new ones next month, adding it would not have made sense to begin the long and costly replacement process before they discovered the root of the counterfeiting operation. He estimated the card exchange would be completed in all affected territories by the end of the year.

(Jill Goldsmith in New York contributed to this report.)

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