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Canal accuses News Corp of aiding piracy

Gallic paybox files $1 billion-plus lawsuit

PARIS — Vivendi Universal paybox Canal Plus has filed a U.S. federal lawsuit accusing News Corp.-controlled NDS, the global market leader in conditional access software systems, of deliberately abetting the piracy of its digital TV broadcasts. The suit was filed in the U.S. District Court in San Jose, Calif., on Monday.

Canal Plus and its subsidiary Canal Plus Technologies allege 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 in 1998. The card, when inserted into a set-top box, protects digital signals from being received by non-paying users.

Canal Plus is also charging that NDS turned over the extracted code to employees of DR7.com, a Web site it claims is frequented by counterfeiters.

After the Web site published the code in March 1999, millions of counterfeit cards flooded underground markets in territories using Canal Plus digital systems across Europe, the U.K. and Malaysia. To date, Canal Plus platforms in North America and the Middle East have been unaffected.

$1 billion-plus in damages claimed

In the 21-page complaint, Canal Plus claims damages of more that $1 billion and alleges NDS violated the RICO Act, the Copyright Act and the California Unfair Competition statute.

According to Francois Carayol, exec VP of Canal Plus Group and CEO of Canal Plus Technologies, the suit was filed in California since the handover of the digital file containing the extracted software occurred in the state.

Speaking from New York, Carayol said Canal Plus filed a civil rather than a criminal lawsuit since “that’s the easiest way to get an injunction against them to immediately stop this unlawful and anti-competitive activity.”

“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: Hacking was NDS corporate decision

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. Ironically, 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.

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