News

NDS, Dish Urged to Settle Up

4/11/2008 8:00 PM Eastern

U.S. District Court Judge David O. Carter last Thursday urged all parties in Dish Network’s $100 million lawsuit charging News Corp. unit NDS Group with breaking through the security of its TV service to work out a settlement.

The trial could have a “devastating reputational effect” if it continues, he admonished.

Out of earshot of the jury, Carter said he was “troubled” about evidence that will be presented in the case, since much of it relies on known satellite-TV pirates, now working as paid consultants for one side or another, testifying for both parties.

Carter said the $100 million in damages sought by Dish “is not chump change” but suggested that its CEO, Charlie Ergen, Nagrastar CEO Pascal Lenoir and NDS Group CEO Abe Peled (who was not in court) consider meeting in private to avoid disclosures at trial. Nagrastar designed Dish’s security system; and EchoStar Corp., controlled by Ergen, owns 50% of Nagrastar.

Already, an engineer from Haifa, Israel, testified Thursday that he’s part of a “Black Hat” squad formed by NDS that hacked into Dish security cards, as well as those of other competitors, to figure out how they worked. For his part, Lenoir testified that he employs a Canadian hacker who was once allegedly prosecuted for piracy by NDS.

The executives did not respond to the judge’s advice in court, and testimony continued Thursday.

Ergen spent part of his time on the stand Thursday trying to convince the eight-member jury that the lawsuit was not filed in retaliation for News Corp.’s successful bid for satellite rival DirecTV Inc., completed in late 2003. News Corp. no longer has a stake in DirecTV.

Dish Network sued encryption system developer NDS in 2002, alleging that firm “reverse engineered” the security smart cards used in Dish set-tops and has links to whoever published the hacking information on the Internet at the end of 2002. That set off a wave of hacking that forced Dish Network to swap out the security cards in all set-tops in 2004 and 2005.

NDS attorneys noted in court that Dish’s federal 10-K filings dating back to 1999 indicated that the direct-broadcast satellite provider had piracy problems, but Ergen responded that Dish engineers had been able to keep up with “hobbyist” hackers by sending signals to altered set-tops that disabled them. But by 2002, when the hacking information showed up on the Internet, security was so “hopelessly compromised” by what Dish alleges are professional hackers, the company had to have new cards developed and distributed to more than 9 million Dish customers.

“They had us on the run and they were winning,” Ergen said of pirates.

NDS attorneys noted that the piracy lawsuit was filed about the time that Dish’s attempt to buy DirecTV was foiled by the Justice Department in 2002. In testimony, Ergen admitted he’d been depressed about the failure of the deal, especially about the $600 million break-up payment Dish had to pay DirecTV when the deal collapsed.

While two NDS engineers testified they had hacked smart cards, the process was to find ways to make NDS product more secure, not to hurt Dish Network.

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