Canal Plus: NDS Clipped Codes

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Vivendi Universal S.A.'s digital television division Canal Plus Group last week sued News Corp.'s NDS Group plc, claiming NDS cracked the digital-television security code on its smart cards and published the stolen codes on the Internet.

NDS vehemently denied the charges, calling them "outrageous and baseless."

Counterfeiters produced illegal smart cards after finding the code on the www.dr7.com
Web site. Canal Plus estimated damages exceeded $1 billion.

The suit was filed last Monday in federal court in California, although the case involved pirated pay-TV services primarily in Europe.

Canal Plus charged NDS with racketeering and copyright violation. It wants monetary damages and an injunction prohibiting NDS from future acts that could violate the security of Canal Plus smart cards.

SMART, AND VITAL

Some digital set-top boxes use the credit-card-sized smart cards as a means of renewable security. Pay television customers need an active smart card to access subscription, premium or pay-per-view programming.

Satellite or cable television providers can use electronic countermeasures to deactivate pirated cards when they have reason to believe that large numbers of rogue cards are in use. If that's not effective, the companies may need to swap out the entire base of smart cards for ones with a more secure code.

NDS reported last Tuesday that it had not yet been served with the complaint, but that it plans to file a counterclaim later.

"The clear evidence is that the pirate community targeted Canal Plus early in 1998 and succeeded without any help from anyone, particularly NDS," NDS president Abe Peled said in a statement.

"This was not hacking for sport," Canal Plus Group executive vice president Francois Carayol said in a conference call with reporters last Tuesday.

Carayol claimed NDS used highly sophisticated technology and enlisted top engineers in Israel to deliberately set out to break the security code on smart cards that Canal Plus used in Europe in 1998.

He claimed NDS then published the code on Web sites frequented by hackers and counterfeiters in 1999.

DBS PROSPECTS

In the statement, Peled said that Canal Plus approached NDS last December regarding a merger, and claimed its rival was using "these baseless allegations to gain leverage in the negotiations."

Canal Plus said in a statement it stands by its allegations.

In the U.S., NDS America provides conditional access services for DirecTV Inc., which continues to step up efforts to fight piracy problems of its own.

Vivendi late last year announced an investment in EchoStar Communications Corp. EchoStar currently uses a NagraVision conditional access system developed by a Swiss firm called Kudelski.

A combined DirecTV and EchoStar Communications Corp. would likely adopt a single conditional-access system.

EchoStar spokeswoman Judianne Atencio last week said the merger transition team has made no decision regarding conditional access plans following the merger of EchoStar and DirecTV parent Hughes Electronics Corp.

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