Judge Temporarily Halts Echostar-NDS Group Trial, Admonishes CEO

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The multi-million dollar lawsuit by Echostar Communications against NDS Group, the News Corp. division that the direct-broadcast satellite company asserts hacked its security system, stalled at trial momentarily Friday.

U.S. District Court judge David O. Carter stopped the trial in the middle of testimony by an engineer for Echostar rival DirecTV Inc., sent out the jury and said he needs to decide whether or not to offer a “negative inference” to the jury, noting that NDS Group CEO Abe Peled (pictured) had traveled to the Santa Ana, Calif. for the trial this week but left after giving a deposition instead of remaining to publicly testify.

Carter noted it is the decision of the NDS lawyers whether they put the executive on the stand, but the jurist has pushed both sides throughout the trial to put as many live witnesses on the stand for cross-examination as possible.

Since Echostar’s attorneys are trying to prove a business conspiracy and determine how far up it reached into executive ranks, it is important to the judge that executive-level witness appear, whether it is Peled or News Corp. owner Rupert Murdoch, the judge said, in discussing the appearance issue. (Echostar attorneys wanted Murdoch to testify; he has not appeared at the trial).

NDS’s legal team has responded that since the company is not guilty of the offenses alleged—hacking Echostar security and allowing that information to find its way into the hands of pirates, who published it—it is not necessary for Peled to appear beyond a taped deposition he made April 30.

Echostar and NagraStar, which is half-owned by Echostar and which provides security for its set-top boxes, filed suit in 2003, alleging that NDS Group, the competing security company, reverse-engineered the Echostar conditional access cards.

When information from that project turned up on the Internet on satellite pirate Web sites, it led to a wave of signal piracy that required Echostar to launch a multi-million dollar swap of more than 9 million conditional access cards in the equipment it had deployed in the field.

Earlier in the trial NDS engineers from Haifa, Israel, confirmed they found the weakness in NagraStar’s cards, but stated they hacked the cards not for piracy purposes, but rather to learn how to protect their own products. They denied leaking the hacking information.

The judge was irked that Peled decided to return to London late Thursday.

Attorneys for Echostar did not subpoena the NDS executive because he was on the NDS witness list and they anticipated questioning him on the stand, they said. He warned NDS Group’s attorneys that he will tell the jury that Peled left instead of staying to testify.

NDS is a publicly traded company, Carter said, adding a verdict against the company would have a negative effect on shareholders.

“I hope (Peled) reflects on his decision,” the judge said. Carter has no authority to order Peled to return to court; in a civil action, the federal judge’s jurisdictional range is only 150 miles.

Carter warned the NDS legal team that he would not allow them to rest their case on Friday, as they had planned, to give them time to contact Peled and see if he would return. He relented later in the morning, however, stating they could rest their case if they saw fit.

However, Carter said he would schedule rebuttal arguments May 6, so attorneys still have time to solicit Peled’s return. Otherwise, Carter said, “I will make the admonition” to the jury.

During the three-week trial, Echostar’s legal team has been trying to connect the dots between the reverse-engineering report and the software pirate, Christopher Tarnovsky, who Echostar alleges was the leaker.

In testimony, it’s been revealed that Tarnovsky worked in Israel for NDS for a time. In Friday testimony, the DirecTV Inc. senior director of engineering, Ray Kahn, testified that he asked NDS to keep Tarnovsky from working on conditional access systems for DirecTV after Kahn learned of Tarnovsky’s pirate history.

Kahn would not say that Tarnovsky caused piracy problems for DirecTV, but Echostar attorneys noted that its P2 and P3 conditional access cards, on which Tarnovsky worked, were hacked when they were in use in the field. P4, which Tarnovsky did not work on, has not been hacked, it was noted in testimony.

Kahn also testified he prefers hiring people to work for him that have U.S. government security clearances, not former software pirates.

Over lunch, NDS attorneys contacted Peled in London before telling Carter the CEO would not return to the trial.

The judge expressed dismay and said if the trial goes against NDS, “I can just imagine the shareholder lawsuits.” He also criticized NDS for putting well-intentioned but semi-knowledgeable people on the stand.

NDS attorneys indicated they would conclude their defense Friday afternoon.

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