NDS Denies Counterfeiting Charges By Canal Plus, Plans Countersuit

[R. A. Hettinga]

http://online.wsj.com/article_print/0,4287,SB101597625854059480,00.html




March 13, 2002
EUROPEAN BUSINESS NEWS
NDS Denies Counterfeiting Charges
By Canal Plus, Plans Countersuit

By BRUCE ORWALL
Staff Reporter of THE WALL STREET JOURNAL

WAR IN TV LAND

Canal Plus Alleges NDS Helped Steal Digital-TV Broadcasts1
03/12/02
 

COMPANIES
Dow Jones, Reuters
News Corp. Ltd. ADS (NWS)
PRICE
CHANGE
U.S. dollars	28.38
-0.57
12:59 p.m.
 
NDS Group PLC ADS (NNDS)
PRICE
CHANGE
U.S. dollars	17.60
0.65
1:02 p.m.
 
Vivendi Universal ADS (V)
PRICE
CHANGE
U.S. dollars	39.30
-0.25
12:57 p.m.
 
* At Market Close

News Corp.'s NDS Group PLC denied allegations that it contributed to the
counterfeiting of satellite-TV "smart cards" made by rival Vivendi
Universal SA's Canal Plus Group, even as NDS shares dropped 26% on news of
the allegation.

Both NDS, based in Britain, and Canal Plus make "conditional access
software" that is used in conjunction with set-top boxes to protect digital
television signals from being stolen by consumers who haven't paid to
receive them.

On Monday, Canal Plus filed a federal lawsuit in San Jose, Calif., charging
that NDS had contributed directly to the counterfeiting of its "smart
cards" by breaking the computer code embedded in them, then arranging to
have that code distributed on the Internet.

Canal Plus, of Paris, said the result was widespread counterfeiting of its
card, causing it to lose hundreds of millions of dollars in revenue from
the Canal Plus pay-TV systems it operates throughout Europe.

NDS, of London, called the lawsuit "outrageous and baseless" and said it
plans a countersuit. NDS President and Chief Executive Officer Abe Peled
said that Canal Plus's real problem is the "inferior nature" of its smart
cards and what he called Canal Plus's failure to protect its business from
piracy. He also suggested that Canal Plus is trying to deflect attention
from the poor financial performance of Canal Plus Group, which hasn't been
profitable for several years.

While NDS denied that it had anything to do with distributing the Canal
Plus code, it said that it does "reverse engineer" the cards produced by
competitors to understand how they work and to advance NDS's own efforts.
But Mr. Peled said the company doesn't disseminate such information: "We
have no involvement with their piracy problem," he said.

In 4 p.m. trading on the Nasdaq Stock Market Tuesday, NDS's American
depositary receipts were down $6.05 to $16.95.

Counterfeiting of smart cards has been a problem for satellite-TV
operators, but especially for Canal Plus, which concedes that millions of
counterfeit cards are available throughout Europe. The breakout of a nasty
public battle between large media companies over a piracy issue is rare as
everyone in the industry agrees that piracy is a tough problem for them
all. Publicly traded NDS is 80%-owned by News Corp., and a number of News
Corp. executives sit on its board.

Now that this fight has erupted into the public arena, it is clear that it
will be hard-fought on both sides. NDS's Mr. Peled made several allegations
of his own Tuesday. He said that late last year Canal Plus Technologies
approached NDS to propose what he described as a merger. Mr. Peled said NDS
indicated it was interested in exploring such a transaction. But then,
according to Mr. Peled, "they showed up with a lawyer" and "attempted to
gain leverage in these negotiations based on these baselessallegations."
Mr. Peled said that in the course of the discussions Canal Plus conceded
that it, too, extracts the computer code from competitors' smart cards.

Mr. Peled said that during the course of the merger discussions Canal Plus
identified an NDS employee who it said was involved in distributing the
smart-card code. Now, NDS said, Canal is trying to hire that employee. In
its planned countersuit, NDS said it intends to allege tortious
interference in that case and "with other employment and contractual
relationships of NDS."

Canal Plus Technologies Chairman and Chief Executive Francois Carayol
rebutted Mr. Peled's claims on every point. He said emphatically that Canal
Plus neither now nor ever did "reverse engineer" its competitors' smart
cards. He said the merger discussions were started by NDS in September but
never advanced after Canal made its piracy allegations to NDS in December.
Canal also said it hasn't offered jobs to NDS employees.

Write to Bruce Orwall at bruce.orwall at wsj.com2
URL for this article:
http://online.wsj.com/article/0,,SB101597625854059480.djm,00.html
Hyperlinks in this Article:
(1) http://online.wsj.com/article/0,,SB1015883213118362160,00.html
(2) mailto:bruce.orwall at wsj.com

Updated March 13, 2002

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R. A. Hettinga <mailto: rah at ibuc.com>
The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'

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