Smartcard squabble: Too good for court

By media correspondent Nick Higham

The BBC lawyer was emphatic in her conclusion, as I talked her through my script for the Ten O'Clock News and the complex background.

"This case will settle," she said. And you could see her point.

The Great Smartcard Piracy Row - with its lurid allegations and counter-allegations of industrial espionage, dirty tricks and sharp practice - is already threatening to do enormous damage to the two protagonists.

Canal Plus Technologies makes smartcards for more than 12.5 million digital set-top boxes around the world, including ITV Digital's.

NDS makes smartcards for 27.3 million boxes worldwide, including Sky Digital's.

Rupert Murdoch's News Corp owns 80% of NDS

If the case ever came to court the consequences (not to mention the costs) could be catastrophic.

Last week, you will recall, Canal Plus launched a $1bn (£0.7bn) suit against NDS in the Californian courts, alleging that NDS had conspired to crack its codes and flood the market with forged cards.

NDS was accused of "reverse engineering" (or hacking) the Canal Plus smartcard at its laboratory in Israel, sending the resulting decrypts to its subsidiary in California and then deliberately releasing them onto the internet.

'Illegal actions'

Canal Plus claimed only a competitor would have the expensive equipment and sophisticated expertise needed to crack its codes.

"No company is above the law and we intend to see the law applied to halt NDS's illegal actions," said Francois Carayol, the executive vice-president of the Canal Plus group.

"Competition should be about fair contests for customers, not 'cloak and dagger' operations aimed at undermining a competitor's products and services."

ITV Digital joined in, claiming pirated smartcards had cost it more than £100m.

The company estimates about 100,000 counterfeit cards may be in circulation in the UK, though that is small beer compared to Italy, where up to 50% of the Canal Plus Technologies smartcards are thought to be fakes.

James Murdoch is a director of NDS

Initially NDS and its parent company News Corporation appeared stunned by the allegations. NDS's headquarters, in Staines in Middlesex, promised a statement but failed to issue one for several hours.

News Corporation's New York headquarters refused to say anything.

Though News Corp owns 80% of NDS and appoints at least four of its directors (including News Corp's senior lawyer, Arthur Siskind, and News Corp chairman Rupert Murdoch's son James) it seemed the global media giant might be trying to distance itself from its theoretically "independent" subsidiary.

'Publicity campaign'

But late in the afternoon, with its share price in New York down 30%, NDS hit back, dismissing the allegations as "outrageous and baseless" and making a succession of claims of its own.

"This case has been launched as a massive publicity campaign, not a real court case," NDS's chief executive, Dr Abe Peled said.

"It is a blatant attempt by Canal Plus Technologies to shift the blame for their inferior technology and their inability to deal with piracy."

Canal Plus, according to NDS, had approached its rival last December about a possible merger, and used the allegations to gain leverage in the negotiations - and had also tried to poach the very NDS employee it now claimed had given its code to the Canadian website.

"Why would Canal Plus want to hire a person they claim was involved in such activity?" the company asks.

NDS also claims Canal Plus has admitted "reverse engineering" its rivals' smartcards - something Canal Plus categorically denies.

Canal Plus owns the technology behind ITV Digital's cards

NDS may well have done a bit of reverse engineering itself. In an interview Dr Peled did not deny having hacked Canal Plus's cards.

But he did deny deliberately putting the resulting code into the public domain.

Counter-claims

"We had nothing to do with the piracy of their cards, we had nothing to do with the selling of these illegal devices, publishing it on the internet or anything like that," he said.

NDS's claims have in turn been met with counter-claims from Canal Plus, while newspapers have uncovered alleged links between NDS's head of security and a website frequented by hackers.

NDS reportedly says it was seeking intelligence on how hackers operate.

With so much mud being thrown by both sides, if the case ever comes to court it promises to be riveting entertainment - which is one very good reason why it will almost certainly be settled long before it gets in front of a judge.

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A version of this column appears in the BBC magazine Ariel.