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 [EMAIL PROTECTED] 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:[EMAIL PROTECTED] Updated March 13, 2002 Copyright 2002 Dow Jones & Company, Inc. 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