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Vivendi Claims Rival Spied

March 12, 2002

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SAN JOSE, Calif. (AP) _ Vivendi Universal’s Canal Plus Group on Tuesday accused a rival owned by News Corp. of cracking its digital television smart cards and distributing the information on the Internet.

In a lawsuit that alleges not only corporate espionage but also conspiracy with criminals, Canal Plus claims NDS Group spent millions of dollars to crack its signal protection scheme to flood the European market with counterfeit cards.

``We believe the illegal acts performed by NDS were part of a conspiracy to enhance NDS’ competitive position at the expense of Canal Plus,″ said Francois Carayol, Canal Plus Technologies’ chief executive.

The lawsuit, which was filed in federal court here Monday, claims damages of more than $1 billion and alleges violations of the Racketeer Influenced and Corrupt Organizations Act, copyright laws and California unfair business practices laws.

NDS called the claims ``outrageous and baseless,″ and said it plans to file a counterclaim once it has had the opportunity to fully review Canal Plus’ claims.

Abe Peled, NDS’ chief executive, blamed Canal Plus’ problem on its old technology.

``That problem is due solely to the inferior nature of Canal Plus’ conditional access technology, the failure of its business plan to contain measures to protect against piracy and its failure to deal with piracy once it began,″ he said.

The news spooked investors, who sent NDS shares down nearly 26 percent, or $5.94, to $17.06 in afternoon trading on the Nasdaq Stock Market. Shares of Vivendi fell $1.18, or 3 percent, to $39.25 on the New York Stock Exchange.

Smart cards _ each roughly the size of a credit card _ slip into satellite receivers or cable television boxes and include a sophisticated chip that descrambles programming that subscribers have paid for.

Canal Plus, which operates mainly in Europe, claimed it has not been able to win more contracts with digital television providers because of flood of counterfeit cards.

It also had to spend money to electronically deactivate the bogus cards and develop a new smart card.

According to the lawsuit, filed in San Jose because that is where Canal Plus Technologies Inc. is based, NDS used advanced optical and electrical means at a lab in Israel to unravel the smart card technology.

The information was eventually made available to the operators of Web sites that distribute smart card cracks, Carayol said.

Carayol declined to specify what evidence it has that NDS was directly involved in the cracking of the cards and the subsequent distribution, saying the information will come out in the course of the lawsuit.

``These were sophisticated and well funded efforts to circumvent our security systems by a major competitor,″ he said. ``The future of digital television depends on the industry working together to combat illegal theft and protect the integrity of the distribution system.″

Canal said it took the step of filing a civil lawsuit because it was the most efficient means of stopping the activity. He said no law enforcement agencies are currently involved.

``The future of digital television depends on the industry working together to combat illegal theft and protect the integrity of the distribution system,″ he said. ``No person or company is above the law, and we intend to see the law applied to stop NDS’ illegal actions.″

NDS, which is 80 percent owned by News Corp. is the leading maker of so-called conditional access software, with about 27.3 million digital TV subscribers receiving signals encrypted through its system. Canal Plus has about 12.5 million users.

___

On the Net:

Canal Plus Technologies: http://www.canalplus-technologies.com/

NDS: http://www.nds.com/

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