Jamie Doward reports on the allegations that a News Corp company conspired to counterfeit the TV technology of a rival
At the time it was seen as trivial, of interest only to cyberspace geeks who spent too much time discussing the latest episode of Buffy or esoteric aspects of hacking.
Twelve months on, the implosion of a small cell of sophisticated computer hackers is hugely significant. The cell's demise is one twist in a complex tale linking one of Rupert Murdoch's companies to deeply damaging allegations that it counterfeited a rival's technology, a move which may also have helped put ITVDigital on the critical list.
To add insult to potentially serious financial injury, it is Murdoch's arch rival, Jean Marie Messier, chief executive of French media giant Vivendi, who is behind the incendiary allegations.
Canal Plus Technologies, a division of Vivendi's struggling French television company, accuses Middlesex-based NDS of using a team of scientists to break its smart card code with a view to disseminating it over the internet. If the allegation is true, the move effectively allowed hundreds of thousands of people to watch subscription TV free.
According to Canal Plus's lawsuit filed before the Northern District Court of California, the code first appeared in March 1999 on a website called DR7.com. It was used to great effect by counterfeiters in the Italian market and in several other countries in Eastern Europe. Canal Plus started its investigations shortly afterwards.
The claims are extremely serious and come at a difficult time for NDS. The firm, 80 per cent owned by News Corp, supplies smart card technology to US media giant DirecTV which is attempting a merger with a competitor called Echostar.
The contract is responsible for about 40 per cent of NDS's revenues. If the merger goes ahead the newly combined company will use an alternative system. NDS cannot afford to have its name tarnished as it looks for new clients to compensate for the potential loss of DirecTV.
Canal Plus, which claims that NDS's actions have cost it more than $1billion, is suing NDS under everything from the Racketeer Influenced and Corrupt Organisations Act to the Copyright Act.
Some question why Francois Carayol, chief executive of Canal Plus Technologies, chose not to alert the authorities about his allegations. 'We have elected to go through a civil case because it was the quickest way to reach our goals,' Carayol said. He went on to add that Canal Plus Technologies was bringing out a new smart card and was keen to resolve the situation before the technology hit the market.
So far it is unclear what evidence there is that NDS was responsible for the codes making their way on to the DR7 site. However, Carayol said he was confident that the forthcoming lawsuit would establish this link.
'We allege that NDS did illegally attack our technologies. They have spent large amounts of money to extract the code in their R&D laboratory and they copied that code in California and gave it with instructions to be published on the DR7 site,' he claimed.
The lawsuit is likely to have wide-ranging repercussions. ITVDigital, a Canal Plus Technologies customer, which claims to have lost at least £100 million to hackers, could also launch its own legal challenge if there were any evidence that NDS has been responsible for its own problems.
The troubled loss-making company, a joint venture between Carlton and Granada, has suffered from piracy so much that it was forced to offer a no-questions-asked amnesty to any of its subscribers who held forged smart cards. The company was commonly thought to have around 100,000 'illegal' viewers, but experts say the real number could be as high as 500,000.
NDS certainly knows how to crack codes. Its main research and development operations are based in Haifa, Israel, and it started life working for the Israeli security services on various encryption projects.
However NDS describes Canal Plus's allegations as 'outrageous and baseless' and plans to counter-sue.
Dr Abe Peled, NDS's chief executive, said: 'This lawsuit is a blatant attempt by Canal Plus both to deflect critcism of its new generation card, which is not believed to be state of the art, and to shift blame for its inadequate technology and its past losses.'
What NDS does not dispute however is that it supported a UK hackers' website called The House of Ill Compute (THoIC), which published information on how to forge ITV Digital smart cards.
Links between THoIC and NDS emerged in April last year. It was then that several House members quit the hacking site, claiming they did not want to be 'stooges' for NDS. The members alleged that several of their fellow hackers were paid by NDS.
According to one member: 'THoIC was one big cover for an organisation whose job it was to bust people and take sites down'. Eventually one disgruntled THoIC member, calling himself Frisk, posted a raft of emails on the internet purported to be between NDS and the site. One of the emails discussing an expenses claim links the NDS head of security, Ray Adams, and one of the hackers.
NDS admits links with THoIC but says it did not know the site published ITVDigital codes. So far no one has explained how codes to ITVDigital smartcards ended up on THoIC's site.
NDS says it supported THoIC to gather intelligence on how hackers operate. Such a practice is not uncommon. ITV Digital itself has in the past been linked to members of another hacking group, Modshack.
THoIC was thought to have closed down after its links with NDS emerged and its whereabouts are unknown. However, it is still operating, albeit under a different name and a different web address, which is kept secret.
The only way of contacting the group today is by bidding through Yahoo!'s auction site for a particular sort of smart card. In return THoIC will send the bidder its new web address.
How successful the likes of THoIC will be in the future depends on whether the industry can unite against the threat of hacking. But uniformity never looked further off as the bitter battle between Messier and Murdoch's subsidiaries descends into a gutter brawl.
NDS has hit back by alleging that Canal Plus tried to poach one of its key employees who, the French company claims, gave the code to the DR7 website. When asked about this, Carayol did not deny an approach, saying only: 'We did not make any job offers at any stage.'
NDS also alleges that, having realised the 'inferiority' of its own technology, Canal Plus Technologies approached NDS to discuss a merger. NDS says that, during negotiations, the French firm used the allegations as a bargaining tool.
Carayol said: 'NDS approached Canal Plus first back in September 2001. In December we met again and presented them with the results of our investigation. We said discussions could not move forward until that issue was resolved. They said they'd conduct an investigation and get back to us. We have never been provided with an explanation.'
While News Corp has distanced itself from the furore to protect Murdoch, pointing out that NDS is 'independent', his sons are directly in the line of fire.
James Murdoch has been an NDS director for two years. Brother Lachlan joined recently. As potential heirs to the News Corp throne the allegations are seriously damaging.
Twelve months on, the implosion of a small cell of sophisticated computer hackers is hugely significant. The cell's demise is one twist in a complex tale linking one of Rupert Murdoch's companies to deeply damaging allegations that it counterfeited a rival's technology, a move which may also have helped put ITVDigital on the critical list.
To add insult to potentially serious financial injury, it is Murdoch's arch rival, Jean Marie Messier, chief executive of French media giant Vivendi, who is behind the incendiary allegations.
Canal Plus Technologies, a division of Vivendi's struggling French television company, accuses Middlesex-based NDS of using a team of scientists to break its smart card code with a view to disseminating it over the internet. If the allegation is true, the move effectively allowed hundreds of thousands of people to watch subscription TV free.
According to Canal Plus's lawsuit filed before the Northern District Court of California, the code first appeared in March 1999 on a website called DR7.com. It was used to great effect by counterfeiters in the Italian market and in several other countries in Eastern Europe. Canal Plus started its investigations shortly afterwards.
The claims are extremely serious and come at a difficult time for NDS. The firm, 80 per cent owned by News Corp, supplies smart card technology to US media giant DirecTV which is attempting a merger with a competitor called Echostar.
The contract is responsible for about 40 per cent of NDS's revenues. If the merger goes ahead the newly combined company will use an alternative system. NDS cannot afford to have its name tarnished as it looks for new clients to compensate for the potential loss of DirecTV.
Canal Plus, which claims that NDS's actions have cost it more than $1billion, is suing NDS under everything from the Racketeer Influenced and Corrupt Organisations Act to the Copyright Act.
Some question why Francois Carayol, chief executive of Canal Plus Technologies, chose not to alert the authorities about his allegations. 'We have elected to go through a civil case because it was the quickest way to reach our goals,' Carayol said. He went on to add that Canal Plus Technologies was bringing out a new smart card and was keen to resolve the situation before the technology hit the market.
So far it is unclear what evidence there is that NDS was responsible for the codes making their way on to the DR7 site. However, Carayol said he was confident that the forthcoming lawsuit would establish this link.
'We allege that NDS did illegally attack our technologies. They have spent large amounts of money to extract the code in their R&D laboratory and they copied that code in California and gave it with instructions to be published on the DR7 site,' he claimed.
The lawsuit is likely to have wide-ranging repercussions. ITVDigital, a Canal Plus Technologies customer, which claims to have lost at least £100 million to hackers, could also launch its own legal challenge if there were any evidence that NDS has been responsible for its own problems.
The troubled loss-making company, a joint venture between Carlton and Granada, has suffered from piracy so much that it was forced to offer a no-questions-asked amnesty to any of its subscribers who held forged smart cards. The company was commonly thought to have around 100,000 'illegal' viewers, but experts say the real number could be as high as 500,000.
NDS certainly knows how to crack codes. Its main research and development operations are based in Haifa, Israel, and it started life working for the Israeli security services on various encryption projects.
However NDS describes Canal Plus's allegations as 'outrageous and baseless' and plans to counter-sue.
Dr Abe Peled, NDS's chief executive, said: 'This lawsuit is a blatant attempt by Canal Plus both to deflect critcism of its new generation card, which is not believed to be state of the art, and to shift blame for its inadequate technology and its past losses.'
What NDS does not dispute however is that it supported a UK hackers' website called The House of Ill Compute (THoIC), which published information on how to forge ITV Digital smart cards.
Links between THoIC and NDS emerged in April last year. It was then that several House members quit the hacking site, claiming they did not want to be 'stooges' for NDS. The members alleged that several of their fellow hackers were paid by NDS.
According to one member: 'THoIC was one big cover for an organisation whose job it was to bust people and take sites down'. Eventually one disgruntled THoIC member, calling himself Frisk, posted a raft of emails on the internet purported to be between NDS and the site. One of the emails discussing an expenses claim links the NDS head of security, Ray Adams, and one of the hackers.
NDS admits links with THoIC but says it did not know the site published ITVDigital codes. So far no one has explained how codes to ITVDigital smartcards ended up on THoIC's site.
NDS says it supported THoIC to gather intelligence on how hackers operate. Such a practice is not uncommon. ITV Digital itself has in the past been linked to members of another hacking group, Modshack.
THoIC was thought to have closed down after its links with NDS emerged and its whereabouts are unknown. However, it is still operating, albeit under a different name and a different web address, which is kept secret.
The only way of contacting the group today is by bidding through Yahoo!'s auction site for a particular sort of smart card. In return THoIC will send the bidder its new web address.
How successful the likes of THoIC will be in the future depends on whether the industry can unite against the threat of hacking. But uniformity never looked further off as the bitter battle between Messier and Murdoch's subsidiaries descends into a gutter brawl.
NDS has hit back by alleging that Canal Plus tried to poach one of its key employees who, the French company claims, gave the code to the DR7 website. When asked about this, Carayol did not deny an approach, saying only: 'We did not make any job offers at any stage.'
NDS also alleges that, having realised the 'inferiority' of its own technology, Canal Plus Technologies approached NDS to discuss a merger. NDS says that, during negotiations, the French firm used the allegations as a bargaining tool.
Carayol said: 'NDS approached Canal Plus first back in September 2001. In December we met again and presented them with the results of our investigation. We said discussions could not move forward until that issue was resolved. They said they'd conduct an investigation and get back to us. We have never been provided with an explanation.'
While News Corp has distanced itself from the furore to protect Murdoch, pointing out that NDS is 'independent', his sons are directly in the line of fire.
James Murdoch has been an NDS director for two years. Brother Lachlan joined recently. As potential heirs to the News Corp throne the allegations are seriously damaging.
http://www.guardian.co.uk/business/2002/mar/17/theobserver.observerbusiness9
