Suit Over Technology Filed by DirecTV

DirecTV Inc., the country’s biggest satellite television operation, said it had filed a federal lawsuit against NDS Group, alleging fraud, breach of contract and misappropriation of trade secrets.

“We bought and paid for technology that NDS has withheld and is obligated to deliver us under our contract,” said DirecTV spokesman Bob Marsocci. “I don’t know what their motives are.”

NDS supplies the smart cards that prevent DirecTV’s transmissions from being pirated. NDS said the allegations in the suit, which was filed Sept. 6 under seal in U.S. District Court in Los Angeles, lacked merit.

El Segundo-based DirecTV, a unit of Hughes Electronics Corp., has 10.7 million subscribers. Last spring, NDS revealed that DirecTV was dropping its services and moving all encryption technology in-house. Neither company gave a reason for the switch, which will be completed next summer.

The suit comes at a time of legal troubles for NDS, a British company that is 80%-owned by News Corp. The American division of NDS is based in Newport Beach. Last spring, Canal Plus Technologies, a rival smart-card manufacturer, sued NDS in San Francisco. Canal Plus, a division of Vivendi Universal, charged that NDS had cracked its cards and posted the code on the Internet.

In the Canal Plus case, NDS on Aug. 30 asked for a preliminary injunction, which would have essentially frozen the case. The requirements for an injunction would have been a likelihood of success on the merits and a demonstration that NDS would suffer irrevocable harm if the case proceeded.

U.S. District Judge Vaughn Walker rebuked NDS lawyers for making such a request: “No way in the world I can make a declaration on the record that you’re likely to prevail. You’re dead right out of the box.”

The judges ordered depositions in the case to proceed. Canal Plus lawyers will question NDS Chief Executive Abraham Peled today in New York.