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Judge Urges Settlement In Dish Network Dispute With News Corp. Unit

Santa Ana, Calif.—Dish Network CEO Charlie Ergen spent part of his time on the stand Thursday trying to convince a jury that a lawsuit against News Corp division NDS Group was not filed in retaliation for News Corp.’s successful bid for satellite rival DirecTV Inc.

But even as testimony continues, U.S. District Court Judge David O. Carter urged Ergen and other executives in the dispute to consider getting in a room together to hash out a settlement.

Dish Network has sued encryption system developer NDS, alleging that firm “reverse engineered” the security smart cards used in Dish set-tops and published the hacking information on the Internet at the end of 2002. That set off a wave of hacking that forced Dish Network to do swap out the security cards in all set-tops in 2004-2005.

Dish Network seeks $100 million from NDS, according to court testimony, to recoup the losses caused by the smart card swap-out. Nagravision, the company which supplies the Dish smart cards that were hacked, seeks $1.3 million, according to testimony.

Attorneys for U.K.-based NDS noted in court April 10 that Dish’s federal 10K filings dating back to 1999 indicated that the DBS supplier had piracy problems, but Ergen responded that Dish engineers had been able to keep up with “hobbyist” hackers with electronic countermeasures.

But by 2002, when the hacking information showed up on the Internet, security was so “hopelessly compromised” by what Dish alleges are professional hackers, the company had to have new cards developed and distributed to more than 9 million Dish customers.

NDS attorneys noted that the piracy lawsuit was filed about the same time that Dish’s attempt to buy DirecTV was foiled by the Justice Department in 2002, which was followed shortly by News Corp.’s successful bid for DirecTV.

In testimony, Ergen admitted he’d been depressed about failing to close the acquisition, and was especially unhappy about the $600 million break-up payment Dish had to pay DirecTV when the deal collapsed.

Out of the presence of the jury, Judge Carter stated he is “troubled” about the evidence that will be presented in the case, since much of it relies on known pirates, many of whom have links to one side of the case or another.

Carter said the $100 million “is not chump change” but suggested that Ergen, Nagravision CEO Pascal Lenoir and NDS CEO Abe Peled, who was not in court, consider meeting in private to avoid continuing a trial that will have “a devastating reputational effect.”

For instance, an NDS engineer from Haifa, Israel, already testified Thursday that he’s part of the firm’s “Black Hat” squad that hacked Dish’s security cards; while Nagravision’s chief testified that he employs a Canadian hacker that was once prosecuted for piracy by NDS.

The executives did not respond to the judge’s advice in court, and testimony continued Thursday.