Murdoch `outsmarted' by satellite card code-makers

Rupert Murdoch's News Corporation said yesterday it is to press ahead with a claim for pounds 19m in damages from suppliers of "smart cards" to BSkyB. It claims it was outsmarted for some years by the suppliers of its cards, who used a highly secure encryption technology invented in Israel.

The electronic smart cards are at the heart of the business of BSkyB and other television operations in which News Corp is involved. They are the key that unlocks satellite TV programmes for subscribers and only viewers with cards can gain access.

The suppliers are alleged to have artificially inflated the price of the cards charged to News Corp, and split some of the excess profits between a number of individuals.

The defendants in the action, in which News Corp alleges a conspiracy, include former executives of subsidiaries of News Corp.

Among these subsidiaries is News Datacom, the group's conduit for the supply of smart cards to its satellite television associates.

Arthur Siskind, a New York-based director of News Corp and the company's general counsel, said the action in London involved individuals and companies no longer connected with the group. "We believe the problem has been remedied. What we are seeking is redress for the damages that have been done."

He said the main problem News Corp faced, its vulnerability to a single supplier of smart cards, had been overcome, there were now several sources and prices had fallen.

Ian Rosenblatt, a London solicitor representing Bharat Kumar Marya, a California businessman, and several of his associated companies which are defendants in the case, said "There are questionable motives for this litigation and we are defending it vigorously. We deny any conspiracy." The case is not expected to come to court until next year.

Mr Rosenblatt rejected an allegation in News Corp's writ that PMI, an offshore company that supplied smart cards to News Corp, was 40 per cent owned by the Marya companies.

The writs allege that PMI was a conduit for some of the excess profits earned in selling the smart cards at inflated prices to News Corp. The alleged conspiracy also included obstruction of the media company's attempts to diversify its supply of smart cards.

News Corp also alleged that difficulties in the management of News Datacom between 1987 and 1992 were caused by the "unauthorised acts of certain of the defendants who are the subject of the lawsuit. News Corporation reaffirms its complete faith in the current management of News Datacom."

A spokesman for News Corp rejected related allegations in the Financial Times that the company had indulged in "questionable tax planning" to minimise tax bills in the UK and Israel, where the smart card technology came from.

He said the company had "fully complied with its obligations under all tax laws to which it is subject. In particular, the company's Israeli subsidiary, since its inception, has had accumulated losses and, as a consequence, has not incurred income tax liability in Israel."