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<p>Photo by Mike Bowers</p>

Photo by Mike Bowers

Truth-Squadding the Piracy Claims

A cheat-sheet to the furious claims and counterclaims between Fairfax’s Australian Financial Review and Rupert Murdoch’s empire over alleged pay tv hacking.

“Smartcards”, “pirates”, “conditional access providers” — if you're feeling baffled by the almighty fight that's been waged between the Australian Financial Review and Rupert Murdoch's papers in the past two weeks, there's little wonder. And you are not alone.

Not only does understanding the allegations against Murdoch's empire require an advanced degree in Geek-ese, but the scorching exchanges between the two camps have become so bitter and personal that separating the facts from the fury is no easy task.

Chenoweth says the pay TV hacking goes to the heart of a corporate culture at News, now seen by many to be corrupt and immoral.

Addressing some of the central aspects of the dispute, The Global Mail has gone back to the original documents, spoken to the lead reporter, and put together this cheat sheet on the saga.

Put simply, the allegations from the AFR are that certain Murdoch companies — and in particular, a former subsidiary called News Datacom Systems, or NDS, which is under agreement to be sold to Cisco Systems for $5 billion — operated a clandestine campaign to destroy their pay TV rivals' businesses by enabling anyone to watch their programming, even without paying a subscription. They allegedly did this by figuring out ways to break their rivals' security mechanisms, through "hacking" into the devices that make your pay TV devices work.

The device is called a "smartcard". That's a techie term for a card — such as SIM cards — that can store data. Normally, you need a smartcard inserted into your set-top box in order to watch the programs you buy from a pay TV company.

While the AFR says NDS's alleged conduct was not at the time illegal under Australian law, that paper has characterised NDS's tactics as "double dealings", which have been called "dirty tricks", that raise "serious questions".

Neil Chenoweth, the veteran investigative reporter who broke the story, draws two key conclusions from his findings.

First: "The development within NDS parallels the way excessive use of private investigators changed the culture of the newspapers at News International that used them, The News of the World and The Sun."

In other words, Chenoweth says the pay TV hacking goes to the heart of a corporate culture at News, now seen by many to be corrupt and immoral.

Chenoweth's second key conclusion: "The piracy cost the Australian pay TV companies up to $50 million a year and helped cripple the finances of Austar, which Foxtel is now in the process of acquiring." (Foxtel is part-owned by News Corporation. The Australian Competition and Consumer Commission on April 10 approved the sale of Austar to Foxtel, but the deal needs the okay of the Federal Court before it can proceed.)

Most readers would understand this to mean that News's company, NDS, was tasked with undermining pay TV competitors to the point that they either collapsed or became easy pickings for a takeover by News. (That's certainly how News Limited interpreted Chenoweth's conclusion, as the company made clear to us.)

How does the Murdoch camp respond?

Apart from demanding a retraction, and heavily implying that legal action is on the way, key players in the News fold have insisted that "the central allegations (in Chenoweth's reporting) have been tested in the US courts and found wanting".

In other words, News says — via multiples articles and editorials published in The Australian and other Murdoch publications, and their own corporate statements — Chenoweth is recycling old allegations that have been unable to withstand legal scrutiny in long, legal battles in the United States.

(Clive Mathieson, editor of The Australian, told us there's no corporate directive to shoot down Chenoweth's stories. In an emailed statement to The Global Mail, Mathieson said his paper is treating the piracy allegations "the same way it treats all stories — checking the evidence, testing the claims and, crucially, going back to primary sources. The newspaper never set out to "defend" the parent company.")

Here's our guide to who's right about the facts.

News is correct when they say some of these claims were at the heart of long-running litigation in the United States.

We've dug up one of the key lawsuits and gone through the final decision to determine whether it is true that Chenoweth's central claims have been dismissed in the US.

You can read it for yourself here, but the following is our summary of what the judgment does — and does not — cover.

The case was between EchoStar Satellite Corp — a large US pay TV provider — and News Corporation's subsidiary, NDS (News Corporation currently owns 49 per cent of NDS). The case was decided by the United States District Court for the Central District of California, in October 2008. The US Court of Appeals for the Ninth Circuit upheld that decision, in its decision dated August 2010.

In its decision, the Ninth Circuit court said:

"It is clear to us that this case, which involved over half a decade of litigation and a four-week trial, was about the compromise of EchoStar's satellite television programming security system."

<p>Photo courtesy of Peter Braig</p>

Photo courtesy of Peter Braig

Neil Chenoweth

The compromise occurred when someone posted the secret to unlocking EchoStar's security system in an online forum, on December 21, 2000. Once that was done, "EchoStar piracy increased significantly," which led to substantial losses as well as a need to replace the company's security system at a cost of nearly $100 million, according to the judgment.

EchoStar sought $2 billion in damages and penalties from NDS, arguing that the 'someone' who posted the secret code was a notorious hacker, named Christopher Tarnovksy, who was employed by NDS at the time the information was posted.

But EchoStar failed to convince the jury. "The jury explicitly and implicitly found that NDS was not responsible for the December 2000 internet posting," which EchoStar said had led to the massive losses, according to the court's decision.

In the end, the company was awarded just USD45.69 in actual damages.

The company also won some damages under three sections of state and federal law, but the jury awarded the minimum amounts allowed, which totaled USD1,500.

The piffling amount of $45.69 was all EchoStar could prove they had lost as a result of Tarnovsky's activities. In November 2000, he had used a hacked card to access the full suite of EchoStar's paid programming, despite having paid for only a basic subscription, according to the decision. "EchoStar is entitled to restitution in an amount equal to the price of a full subscription in November 2000," the court held, "less the cost of the Tarnovsky's basic subscription."

But it was a pyrrhic victory: EchoStar ultimately handed over $19 million to cover NDS's legal fees.

However, other lawsuits were settled before the courtreached a determination, leaving other allegations unresolved.

Chenoweth notes in his stories that NDS has been sued by many of the world's largest pay TV operators, but that these suits have settled, meaning that many of the AFR's allegations have not actually been determined in court.

One such allegation again concerned Tarnovsky, who also has worked as a software engineer, according to news reports. The claim related to another posting of a secret code in an online forum — this time, to unlock a card that was used by Canal Plus, a large European broadcaster. This alleged incident occurred more than a year before the posting that featured in the EchoStar case but was never proven in court because Canal Plus settled the case. (Tarnovsky did not immediately reply to our request for an interview.)

And yet Chenoweth told The Global Mail that he feels confident claiming that Tarnovsky was behind the hack of the Canal Plus file that landed online.

“I think the jury just didn’t understand how conclusive that was.”

"Sure, it is a call by me," he says. "I'd think I would be deeply familiar with the history of the company I've been looking at for a long time."

We asked News Limited how they could say that all of Chenoweth's allegations had been "rejected" by overseas courts when, in fact, many of those allegations either arose in cases that were settled before a court could come to any conclusion, or arose independently of any litigation. The company spokesperson did not reply to that particular question.

On the question of whether his stories go beyond what was in the sole legal case that resulted in a determination, Chenoweth seems to be correct.

Do the emails shed new light on the alleged piracy?

The Australian Financial Review says that its recent reports are based on thousands of emails that had not previously featured in the lawsuits over alleged piracy. Editor-in-chief Michael Stutchbury wrote, "the 14,400 NDS emails obtained by Chenoweth go way beyond the emails aired in previous court action. "

He continues:

"Just as incriminating email evidence uncovered by The Australian's Hedley Thomas belatedly changed the course of the Queensland flood inquiry, this new NDS material brings the activities of News Corp's secretive subsidiaryinto sharper focus."

<p>Photo by Justin Sullivan/Getty</p>

Photo by Justin Sullivan/Getty

News Corp. CEO Rupert Murdoch, October 2011.

So, are the emails new?

The Global Mail has reviewed many of the emails in the trove posted by the Financial Review. Because we don't have all the exhibits in the EchoStar litigation, we can't say how much new material Chenoweth has truly uncovered, and to what extent that material adds to what was available in the EchoStar (or other) litigation.

But at least some of the emails upon which Chenoweth relied were part of that litigation.

A long vignette in Chenoweth's first story on March 28, 2012, described the alleged dealings between and NDS employee and a Sydney man whom Chenoweth reported was a hacker involved with NDS.

Chenoweth uses two emails to support his story, and he writes that they "were exhibits in the 2008 EchoStar case in California."

However, Chenoweth says he reviewed the exhibits in the EchoStar trial, and that evidence included 10 NDS emails.

By contrast, his stories drew from a cache of 14,400 emails, which had been stored on the computer of an NDS boss. In an obscure sequence of events, that computer was stolen. Chenoweth says he's unable to say who gave him the emails.

On this point, the AFR seems to be correct: They have used emails that have never appeared in litigation which resulted in a determination.

Do the emails say what Chenoweth and the AFR believe they say?

NDS claims that Chenoweth has misinterpreted the emails he used to back up his claims. The company says Chenoweth misrepresented the "context, meaning and even actual text of emails about piracy".

“I think it’s a helluva punt to say, 'I understand this story better than any jury that’s had a look at it.’”

The Global Mail asked Chenoweth how he could be sure he had properly understood the emails, which are — from our observations — often fractured pieces of quite technical, and sometimes cryptic, conversations.

There were some people who helped him parse the meaning of the exchanges, Chenoweth says, but he did not name those people. They did not include "NDS people", he says.

Chenoweth believes his years of covering the company enabled him to contradict the findings of juries and gave him the confidence that his interpretation of the emails was correct.

For instance, Chenoweth takes the view that the jury got it wrong on whether Tarnovsky was behind the leak of EchoStar's secret code. He says the jurors were flummoxed by the case's technical complexities, and in particular the significance of some evidence relating to certain electronic files. "I think the jury just didn't understand how conclusive that was," Chenoweth says.

That attitude is striking coming from a reporter. While journalists often gain a deep knowledge of areas they regularly cover, Chenoweth's seems a bolder stance than most.

"I think it's a helluva punt to say, 'I understand this story better than any jury that's had a look at it,'" says Paul Barry, one of Australia's best known investigative reporters and a former host of the ABC's Media Watch. "The problem is, if you get sued the jury can easily fail to understand it again." Having spent 16 years covering Rupert Murdoch and his empire, Chenoweth unquestionably has an impressive depth of knowledge in that field. But, according to Barry, that level of engagement can lead reporters to lose their objectivity and expose themselves to the risk of litigation.

"If you put yourself up as an expert, then what you risk is that you're wrong and that someone sues you. You put your reputation on the line," he says.

We made repeated efforts to speak with the AFR's editor-in-chief, Michael Stutchbury, but were unable to reach him.

Ultimately, says Barry, if News is convinced Chenoweth got the story wrong, you'd expect the company to sue.

"In a way, that's going to be the ultimate test," he says. "If they don't sue, you'd have to say the Fin probably got it right."

5 comments on this story
by Nathan

Hi Sharona,

great article! It is so refreshing, as with all of The Global Mail's stories, to read clear, concise and well researched reports that cut through everyone else's bullshit and put the facts in plain view.

I guess the theory with other news outlets is that readers aren't smart enough to make up their own minds if given the power of proper facts in black and white. Thanks to you (and TGM) for trusting us to have an ounce of intelligence...

Please keep up the great work,

April 12, 2012 @ 11:06pm
by Harry

Having read both sides of the debate in the AFR and the Australian, I was left without a clear idea who was right and who was wrong. Having tested the various allegations, the Global Mail has done me, and I suspect many other readers, a great service.

April 13, 2012 @ 7:42am
Show previous 2 comments
by Michael

I think the recent English voicemail hacking drama would make it difficult for anyone to believe that News Limited were as pure as the driven snow on anything.

April 15, 2012 @ 3:49pm
by A. Dragon

It is thoroughly refreshing to read an article that provides clarity on a murky issue. Thanks.

April 18, 2012 @ 10:59am
by Forever

Thanks for helping to give me greater clarity on the subject. Will be interesting to see if Murdoch does sue.

April 19, 2012 @ 5:51pm
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