French TV giant Canal Plus has opened a legal battle against a firm controlled by Rupert Murdoch's News Corp over alleged software piracy which may have allowed millions of viewers to watch paid-for TV for free.

Canal Plus has, in a lawsuit, claimed that it has lost $1bn to a "conspiracy" centering around London-based rival NDS.

NDS spent huge sums cracking the code on Canal Plus smart cards, and then handed it to a website used by fraudsters, documents filed in a California court allege.

"After the code was published on the internet, criminal organisations flooded the market with counterfeit cards," Francois Carayol, chairman of Canal Plus Technology told the BBC's World Business Report.

"What we face here is a large established corporation that has engaged in illegal activities ... We want an injunction for NDS to stop," he said.

NDS denial

NDS described Canal's lawsuit as "outrageous and baseless," and said it would launch a counterclaim once it had studied the French pay TV channel's allegations.

NDS chief executive Abe Peled added in a statement that Canal's piracy problem "is due solely to the inferior nature of Canal Plus's conditional access technology...and its failure to deal with piracy once it began."

But news of the lawsuit pushed NDS shares, listed on the Nasdaq index, down by more than a quarter to $17.06 on Monday afternoon.

Shares in Canal Plus's parent Vivendi Universal also lost ground, falling by 3% to $39.25 on the New York Stock Exchange.

Unexpected boost for ITV Digital

NDS's alleged activities may have allowed thousands of viewers to watch for free programmes broadcast by paid-for digital television operators, including struggling UK service ITV Digital.

"ITV Digital may be more popular than had been thought," a source close to the case told BBC News Online.

Canal Plus alleges that NDS, which is 80% owned by Mr Murdoch's News Corp giant, has committed violations under California's copyrighting, racketeering and unfair competitions laws.

"No person or company is above the law, and we intend to see the law applied to halt NDS' illegal actions," Canal executive vice president Francois Carayol said.

"We hope that NDS will immediately stop this unlawful and anti-competitive activity."

News Corp have said that NDS chiefs operate independent of the media giant.