Hytera sale of U.S. assets halted, federal court to hear Motorola Solutions injunction request

A U.S. bankruptcy court in California has halted the Chapter 11 sale of Hytera’s U.S. divisions, allowing a federal court in Illinois to resume consideration of Motorola Solutions’ requests for injunctive relief that could block many Hytera DMR products from being offered in the marketplace, according to legal documents and sources.

As a result of the bankruptcy-court decisions, the proposed $9.5 million sale of China-based Hytera Communications’ two primary U.S. divisions to a new entity called Hytera US was not executed as initially planned for last Thursday, Aug. 27. Instead, Hytera America and Hytera Communications America (West)—referenced as “Hytera East” and “Hytera West,” respectively, or as the “Debtors” in bankruptcy legal filings—remain as active business units.

One significant change from the flurry of filings and hearings before the bankruptcy was approval of a stipulation that lifted the stay on other legal proceedings between Hytera and Motorola Solution, clearing the legal path for decisions to be made in related cases. Notably, the stipulation means a federal court in Illinois is allowed to rule on Motorola Solutions’ requests for a temporary restraining order and a permanent injunction that would prevent Hytera from selling DMR equipment that improperly uses Motorola trade secrets and copyrighted software code.

All sources agreed that the hearing to consider Motorola Solutions’ request to dismiss the bankruptcy case filed by the Hytera U.S. divisions and the proposed Chapter 11 sale of the Hytera U.S. assets to the new Hytera US entity were delayed by the bankruptcy court. But the length of the bankruptcy court’s delay remains unclear, as statements provided by Hytera and Motorola Solutions to IWCE’s Urgent Communications suggest different timelines.

“Motorola Solutions is pleased that the United States Bankruptcy Court has granted a continuance of Hytera’s sale motion and dismissal of its bankruptcy proceedings for six months,” according to a statement from a Motorola Solutions’ spokesperson. “Hytera must now return to the U.S. District Court in Illinois to face Motorola Solutions’ pending motion for a global injunction and we look forward to the District Court’s decision in that matter.”

In contrast to the six-month delay cited by Motorola Solutions—a timeline that would mean the bankruptcy court would not revisit the Hytera case until the end of February—Hytera’s statement asserts that the bankruptcy court plans to make its decision in mid-December.

“On August 25, the U.S. Bankruptcy Court for the Central District of California (Santa Ana Division) denied Motorola Solutions’ motion for more discovery completely,” according to a Hytera statement provided this morning to IWCE’s Urgent Communications. “On August 27, the judge decided to defer deciding on Hytera East and West’s sale motion and Motorola Solutions’ motion to dismiss until December 17.

“We estimate that the final hearing on approval of the Asset Purchase Agreement (APA) and sale of assets to the Buyer will be completed before the end of the year. In the meantime, Hytera East and West will continue to provide dealers and customers with service and support and there is no interruption as a result of the restructuring process. Hytera East and West are confident that their business operation will be preserved through the restructuring process.”

IWCE’s Urgent Communications was unable to find any legal documents clarifying the bankruptcy court’s proposed schedule for considering the Chapter 11 bankruptcy sale of the Hytera U.S. assets.

The bankruptcy court’s decision to delay consideration of Hytera’s case was made just days after U.S. Trustee Peter Anderson recommended that the Chapter 11 bankruptcy case should be dismissed.

“The bankruptcy system was not designed to enable debtors who have engaged in theft to file bankruptcy and to continue to profit from that theft and cleanse themselves of their wrongdoing through an illusory sales process,” Anderson stated in his filing with the bankruptcy court. “But that is what the Debtors are attempting here.”

Attorneys for Motorola Solutions have described the proposed sale of the U.S. divisions to a new subsidiary of Hytera as a “sham,” arguing that the bankruptcy process is an effort to avoid paying the $764.6 million in damages awarded by a federal court for Hytera’s improper use of Motorola trade secrets and copyrighted software in many DMR products.

Motorola Solutions attorneys have submitted filings indicating the company’s efforts to collect at least $520 million of the $764.6 million court award from myriad Hytera entities. Hytera has publicly announced its intention to appeal the federal-court judgment that was issued in March, but the company has not filed an appeal yet.

The same federal court in Illinois is considering a permanent-injunction request from Motorola Solutions that would prevent Hytera from selling the problematic DMR offerings worldwide.

In its statement to IWCE’s Urgent Communications, Hytera expressed confidence that it will prevail in the argument before the federal court about proposed injunctive relief that would block the sale of many Hytera DMR products.

“The U.S. District Court for the Northern District of Illinois is considering a variety of motions, including motions by Hytera to set aside or modify the jury verdict,” according to the Hytera statement provided today. “Motorola’s permanent injunction request is not appropriate in the first instance. Motorola has not shown actual success on its asserted trade secrets and copyright claims.

“The court and parties are unable to determine which trade secrets and copyright claims the jury had relied on in making their liability finding. Because a permanent injunction must track adjudicated wrongdoing only, and the jury did not identify which alleged secrets or copyright claims formed the basis for their adjudication, no injunction is proper.”

In February, a U.S. federal-court jury ruled that Hytera would have to pay Motorola Solutions $764.6 million in damages for improper use of trade secrets and copyrighted software in a significant amount of Hytera’s DMR product portfolio. This pending financial penalty was the reason that Hytera East and Hytera West filed for Chapter 11 bankruptcy protection on May 26, according to Hytera legal filings.

Absent the massive federal-court award to Motorola Solutions, the Hytera U.S. divisions would remain viable businesses—a fact acknowledged in the Motorola Solution motion for dismissal. For the year ending on Dec. 31, 2019, the two primary Hytera U.S. divisions generated combined revenues of $42.9 million, although the net operating income resulted in a loss of about $100,000, according to the Huang declaration.

During the federal-court trial that began last November, Hytera attorneys acknowledged that three former Motorola (the company had not yet changed its name to Motorola Solutions at the time) employees—Samuel Chia, Y.T. Kok and G.S. Kok—accessed more than 7,000 Motorola documents prior to each of them leaving and joining Hytera shortly in 2008. However, Hytera attorneys described the three engineers as “bad apples” who did not share with anyone else at Hytera that the DMR trade secrets and software were taken from Motorola.

Hytera attorneys have asked for a new trial and argue that the award to Motorola should be reduced significantly, if the decision is not reversed. In contrast, Motorola Solutions asks that the financial award that China-based Hytera should pay should be increased by including the profits that Hytera has realized during the time since the trial started, interest and attorney fees.

Hytera also has argued that an injunction issued by a U.S. federal court only should apply within the U.S., which would mean Hytera could sell the DMR products in other countries. But Motorola Solutions asserts that language in the Defend Trade Secrets Act (DTSA) supports granting worldwide injunction in this case, because Hytera engaged in an “act in furtherance of the offense” in the U.S. through its participation in U.S. trade shows.