Bankruptcy-court hearing set in Hytera-Motorola Solutions dispute

A California bankruptcy judge tomorrow will conduct a hearing to determine whether China-based LMR manufacturer Hytera Communications can sell its U.S. assets to a new Hytera entity in the near term or if the sale should be delayed until after a federal judge rules on a permanent-injunction request from Motorola Solutions.

Hytera filed for Chapter 11 bankruptcy protection for its U.S. entities in May, in the wake of U.S. District Court Judge Charles Norgle affirming a $764.6 million award against Hytera for utilize trade secrets or copyrighted software stolen by former Motorola employees who left to work for Hytera in 2008. Motorola Solutions also has asked Norgle to grant a permanent injunction that could block Hytera from selling many of its DMR products worldwide.

This pending injunction case has complicated the bankruptcy sale of Hytera’s U.S. assets, Hytera America and Hytera Communications America (West)—referenced as “Hytera East” and “Hytera West” respectively, or as “Debtors” collectively in legal filings. These U.S. assets were set to be sold to a new Hytera US in August, but the bankruptcy court chose to delay the sale to let Norgle make his injunction ruling.

But Norgle has yet to issue a decision on the injunction to date, a fact that Hytera attorneys have noted in briefs filed to persuade the bankruptcy court to let the sale to Hytera US proceed.

“Any further delay of the Court’s consideration of the Sale Motion will cause the further erosion of the Debtors’ dealer network, thereby jeopardizing the vary assets that are part of the sale,” according to a Hytera filing this fall. “This not only harms the Debtors’ estate but also provides fewer options in the market place for two-way radios, which is Motorola’s goal.”

But U.S. Trustee Peter Anderson said that court records indicate that Hytera’s U.S. assets have seen their cash on hand increase by more than $3 million—more than doubling the cash on hand when the bankruptcy was filed in May—during the five-month period ending Oct. 31.

“Accordingly, the Debtors’ own monthly reports filed with this Court do not support their prior contentions that there will be dire consequences if they must wait for the ruling on the Injunction Motion,” according to the U.S. Trustee filing submitted earlier this month.

“Based on the forgoing, in the event the District Court in Illinois does not rule on the Injunction Motion by the time of the hearing on the Sale Motion, this Court should allow further time for the District Court to issue its ruling.”

Motorola Solutions attorneys have agreed with this sentiment.

“To the extent that Judge Norgle has not yet ruled on the injunction request by the time of the December 17 hearing before this Court, the hearing on Debtors’ proposed sale should be further continued to allow Judge Norgle to first rule,” according to a Motorola Solution filing earlier this month. “As discussed during the last sale motion hearing, Judge Norgle and the U.S. District Court for the Northern District of Illinois remain best positioned to determine the complex technical issues resolving what falls within the pending injunction request, and what does not.”

Norgle received the last briefs about the injunction request from the Hytera and Motorola Solutions attorneys weeks ago, but he has not issued an opinion yet. Motorola Solutions attorneys have argued that an worldwide injunction blocking the sale of many popular Hytera DMR offerings is needed, because Hytera has indicated that it will not pay the $764.6 million award and it continues to sell DMR products after the federal-court ruling.

Hytera attorneys have noted that the federal-court ruling does not limit Hytera’s ability to sell DMR products and that an injunction would be duplicative to the massive financial award already granted to Motorola Solution. In addition, Hytera has filed briefs seeking a retrial and a reduction in the financial award granted by the federal court.

Hytera previously has announced its intention to appeal the federal-court decision.

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.