Hytera, Motorola Solutions DMR royalty dispute to be decided by federal judge

A federal judge is expected to determine the royalty Hytera Communications must pay as ongoing compensation for the use of trade secrets and copyrighted software stolen from Motorola Solutions—a decision that could shape the competitive landscape within the DMR marketplace.

No available specifics about the royalty amounts proposed by lawyers representing China-based Hytera Communications and Motorola Solutions, because the per-radio and per-repeater royalty figures have been redacted from publicly available court documents. However, the fact that there is a significant chasm in the royalty proposals is clear, given that the companies have not negotiated an agreement to date and that recent filings about the royalty topic have featured stark disagreements in legal interpretations.

Hytera Communications attorneys claim Motorola Solutions is trying to make the royalty so expensive that it would prevent the China-based LMR manufacturer from maintaining a profitable business through the sale of its DMR products, according to a Feb. 17 filing in the Illinois federal district court of Judge Charles Norgle. In December, Norgle decided that Hytera should pay a “reasonable royalty” to Motorola Solutions for its use of stolen trade secrets and software, instead of granting the worldwide injunction requested by Motorola Solutions.

If Norgle granted the royalty proposed by Motorola Solutions, it would be tantamount to granting an injunction, because Hytera would not have the opportunity to profit from the sale of its DMR products, according to Hytera’s attorneys.

“Hytera, in an effort to reach a compromise, proposes a royalty rate that is not only reasonable but is far more than

most companies in Hytera’s shoes would ever propose in a negotiation,” Hytera states in the Feb. 17 brief. “In contrast, under Motorola’s proposal, Hytera would be paying more than double the amount of Hytera profit on each radio. No reasonable licensee would agree to such an arrangement.

“Seeking an amount greater than all of Hytera’s potential profits as a royalty ‘floor’—and forcing Hytera to sell at a loss—is not a true royalty and is certainly anything but a reasonable one. Instead, Motorola asks the Court to award what is, in effect, a de facto injunction—or perpetual supplemental damages—by requiring Hytera to continue disgorging all profits based purely on the damages awarded at trial, which did not include a determination of a royalty.”

Attorneys for Motorola Solutions expressed a very different view, asserting that the federal court is not responsible for ensuring that Hytera can continue selling DMR products at a profit while maintaining its current pricing.

Lawyers representing Motorola Solutions have claimed for months that Hytera Communications does not plan to pay any of the $543.7 million that Hytera owes after a four-month trial resulted in a unanimous jury verdict that Norgle upheld as a judgment in March 2020. Hytera’s legal position about royalties aligns with that strategy, Motorola Solutions claims in its Feb. 24 final briefing about the royalty.

“Hytera’s response is its latest attempt to dodge fully compensating Motorola for its willful and malicious theft,” according to the Motorola Solutions brief. “ Hytera seeks a do-over, asking for a royalty based on a revised profits calculation that is actually lower than what Hytera presented at trial. Hytera attempts to justify its proposal by arguing that it must be left with a ‘reasonable profit.’ But the law does not cap a royalty at a misappropriator’s profit when that profit does not account for the royalty owed and has been unlawfully reduced by undercutting Motorola on price.

“In these circumstances, the only royalty approaching reasonableness starts with Hytera’s profits and is enhanced due to Hytera’s unabated willful and malicious theft.”

Hytera Communications can continue to sell the disputed DMR products and maintain a profit simply by raising its prices from their current low levels that have caused Motorola Solutions to lose business to Hytera for more than a decade, according to the Motorola Solutions filing.

“While Hytera complains that ‘increas[ing] [its] prices sufficient to obtain a material profit per unit would ultimately operate to lower Hytera’s overall profits,’ Hytera has priced its products for the last eleven years without accounting for what it owes Motorola for its theft,” the Motorola Solutions filing states. “Now that it has been caught, Hytera cannot use its illicitly built business to limit the royalty, particularly because Hytera routinely undercuts Motorola on price.”

Not surprisingly, Hytera attorneys disagree with this argument and claim that there are special circumstances to consider, noting the impact of the COVID-19 pandemic.

“Motorola claims that it is perfectly reasonable to impose a royalty that would prevent any possible profit (and lead to a substantial loss), because Hytera can simply choose to stop selling the accused products or significantly raise its prices (in the middle of a pandemic),” according to the Hytera filing of Feb. 17. “In other words, Motorola readily acknowledges that the true motivation for its proposal is not to reach a reasonable royalty but instead to impose a de facto injunction.

“But this Court already determined that a worldwide injunction would be improper, ‘particularly during an ongoing pandemic.’ Forcing Hytera to stop selling the products is not a reasonable royalty proposal and makes a mockery of the hypothetical negotiation analysis.

Attorneys for Hytera Communications and Motorola also disagree on other aspects of the royalty issue, such as on which sales the royalty would apply.

Motorola Solutions claims the royalty should apply to most Hytera DMR sales made after July 1, 2019—the day after sales were calculated into the original trial—or at least Feb. 14, 2020—the day the jury reached its unanimous decision after a four-month trial.

In contrast, Hytera contends that Motorola Solutions should not receive royalties from the sale of five Hytera products that were not adjudicated during the trial before Norgle and that royalties should not apply to any sales prior to Dec. 17, 2020, when Norgle ruled in favor of a royalty instead of an injunction.

One apparent point of agreement between the companies is that Hytera Communications—the Hytera parent company based in China—will be responsible for all royalty payments. The new Hytera US entity—established from the Chapter 11 bankruptcy of Hytera America and Hytera Communications America (West)—is not a party to the lawsuit and will not be responsible for royalty payments.

In addition to determining the terms of the royalty payments owed by Hytera, Norgle is expected to decide on the amount of interest payments that Hytera would pay Motorola Solutions and whether Motorola Solutions can secure payments for the original $543.7 million from Hytera’s account with the Bank of China.

Motorola Solutions is seeking more than $100 million in interest payments from Hytera—a figure Hytera disputes. On Jan. 25, Norgle issued an order approving the turnover of Hytera assets held by the Bank of China to Motorola Solutions, but he reversed the decision two days later. The filing schedule for this portion of the case has been delayed, because Hytera determined that two of its original lawyers working on the matter had a conflict of interest, according to court documents.

During the federal-court trial that began in November 2019, 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 successfully argued that the award to Motorola should be reduced, resulting in the original $764.6 million award being decreased by $220.9 million, to $543.7 million. Hytera officials also have said the company plans to appeal the federal-court decision.