Federal judge orders Hytera to make substantial DMR royalty payment in July

Hytera Communications must make a lump-sum royalty payment in July estimated to be at least $45 million—money Hytera claims it does not have—into escrow that ultimately would be given to Motorola Solutions for Hytera sales associated with stolen trade secrets and copyrighted software, according to a federal court order.

U.S. Federal District Court Judge Charles Norgle yesterday issued the order after Hytera and Motorola Solutions failed to reach an agreement about the details of Hytera’s royalty payments of $80.32 per radio and $378.16 per repeater on sales of certain DMR gear. Norgle established the cost structure when he issued an order on the matter in December.

Hytera asked Norgle to reconsider the December order by reducing the applicable royalty window—instead of starting on July 1, 2019, it sought a start date of December 2021 or December 2020. In addition, Hytera asked that it be able to make the initial royalty payment “over a period of time under a payment plan” instead of in a single lump sum, as directed in the December order.

But Norgle denied Hytera’s requests, noting that the “motion fails on the merits.” As a result, the federal judge directed Hytera and Motorola Solutions to agree on the terms of the royalty arrangement next week.

“The parties shall submit to the court an order with the terms of Hytera’s royalty obligations in the form as proposed by the parties and including terms consistent with this order as to the disputed issues by April 19, 2022, for the court’s review, approval, and entry,” according to Norgle’s order that was issued yesterday.

In a March 2020 judgment, Norgle affirmed a unanimous jury finding that Hytera should pay $764.6 million for its use of DMR trade secrets and copyrighted software developed by Motorola. Norgle reduced this initial award amount to $543.7 million in January, noting that collecting $220.9 million of the original ruling “would constitute a double recovery.

But these damages only addressed Hytera sales of certain DMR products—those that used the stolen trade secrets and copyrighted software developed by Motorola—through June 30, 2019. Hytera has continued to sell these “covered products” even after this date, and the royalty payments established by Norgle are designed to compensate Motorola Solutions for Hytera sales of these products beginning on July 1, 2019.

Norgle’s order stipulates that Hytera’s first escrow payment will be due on July 31, when the China-based LMR firm is required to make a lump-sum payment of all royalties for the three-year period from July 1, 2019, to June 30, 2022.

This initial royalty payment is expected to be significant, although the exact amount is not clear—in one part of Norgle order, the Hytera estimate is stated to be $45 million, while it is more than $65 million in another part of the order.

Either way, one of Hytera’s arguments against an initial lump-sum royalty payment is that the company does not have the money to make the outlay. Norgle said he would not change the payment schedule.

“Hytera argues that it could not agree to a lump-sum payment of royalties for sales starting July 1, 2019, because it does not have sufficient liquid assets to make a payment it estimates will be $45 million,” Norgle states in yesterday’s order. “Hytera’s arguments regarding its financial ability to make the initial royalty payment as required by the court fail, because its financial condition is—by its own account—not new.

“By Hytera’s own admission, Hytera’s financial condition was known to it and its counsel when Hytera submitted its initial brief on the royalty issues in February 2021, yet Hytera made no argument that, because of its financial condition, its royalty obligation should begin later than July 1, 2019, or that any royalty obligation that began before Dec. 17, 2020, should be paid over a period of time. In other words, Hytera’s financial condition is not newly discovered evidence, and Hytera should have raised those arguments in the first instance, but it did not.”

Since Norgle issued his December order about royalty payments, the U.S. Department of Justice in February partially unsealed its 21-count indictment that charges Hytera Communications with conspiracy to commit theft of DMR secrets from Motorola Solutions.

Hytera argued that the federal indictment is creating even more strain on the company’s finances, citing this as another reason for advocating that a payment plan be established for the initial royalty payment. Norgle disagreed.

“Hytera argues that the criminal indictment that has been partially unsealed by the U.S. Department of Justice has put even more stress on its financial condition,” Norgle states in yesterday’s order. “But the court concludes that Hytera’s argument does not justify reconsideration or modification of the court’s Dec. 14, 2021, order.

“As Hytera notes, ‘financial inability to pay’ is generally a defense to a civil contempt motion for failure to comply with a court order directing payment. The court will cross that bridge only if and when it has to. For now, the court’s ruling that Hytera’s royalty obligation starts are July 1, 2019, and that Hytera’s first royalty payment shall include royalties due for its sales from July 1, 2019, through the relevant quarter stands.”

After the initial royalty payment is made into escrow, Hytera will be scheduled to make quarterly payments on royalties for sales of covered DMR products in the prior three months. Hytera royalty payments are scheduled to be made at the end of January, April, July and October, according to Norgle’s order.

These quarterly payments on future sales are not expected to be as large, because Hytera is transitioning its DMR sales focus to its new H-Series family of products. Hytera claims that the H-Series portfolio has been redesigned completely and does not use any of the intellectual property from Motorola that has been the subject of global litigation for the past five years.

Although Norgle’s order calls for Hytera to begin making royalty payments in July, Motorola Solutions is not expected to receive any of the money for some time. Hytera’s royalty payments will be held in escrow until all legal appeals of the case have been exhausted.

And the appeal process could be lengthy. In September 2021, Hytera filed an appeal to Norgle’s March 2020 judgment with the U.S. Court of Appeals for the Seventh Circuit, and Motorola Solutions quickly followed with a cross appeal. However, the appeals court dismissed both of these appeals early this year, noting that the district-court case before Norgle had not been completed.

Both the civil and criminal cases against Hytera center around allegations that Hytera developed much of its successful DMR product line using trade secrets and copyrighted software that was stolen from Motorola Solutions about 14 years ago.

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.

All three of the former Motorola employees that were hired by Hytera invoked the Fifth Amendment when interviewed as part of the civil-suit proceedings. The DoJ indictment notes that there are individual defendants charged in the Hytera criminal conspiracy case, but all of those names were redacted from the publicly available version of the indictment.