Hytera subsidiary increases bid to buy bankrupt U.S. divisions as Motorola Solutions seeks to block sale

A new Hytera subsidiary has revised its offer to buy the company’s ‘insolvent’ U.S. divisions to $9.5 million—an increase of $1.6 million to its offer in early July—as the end-of-the-week deadline looms for outside entities to announce their intention to bid on the units in a potential bankruptcy auction.

Hytera US—the new subsidiary of China-based Hytera Communications established to bid on the bankrupt Hytera divisions in the U.S.—has increased its proposed purchase price $1.6 million to “compensate [the Hytera U.S. entities] for additional assigned contracts,” according to a filing released last week.

On July 3, Hytera US committed to paying at least $7.897 million for Hytera’s U.S. assets of the Hytera U.S. divisions—Hytera America, or “Hytera East,” and Hytera Communications America (West), or “Hytera West.” With the additional $1.6 million, that bid is now $9.5 million.

Other entities interested in bidding for the Hytera U.S. divisions are required to declare their intentions by Aug. 14, according to a noticed released by the U.S. Bankruptcy Court for the Central District of California.

If no bidders emerge, the Hytera U.S. division would be sold to Hytera US for the $9.5 million price. If at least one new qualified bidder is identified, the bankruptcy court would conduct an auction on Aug. 18 to determine the new owner of the Hytera U.S. divisions.

The Hytera U.S. divisions—known as “Debtors” in the bankruptcy court—filed for Chapter 11 bankruptcy protection on May 26. The move followed a U.S. federal court judgment issued in March that Hytera would have to pay Motorola Solutions $764.6 million in damages for improper use of trade secrets and copyrighted software in Hytera’s DMR products portfolio.

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 a Hytera declaration.

By selling the Hytera U.S. assets in a bankruptcy proceeding, the new ownership of the Hytera U.S. divisions would control the U.S. assets of Hytera but would not be burdened directly with any portion of the massive financial penalty assessed by the federal court, according to Hytera legal filings. Parent company Hytera Communications currently remains liable for the federal-court award to Motorola Solutions, although Hytera is seeking a new case and has announced its intention to appeal.

Still unclear to potential bidders for the Hytera U.S. divisions is whether they would be able to sell the disputed products in the Hytera DMR portfolio after the bankruptcy auction. A federal-court judge in Chicago has yet to rule on a Motorola Solutions permanent-injunction request that would block Hytera from selling any of the contested DMR products worldwide. The final briefs regarding the injunction request were filed with the federal court in June, but there has been no indication when a decision will be announced.

Hytera attorneys have acknowledged that a new owner of the Hytera U.S. divisions would be subject to an injunction granted by the Illinois federal court, if such a decision was issued.

“If the Illinois Court issues Motorola’s requested injunction against the manufacturer of the accused products, no one will be able to sell Hytera digital mobile radio products,” according to a Hytera filing with the bankruptcy court.

“In short, if Motorola obtains its requested injunction, the Debtors and any purchaser of their assets will be enjoined from selling the accused products.”

Motorola Solutions’ attorneys have argued that “no legitimate buyer will engage until the scope of injunctive relief is determined in the Illinois Trade Secret Case.”

Motorola Solutions has asked that the bankruptcy court dismiss the bankruptcy sale of the Hytera U.S.—an argument that is scheduled to be heard by the bankruptcy court on Aug. 20.

Hytera filed an objection to the Motorola Solutions request for dismissal.

“That Motorola would oppose the Debtors’ refuge in Chapter 11 reflects Motorola’s separate agenda, one that is antithetical to bankruptcy policy and to the interests of general unsecured creditors,” according to Hytera’s filing with the bankruptcy court. “Motorola’s objective in opposing a sale is to dismantle the Debtors piecemeal before the Illinois Court decides the motions and thereby eliminate a chief competitor in the United States market for digital mobile radio (“DMR”) products.

“If Motorola prevails on its motion to dismiss these Chapter 11 cases, it will not need to await the outcome of the motions pending before the Illinois Court. Instead, secure in the knowledge that the judgment will be too large for the Debtors to bond against, and having blocked their recourse to Chapter 11, Motorola will execute on its judgment, terminate the Debtors’ business and dealer network and bolster its widely recognized monopoly power.”

Currently, the bankruptcy court is scheduled to conduct a hearing to finalize the sale of the Hytera U.S. divisions to a new owner on Aug. 27, according to bankruptcy-court documents.