Judge rules Hytera parent in contempt, proposes to halt two-way-radio sales globally unless $49M royalty paid

A U.S. federal judge this week ruled that Hytera Communications is in contempt of court for failing to make a $49 million royalty payment owed to Motorola Solutions that was due more than a year ago. In addition, the judge indicated that she would issue an injunction prohibiting Hytera from selling any two-way radio products anywhere in the world until the China-based LMR parent company makes the royalty payment into an escrow account.

U.S. District Judge Martha Pacold issued the ruling on Monday after conducting a contempt hearing on Aug. 17 and allowing lawyers for both Hytera Communications and Motorola Solutions to submit supplemental briefs outlining their positions about what legal remedy should be implemented if Hytera was found to be in contempt.

In her order, Pacold determined that Hytera Communications was in contempt of the court’s December 2021 royalty order—issued by Judge Charles Norgle, who retired last year—because it has not made the $49 million royalty payment due in July 2022 for sales of DMR products using trade secrets and copyrighted material from Motorola Solutions.

“In light of Hytera’s recalcitrance, fines, other monetary sanctions, and other options would be ineffective,” Pacold stated in the order released yesterday. “To coerce compliance with the royalty order, the appropriate course is to enjoin Hytera from selling any products containing two-way radio technology anywhere in the world until its obligations under the royalty order are satisfied.”

Attorneys for Motorola Solutions will draft language for the global injunction by Wednesday, and lawyers representing Hytera Communications can submit potential edits to the injunctive language by Friday, according to the order. Judge Pacold then will decide on the final language and issue the injunction.

In her order, Pacold said that Hytera Communications still can avoid having an injunction become effective, noting that Hytera can “have [the injunction] lifted any time by complying with the royalty order.”

Pacold noted that attorneys for Hytera Communications had advocated for the royalty structure before Judge Norgle, while Motorola Solutions sought injunctive relief. Despite pushing for the royalty arrangement, Hytera Communications has not made any payment toward the $49 million bulk royalty payment—originally due on July 31, 2022—for relevant DMR products sold between July 1, 2019, and June 30, 2022.

“Though Hytera was the progenitor and expositor of the royalty-order concept, it has not complied with the very order it sought,” according to Pacold’s order. “Hytera now claims that it has made reasonable and diligent efforts to comply with the royalty order and that, in the alternative, it is unable to pay. Neither is true.

“Hytera’s supposed efforts to comply have been neither reasonable nor diligent. And Hytera can pay—it has simply chosen to prioritize its operations and other creditors over its obligation to Motorola [Solutions] and its obligation to obey the court’s order. Hytera’s failure to comply leaves the court with no choice but to hold Hytera in contempt.”

Hytera Communications did not provide a response to requests from IWCE’s Urgent Communications for comment about Judge Pacold’s contempt finding and injunction proposal in time to be included in this article. A comment from Hytera will be added to this article, if one becomes available this week.

Hytera Communications has indicated its plans to appeal the royalty order, which was established in the aftermath of the LMR manufacturer being found guilty in 2020 civil cast of using stolen Motorola trade secrets and copyrighted software in its popular DMR products. Hytera has appealed that case to the Seventh Circuit Court of Appeals.

Attorneys for Hytera Communications have argued in legal briefs and during an Aug. 17 hearing that the company should not be deemed to be in contempt of court, noting that Hytera has paid ongoing quarterly royalty payments totaling more than $2 million during the past year.

Hytera officials acknowledged that the company’s failure to pay the $49 million royalty meets three of the four criteria for determining contempt. However, they have claimed that Hytera has made “reasonable and diligent efforts”—the fourth criteria for determining contempt—to make the court-ordered payment, but the terms of bank agreements have proven problematic.

Pacold disagreed with the Hytera Communications argument and the notion that bank debts should be prioritized ahead of the court-ordered royalty payment, noting that the terms of Hytera’s loan agreements have “very limited relevance in this proceeding,” according to her ruling.

“Hytera has provided no authority for the proposition that compliance with restrictions in its private loan agreements supersedes its obligation to comply with the court’s orders,” Pacold states in her order.

“Hytera’s $700 million in net assets alone demonstrate that it is more than able to make the entire royalty payment. Being required to use those assets to comply with a court order is an ordinary consequence of being a civil litigant, a consequence from which Hytera is not excused because it signed restrictive loan agreements.”

Pacold also disagreed with the idea that Hytera Communications had demonstrated that the China-based parent company has an “inability to pay” the royalty amount, which could have exempted it from a contempt-of-court finding.

“Hytera’s failure to make reasonable and diligent efforts to meet its royalty obligation is best illustrated by what it has not done,” Pacold states in her ruling. “Despite holding itself out to investors as a stable and healthy company, Hytera has made no effort to access any unrestricted cash or assets to make the lump-sum deposit. It has made no plan to put aside the significant revenue it has derived from operations. And it has not chosen to cut any expenses.”

Citing these financial behaviors, Pacold’s ruling states that assessing fines that would require Hytera Communications to pay even more money “would be ineffective.” The judge also indicated that Hytera’s proposal of payment plans and a “pledge” of stock of Canadian company Norsat—without an ultimate commitment to transfer the stock or yield voting rights—would lead to delays or otherwise would be inadequate security for Motorola Solutions.

Judge Pacold dismissed the notion of seizing Hytera assets, noting that doing so likely would involve seizing assets of a Hytera subsidiary that is not a party to the original lawsuit, which would involve debating legal complications that “the court declines to do … at this time.”

Instead, Pacold decided to adopt a measure advocated by attorneys for Motorola Solutions: an injunction prohibiting Hytera from “selling any two-way radio products worldwide until it fully complies with the royalty order.” This injunctive relief is more likely to compel Hytera Communications to make the payment necessary to meet the three-year royalty payment—$49 million, plus late-payment fees—than the other alternatives, Pacold states in her ruling.

“A worldwide injunction halting the sales of a major driver of revenues is likely to induce Hytera to use its existing assets to immediately make the deposit, along with the required late-payment fee,” according to Pacold’s order. “In addition, … the injunction Motorola seeks could help to coerce compliance [with the royalty order], as customers would likely avoid the possibility of purchasing products sold in violation of a court order, even if the order itself may have no direct effect on Hytera’s behavior.

“Last, Hytera’s own conduct in this case indicates a strong possibility that the injunction will induce compliance. Hytera sought an ongoing royalty as opposed to an injunction, and it litigated forcefully against a permanent injunction. An injunction is clearly something Hytera does not want. If Hytera’s plan was not to comply with an injunction, the court concludes that Hytera likely would not have so forcefully opposed its application for the past three years.”

Motorola Solutions applauded Judge Pacold’s ruling.

“We are pleased that the U.S. District Court for the Northern District of Illinois has found Hytera in civil contempt,” according to a Motorola Solutions statement provided to IWCE’s Urgent Communications. “We will continue to hold Hytera accountable for its egregious conduct and defend Motorola Solutions’ valuable intellectual property.”

This royalty order is part of a civil case between Hytera Communications—the China-based parent company of Hytera—and Motorola Solutions. The case initially included two Hytera subsidiaries in the U.S., but those entities declared bankruptcy in May 2020. The U.S. subsidiaries were reformed into a single entity known as Hytera US, and a bankruptcy judge ruled that the new entity would not have any legal liability in the civil case.

These civil actions should not be confused with the pending criminal case that the U.S. Department of Justice has filed against Hytera Communications and seven former Hytera employees for allegedly conspiring to steal intellectual property from Motorola—their previous employer—and sharing the information Hytera’s DMR development team more than a decade ago. The criminal trial is scheduled to begin on Feb. 5, according to court documents.