Updated: Bankruptcy judge expresses support for partial sale of Hytera U.S. assets not disputed by Motorola Solutions

[Editor’s note: This article has been updated to include a statement from Hytera that clarifies the status of its U.S. operating units for at least the next month.]

Hytera Communications could sell some of its U.S. assets to a new Hytera entity in the near term while deferring the sale of Motorola Solutions-disputed DMR inventory until at least Jan. 22, a California bankruptcy judge said yesterday during a hearing on the matter.

Judge Erithe A. Smith of the U.S. Bankruptcy Court for the Central District of California, expressed her intent to approve the sale of Hytera assets in the United States—Hytera America and Hytera Communications America (West), referenced collectively as “Debtors” in legal filings—except for DMR-related inventory products subject to a potential trade-secret and copyright injunction request filed by Motorola Solutions in federal court.

Although Judge Smith made her intentions clear, the partial sale to Hytera US—the new Hytera entity being formed to acquire all Hytera assets in the U.S.—will not be finalized until she approves a formal order that could be submitted to the judge as soon as today.

Meanwhile, Judge Smith encouraged attorneys for Hytera and Motorola Solutions to work on an agreement that addresses the sale of DMR inventory that is subject to a potential worldwide permanent injunction ruling in a federal court. If the federal-court judge has not ruled on the injunctive issue, Smith indicated that she plans to evaluate the matter again on Jan. 22, which could result in a second order to address the sale of Hytera’s remaining U.S. assets.

“I think and believe that there’s a good possibility that, come January 22, you all will have worked out something, because you all have the smarts to do it,” Smith said told attorneys during the hearing, which was conducted via a video teleconference. “I think maybe it just takes the will to do it.

“If you don’t, we’ll deal with it on January 22 and see where we are.”

Hytera proposed the bifurcated approach to the sale of the LMR manufacturer’s assets in the U.S., beginning with the sale to Hytera US all assets that are not disputed as part of the injunction request before the federal court.

“The Debtors have gone to great lengths to exclude infringing products and include only non-accused-products inventory to be sold,” John Lucas, an attorney for the Hytera U.S. units, said during the hearing. “We understand that this is a point of dispute among the parties, and the court wants to continue the matter to Jan. 22.

“It is essential for the Debtors’ distribution network to get out of bankruptcy, so it can continue to operate outside the confines of bankruptcy and without the specter of bankruptcy hanging over the distribution network.”

This sentiment was echoed by Hytera in a statement provided to IWCE’s Urgent Communications about the hearing before the bankruptcy-court judge.

“We are pleased with the results of today’s hearing,” according to the Hytera statement. “We remain dedicated to our dealer network.”

This afternoon, Hytera also provided IWCE’s Urgent Communications with a statement clarifying the status of Hytera America (“Hytera East”) and Hytera Communications America (West) (“Hytera West”) for at least the next month.

“On December 17, 2020, the United States Bankruptcy Court authorized the sale of certain assets and contracts of Hytera East and Hytera West to Hytera US,” according to the Hytera statement. “The sale of certain assets did not result in the automatic dissolution of Hytera East and Hytera West. Hytera East and Hytera West will continue to operate in a limited capacity.

“After the Bankruptcy Court considers the very narrow issue of the sale of Hytera East and Hytera West’s remaining inventory to Hytera US at a hearing on January 22, 2021, any remaining assets and the operation of Hytera East and Hytera West will be wound down and eventually liquidated pursuant to the bankruptcy process.”

Hytera America and Hytera Communications America (West) filed for Chapter 11 bankruptcy protection in May, in the wake of U.S. District Court Judge Charles Norgle affirming a $764.6 million award against Hytera for utilizing DMR 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, but no decision on that matter has been announced to date.

In multiple court filings, Motorola Solutions attorneys have expressed concern that the Hytera—primarily Hytera America, Hytera Communications America (West) and their China-based parent company, Hytera Communications—have not taken steps to pay the $764.6 million federal-court award. In addition, Hytera has continued to sell DMR products that were disputed in the federal-court case, and Motorola Solutions attorneys said they want to ensure that the bankruptcy sale does not make such actions easier for Hytera.

“One of the other concerns that we expressed is that what will happen here is that Your Honor will allow them to sell the business, including the items that they say are necessary to continue marketing and distributing in the United States the DMR products that a jury has adjudicated as including stolen Motorola technology,” Mike DeVries, an attorney representing Motorola Solutions, said during the hearing. “And they’ll start tomorrow—once Your Honor approves this—importing the misappropriated goods through the new entity and then argue that that new entity, by virtue of these proceedings, is not subject to the jurisdiction of Judge Norgle and the district of Illinois.”

Judge Smith said that she believes separating the disputed DMR inventory from the partial sale of Hytera’s U.S. assets to the new Hytera US entity should address Motorola Solutions’ issues. In addition, Judge Smith noted that she does not have jurisdiction to address whether Hytera Communications—the China-based parent company that not a party to the Chapter 11 bankruptcy proceeding—remains liable in a federal court.

Chad Husnick, a bankruptcy attorney representing Motorola Solutions, said he appreciated Judge Smith clarifying the jurisdictional issue.

“All we needed, Your Honor, was exactly what you said,” Husnick said. “You don’t have jurisdiction to order that they don’t have liability for the liabilities of the parent.

“It was very helpful to us to flesh out—on the record—what our concerns were and to have Your Honor say that you couldn’t even do what we thinking that was being done.”

Motorola Solutions emphasized this point in a statement provided by the company today to IWCE’s Urgent Communications.

“The U.S. Bankruptcy Court’s interim ruling in Hytera’s U.S. subsidiaries’ bankruptcy has no impact on Hytera’s liability for trade-secret misappropriation and copyright infringement, or Motorola Solutions’ ability to obtain an injunction to stop Hytera from continuing its illegal activities,” according to the Motorola Solutions statement.

“Further, in order to obtain approval for its sale in the Bankruptcy Court, Hytera agreed that ‘no one will be able to sell Hytera digital mobile radio products’ if the injunction order is granted. Accordingly, the bankruptcy proceedings have made clear that there is no impediment to the Illinois District Court’s ability to grant Motorola Solutions’ pending motion for a global injunction.”

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 argued 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.