Hytera fails to pay royalties and seeks to donate shares to Motorola Solutions

Hytera Communications has failed to make its scheduled cash lump sum payment reflecting royalties it owes Motorola Solutions, and the China-based LMR provider has asked a federal judge to let it submit company stock instead, according to a heavily redacted legal brief that was posted today.

“Hytera respectfully submits that the court vary or stay the court’s royalty order to permit shares to be placed in escrow instead of cash,” states the legal brief from Hytera, which also requested a stay of escrow. order requiring Hytera to make the initial lump sum royalty payment by yesterday, July 31.

A footnote in Hytera Communications’ filing today noted that the China-based company only made the request after it missed the royalty payment deadline.

“Hytera acknowledges that this petition is filed shortly after the royalty payment was to be placed in escrow,” the filing said. “Hytera had nonetheless sought to exhaust various resources before seeking any relief from the court.”

Based on an order from US District Court Judge Charles Norgle, Hytera would not pay royalties directly to Motorola Solutions; instead, the money would be deposited in an escrow account and turned over to Motorola Solutions after all appeals in the case have been exhausted.

On July 21, Hytera Communications was supposed to provide the amount of royalties it owed Motorola Solutions for sales of certain DMR products sold over the past three years that use trade secrets or copyrighted software that were stolen from Motorola Solutions more than a decade ago, according to a recent court ruling.

In today’s legal filing, Hytera described the calculated amount of this first royalty payment as “substantial”, but previous legal documents expected the total to be at least $45 million. However, the actual figure has not been made public, although the royalty figures are likely included in the considerable text that is redacted from the publicly available version of Hytera’s legal deposit.

Hytera Communications’ explanation for why it did not make the cash royalty payment to the designated escrow account for Motorola Solutions is also presumably redacted. However, after determining that a cash payment was not an option, “Hytera then sought alternative security as a possible means of complying with the court’s escrow order,” according to the Hytera filing, which proposes that his company’s shares are placed in escrow instead. .

Hytera Communications attorneys note that such an arrangement is not unprecedented.

“Courts routinely approve deposits of share certificates as security for judgment debts in lieu of cash or cash equivalents, particularly when the defendant’s ‘precarious financial situation’ prevents him from acquiring necessary cash “, according to the Hytera filing.

Citing a 2001 case, the Hytera filing notes that “the court allowed a pledge of shares as an alternative security after the defendant presented evidence that he had unsuccessfully attempted to obtain bail, which he had primarily refused to issue a letter of credit and that its financial records otherwise indicated that the cost of the replacement bond “may well lead to [the defendant’s] disappearance.'”

Given the extensive redactions in today’s filing, it is unclear whether Hytera Communications is claiming that it is in a “precarious financial situation” or whether payment of the cost of a replacement bond in this case” might well lead to [Hytera Communications’] death”—the conditions cited by Hytera’s attorneys in the brief.

Motorola Solutions lawyers have repeatedly filed briefs saying they do not believe Hytera will make the required royalty payments. If Hytera is determined to be underpaying royalties, the China-based LMR will be required to pay an additional tiered penalty, based on the percentage of the underpayment, according to Norgle’s order.

For example, if Hytera underpays 5-10% of the amount owed, Hytera will pay an additional 10% of the underpayment, the order says. The surcharge percentage increases as the underpayment percentage increases in a staggered fashion, with Hytera paying an additional 100% surcharge on any underpayment above 50%.

Motorola Solutions expressed support for Nangle’s order in a statement provided to IWCE Urgent Communications.

To date, Hytera has also made no payment for the $543.7 million adjusted judgment against the China-based company from March 2020, when Nangle upheld the unanimous jury findings at the end of the trial. of a four-month trial in Chicago. Hytera also refused to obtain bond associated with the judgment, a fact Motorola Solutions’ attorneys repeatedly noted in their filings.

However, Hytera’s refusal to pay its initial fee is the most tangible evidence yet of Motorola Solutions’ assertion that Hytera Communications has no intention of paying the financial penalties associated with the case.

Hytera Communications’ failure to pay in this case could have significant legal implications for the company’s future sales of the DMR products cited in the Motorola Solutions lawsuit that was originally filed in March 2017, if an appeals court interprets Hytera’s inaction as Nangle did recently.

Motorola Solutions that Norgle is reconsidering issuing a permanent injunction against Hytera that would have prevented China-based LMR from selling specific DMR products that use Motorola’s trade secrets and copyrighted software.

Norgle had denied a similar permanent injunction request in December 2020, when Norgle determined that the only reason not to issue a permanent injunction was because Hytera was already being punished by being required to pay damages in the case. After Hytera indicated it would not pay damages, Nangle said he thought a permanent injunction would be appropriate.

“Now, says Motorola, Hytera has made it clear since the court order that it has no intention of paying the judgment against it. Indeed, says Motorola, Hytera claims that it does not have the capacity to pay”, declares the leader of Norgle. “Therefore, since Motorola allegedly cannot be compensated in money, it has been irreparably injured, and the court should issue a permanent injunction.”

Despite this position, Norgle’s decision indicates that he does not believe he has the authority to issue such a decision, as Motorola Solutions has already appealed its previous permanent injunction decision to the Seventh Circuit Court of Appeals.

“The court has no jurisdiction to grant the motion,” Nangle’s decision states.

“Motorola argued that the appeal cited by Hytera was premature, as the court had not yet finalized the issue of a reasonable royalty, and that the appeal…was dismissed for that very reason. However, an appeal Later and a cross-appeal was filed last month after the court determined the amount of the reasonable royalty, the court therefore concludes that it lacks jurisdiction to grant the relief sought by Motorola.

In a March 2020 judgment, Norgle upheld a unanimous jury finding that Hytera should pay $764.6 million for its use of DMR trade secrets and copyrighted software developed by Motorola. Nangle reduced that original amount to $543.7 million in January, noting that raising $220.9 million from the original ruling “would constitute a double clawback.”

But these damages only affected Hytera’s sales of certain DMR products – those that used the stolen trade secrets and copyrighted software developed by Motorola – until June 30, 2019. Hytera continued to sell these ” Covered Products” even after that date, and the royalty payments established by Nangle are designed to compensate Motorola Solutions for Hytera sales of such products on or after July 1, 2019.

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

In legal documents, Hytera said it may not be able to pay, noting that the company’s finances have been further strained by the fact that the US Department of Justice (DoJ) indicted in February China-based LMR for criminal conspiracy to steal Motorola’s DMR Trade Secrets (before the company was renamed Motorola Solutions). This 21-count indictment against Hytera Communications was followed in April by the identification of seven individuals who participated in the alleged criminal conspiracy.

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

During the federal court trial that began in November 2019, Hytera attorneys admitted that three former employees of Motorola (the company had not yet changed its name to Motorola Solutions at the time) – Samuel Chia , YT Kok and GS Kok – had accessed over 7,000 Motorola Documents before each of them left and joined Hytera shortly in 2008. However, Hytera’s lawyers described the three engineers as ” bad apples” who did not share with anyone else at Hytera that the trade secrets and DMR software had been taken from Motorola.

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

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Elaine R. Knight