Hytera fails to make royalty payment, seeks to give stock shares to Motorola Solutions

Hytera fails to pay royalty, seeks shares in Motorola Solutions

Hytera Communications has not made a scheduled cash payment that reflects the royalty it owes to Motorola Solutions, and the China-based LMR seller has asked a federal judge to allow it to offer company stock instead, according to a heavily revised legal brief. Posted today.

“Hytera respectfully submits that the court amends or suspends a court order of title to allow shares of stock to be placed in escrow in lieu of cash,” said Hytera’s legal brief, which also requested a stay of order requiring Hytera to make an initial royalty payment in the amount of by Yesterday, July 31.

A footnote in Hytera Communications’ filing today indicated that the China-based company did not submit the application until after it missed the deadline for paying the royalty.

“Hytera understands that this proposal was made shortly after the royalty payment to the escrow was due,” the lawsuit states. “However, Hytera sought to exhaust various resources before seeking any compensation from the court.”

At the order of US Federal District Judge Charles Norgel, Hytera will not pay royalty fees directly to Motorola Solutions; Instead, the funds will be deposited into an escrow account and handed over to Motorola Solutions after all appeals in the case have been exhausted.

On July 21, Hytera Communications was to file the amount of the royalty fee it owes Motorola Solutions for sales of certain DMR products sold within the past three years that use trade secrets or copyrighted software that was stolen from Motorola Solutions more than A decade, according to a recent court ruling.

In today’s legal filing, Hytera described the calculated amount for this first royalty payment as “substantial,” but previous legal documents projected the total to be at least $45 million. However, the actual number has not been made public, although it is likely that royalty numbers were included as part of the larger text redacted from the publicly available version of today’s legal registration from Hytera.

It is also assumed that Hytera Communications’ explanation of why it did not pay the franchise fee in cash to Motorola Solutions’ escrow account has been revised. However, after determining that cash payment was not an option, “Hytera then searched for an alternative escrow as a possible way to comply with the court’s escrow order,” according to Hytera’s filing, which proposes placing the company’s stock in an escrow account instead.

Hytera Communications’ lawyers note that such an arrangement is not unprecedented.

“Courts routinely approve stock certificate deposits as security for judicial debts in lieu of cash or cash equivalents, particularly when the defendant’s ‘unstable financial situation’ prevents him from obtaining the required cash,” according to the Hytera filing.

Citing a 2001 case, Hytera’s file notes that “the court allowed the stock to be pledged as an alternative security after the defendant provided evidence that it had tried unsuccessfully to obtain a bond, primarily refusing to issue a letter of credit, and its financial records otherwise indicate that the cost of the bond Alternative ‘can lead to [the defendant’s] demise.'”

Given the significant revisions to today’s filing, it is unclear whether Hytera Communications claims to be in an “unstable financial position” or whether, in this case, paying the cost of the replacement bond “could result in [Hytera Communications’] demise” – the terms mentioned by Hytera’s lawyers in the memo.

Motorola Solutions’ attorneys have repeatedly filed briefs claiming they do not believe Hytera will pay the required royalty payments. If Hytera decides to have any “lower payments” than the royalty fee, the China-based LMR will have to pay an additional staggered fine, based on the percentage of the lower payment, according to Norgle’s order.

For example, if Hytera pays less than 5-10% of the amount owed, Hytera will pay an additional fee of 10% of the lower payment, the order states. The percentage of the additional cost increases as the percentage of underpayment increases on a progressive basis, with Hytera paying an additional fee of 100% on any payment less than 50%.

Motorola Solutions expressed support for Norgle’s request in a statement submitted to IWCE Urgent Communication.

To date, Hytera has also not made any payments toward the $543.7 million amended ruling against the China-based company as of March 2020, when Norgle upheld the unanimous jury findings at the conclusion of a four-month trial in Chicago. Hytera also refused to secure a bond linked to the ruling — a fact Motorola Solutions’ attorneys repeatedly noted in filings.

However, Hytera’s refusal to pay the initial royalty is the most concrete evidence to date of Motorola Solutions’ claim that Hytera Communications does not intend to pay the financial fines associated with the case.

Hytera Communications’ underpayment in this case could have significant legal implications for the company’s future sales of the DMR products mentioned in Motorola Solutions’ suit originally filed in March 2017, if an appeals court interprets Hytera’s inaction as Norgle recently did.

Motorola Solutions that Norgle has reconsidered 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 denied a similar permanent injunction request in December 2020, when Norgle decided that the only reason for not issuing a permanent injunction was that Hytera was already being punished by demanding monetary damages in the case. With Hytera indicating that she would not pay monetary damages, Norgle stated that he believed a permanent injunction would be appropriate.

“Now, Motorola says, Hytera has made it unmistakably clear since the court order that it does not intend to pay its judgment. In fact, Motorola says, Hytera claims it does not have the ability to pay,” Norgle states. “Therefore, since the alleged Motorola cannot be compensated for money, it has suffered irreparable damages, and the court must issue a permanent injunction.”

Despite this position, Norgle’s ruling indicates that he does not believe he has the ability to make such a ruling, because Motorola Solutions has already appealed his previous permanent injunction to the Seventh Circuit Court of Appeals.

Norgel’s ruling states that “the court lacks jurisdiction to approve the application.”

“Motorola argued that Hytera’s cited appeal was premature, because the court had not yet concluded a reasonable ownership case, and that the appeal… was dismissed for this very reason. The Court is the amount of the reasonable royalty. Accordingly, the Court finds that it lacks the jurisdiction to grant relief requested by Motorola.”

In a March 2020 ruling, Norgle confirmed the jury’s unanimous decision that Hytera must pay $764.6 million for its use of DMR trade secrets and copyrighted software developed by Motorola. Norgle lowered that initial award amount to $543.7 million in January, stating that raising $220.9 million from the original ruling “would constitute a double refund.”

But these damages only addressed Hytera’s sales of certain DMR products – those that used stolen trade secrets and copyrighted software developed by Motorola – as of June 30, 2019. Hytera continued to sell these “covered products” even after that date, in addition to the proprietary rights designed. Payments established by Norgle to reimburse Motorola Solutions for Hytera sales of these products beginning July 1, 2019.

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

In legal filings, Hytera indicated that it may be unable to pay, noting that the company’s finances have been further strained by the fact that in February the US Department of Justice (DoJ) charged China-based LMR with criminal conspiracy to rob. Motorola’s DMR trade secret (before the company was renamed Motorola Solutions). He followed this 21-count indictment against Hytera Communications in April by identifying seven individuals who participated in the alleged criminal plot.

Both 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 stolen from Motorola Solutions about 14 years ago.

During a federal court trial that began in November 2019, Hytera’s attorneys acknowledged that three former Motorola employees (the company did not change its name to Motorola Solutions at the time) — Samuel Chia, YT Kok and GS Kok — accessed more than 7,000 Motorola documents before leaving Motorola. All of them and join Hytera in a short time in 2008. However, Hytera’s lawyers described the three engineers as “bad apples” they 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 hired by Hytera invoked the Fifth Amendment when interviewed as part of the civil lawsuit proceedings. The indictment issued by the Department of Justice mentions the presence of individual defendants in a criminal conspiracy case in Hytera, but all of these names have been omitted from the publicly available version of the indictment.

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