Federal judge holds Chinese telecom in contempt over failure to pay royalties to US rival

CHICAGO (CN) — A federal judge on Friday held Chinese telecom company Hytera in contempt after it failed to pay its U.S. competitor, Motorola Solutions, royalties stemming from an underlying copyright lawsuit.

Chicago-based Motorola Solutions sued Hytera for copyright infringement and trade secret violations in 2017. In the lawsuit, the company claimed Hytera had lured away several radio engineers, who then downloaded and misappropriated more than 7,000 technical, marketing, sales and legal documents related to Motorola’s radio products.

“Hytera simply copied and used these critical technologies in its own competing products — products that bear the hallmarks of Motorola’s innovation and product development" despite knowing those products were patented, Motorola said in its original 34-page complaint.

A Chicago jury trial agreed with Motorola in 2020, ordering Hytera to pay nearly $765 million in damages. That figure was reduced to $543 million in 2021, but the court further stipulated in 2022 that Hytera owed Motorola royalties for additional trade secret and copyright violations dating back to 2019.

Hytera still has not paid Motorola royalties for Hytera’s “H-Series” radios, which the Chicago-based company says is one of a litany products that violate its trade secrets and copyrights.

The partially state-owned Hytera said after the jury verdict in 2020 that it redesigned its H-Series radio from the ground up, which it claims defeated the product’s substantial likeness.

Nonetheless, “the fact that Hytera implemented different ways of solving some of the problems it had previously encountered — via either third-party code or new code — does not change the fact that it relied on Motorola’s trade secrets to know what problems needed to be solved in the first place,” U.S. District Judge Martha Pacold wrote in Friday’s order.

Hytera maintained that it redesigned its products to comply with the order. The Donald Trump appointee called many of those changes “merely cosmetic.”

“Even when Hytera made real changes, it often did so simply by simply swapping out lines of code, modules, and portions of modules for functional equivalents in a plug-and-play fashion without changing the underlying structure or architecture,” she wrote.

Hytera pursued its own lawsuit against Motorola in China, asking the Intermediate Peoples’ Court to declare that its H-Series radios do not infringe on Motorola’s trade secrets or copyrights.

Based in Shenzhen, the Chinese company argued that its H-Series radios were not governed by either the Chicago jury trial or the court’s subsequent 2022 royalty order, as it launched its products in October 2021.

In initial contempt proceedings, Motorola asked Pacold to bar Hytera from pursuing its suit in China and argued the company was trying to circumvent the Chicago jury verdict. Motorola argued that the Shenzhen court doesn’t have the same safeguards in place to protect trade secrets.

Hytera pushed back, arguing Motorola’s claims that the Chinese judiciary wouldn’t offer the same safeguards were in bad faith.

“There is nothing inappropriate or vexatious about Hytera seeking a judicial determination in its home country about the propriety of its conduct,” company lawyers wrote in their response to Motorola’s motion to open contempt proceedings.

Motorola “raises the specter of its inability to safeguard its trade secrets,” Hytera argued. “But Motorola has litigated in China dozens of times, as both plaintiff and defendant, with a very high success rate of 90%. Having itself made ample use of the Chinese court system, its concerns are both duplicitous and unfounded.”

Pacold ultimately agreed with Motorola and barred Hytera from pursuing its case in China while contempt proceedings were underway in Chicago.

In Friday’s order, she maintained that Hytera did not make reasonable efforts to comply with the 2022 royalty order and had even concealed its Chinese litigation “from both Motorola and this court until November 2023.”

“It is not clear why Hytera would take this action if it truly believed it had acted reasonably and diligently in redesigning its products to excise Motorola’s trade secrets,” she wrote.

Aside from holding the company in contempt, Pacold ordered Hytera to pay Motorola $59 million in unpaid royalties for the H-Series products and an additional $11 million in interest.

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