Hytera Communications America filed for bankruptcy under Chapter 11 in May, 2020 in Santa Ana. Hytera manufactures and sells digital two-way radios and trunking systems used by first responders and others.
The Hytera Communications bankruptcy appears to be a tactical maneuver to avoid paying an enormous civil judgment for IP theft: $345.8 million in compensatory damages and $418.8 million in punitive damages ($764.6 million total).
A Chicago jury found that Hytera Communications had for used stolen Motorola Solutions trade secrets and copyrighted software code to build its DMR digital two-way radios.
During the federal-court jury trial in Chicago that lasted 4 months, Hytera attorneys acknowledged that three former Motorola employees—Samuel Chia, Y.T. Kok and G.S. Kok—took with them more than 7,000 Motorola documents, including source code, prior to leaving and joining Hytera Communications in 2008. According to Motorola, this is the stolen IP on which Hytera Corp Ltd (based in Shenzhen, China) has built its global business.
On the basis of the IP theft, Motorola claims that the Chapter 11 filing is in bad faith, and has a pending motion to dismiss the case. That motion will be heard on August 20, 2020.
In the meantime, Hytera Communications has formed a new US entity to buy Hytera America’s assets in a Chapter 11 sale under Section 363. In a nutshell, it appears that Hytera is trying to strip assets from the Chapter 11 company, sell to a related entity, and continue business as usual. The motion to approve that sale will be heard on August 27.
In our view, Hytera’s motion to sell its assets to a new, related entity is a strategic mistake–it supports Motorola’s argument that the initial Chapter 11 filing was in bad faith and should be dismissed.
In the meantime, the committee of unsecured creditors has opposed Motorola’s motion to dismiss claiming that continuation of operations are needed to pay the remaining (non-Motorola) debts of $1,526,000.
In light of the unsecured creditors’ opposition, it appears likely that the court may simply stay the Chapter 11 proceedings until the judge in the Chicago case has ruled on Motorola’s motion for a permanent injunction against use of the stolen technology.