Letter to Hytera Dealers: Updates on Hytera America Restructuring

Company News

Hytera East and West will continue to provide dealers and customers with service and support and there is no interruption as a result of the restructuring process. Hytera East and West are confident that their business operation will be preserved through the restructuring process.

Dear Dealers,

We hope this finds you well and that you and your family are healthy and safe. We want to provide a quick update on the case, including the chapter 11 cases filed by Hytera America, Inc. and Hytera Communications America (West), Inc. (together, “Hytera East and West” or “the Debtors”).

As you know, Motorola sued Hytera East and West, U.S. distributors of products manufactured by Hytera Communications Corporation (HCC”) in the Northern District of Illinois claiming trade secret misappropriation and copyright infringement. The claims were based on the actions of former Motorola employees who, unbeknownst to HCC, downloaded files from Motorola’s systems before they left Motorola and used some of that information in developing certain of Hytera’s DMR radio products. Notably, Motorola did not sue any of its former employees who engaged in complained of activities under Motorola’s employ. Rather, Motorola has focused its efforts on HCC in an effort to eliminate a key competitor from the marketplace and create an effective monopoly in the DMR market – critically important to public safety worldwide. HCC and Hytera East and West have filed several substantive challenges to the verdict. And if those motions are denied, HCC and Hytera East and West will appeal the ruling before the court of appeals.

In response to the verdict, Hytera East and West filed for chapter 11 bankruptcy. They did so to conduct a going concern sale of their business operations, in acknowledgement of the fact that continued operations are untenable in light of the judgment awarded to Motorola. “The Hytera Debtors have filed a motion to sell substantially all of their assets as a going concern in order to conclude a sale process that they commenced prepetition. Although Motorola is displeased with the bankruptcy filing, an insolvent debtor’s intention to maximize asset value and preserve jobs while conducting a transparent sale process is a bedrock legitimate basis for bankruptcy relief. Nor is it uncommon in bankruptcy sales for a related entity to make the best purchase offer.

After a multi-month marketing process conducted by an independent investment banker, Hytera East and West signed an Asset Purchase Agreement (“APA”) with Hytera US, Inc. (the “Buyer”), an HCC affiliate. Under the APA, Hytera East and West would be selling many assets of Hytera East and West, including their distribution network in the U.S. to the Buyer. Like all bankruptcy sales, the APA is subject to bankruptcy court approval and may be challenged by third parties. While the Official Unsecured Creditors’ Committee – which represents all of the Debtors’ creditors fully supported the sale, Motorola, intent on terminating a competing distribution system, opposed it and conducted extensive discovery.

On August 25, the U.S. Bankruptcy Court for the Central District of California (Santa Ana Division) denied Motorola Solutions’ motion for more discovery. On August 27, the Bankruptcy Court continued the hearing on Hytera East and West’s Sale Motion and Motorola Solutions’ Motion to Dismiss to December 17, 2020.

We anticipate that the final hearing on approval of the Asset Purchase Agreement (APA) and sale of assets to the Buyer will be completed before the end of the year. In the meantime, Hytera East and West will continue to provide dealers and customers with service and support and there is no interruption as a result of the restructuring process. Hytera East and West are confident that their business operation will be preserved through the restructuring process.

Motorola has made public statements seeming to claim victory concerning a lifting of the automatic bankruptcy stay so as to allow the Illinois court to complete its post-trial rulings. Not so. To be very clear about their desire to have the Northern District of Illinois resolve the intellectual property issues, the Debtors voluntarily agreed to limited relief from the bankruptcy stay to the extent necessary to ensure that the Northern District of Illinois does not defer ruling on Motorola’s request for injunctive relief with respect to the Debtors. The stay otherwise remains in effect to protect the Debtors from Motorola’s attempt to enforce any kind of monetary judgment against the Debtors’ assets, thereby allowing the Debtors to continue their operations. Further, the bankruptcy court did not grant Motorola’s motion to dismiss nor did it halt the sale. Instead, it deferred decision until December 17, giving the Debtors four months of operations to see if the Northern District of Illinois court issues a ruling or provides direction on the injunction in the interim.

The U.S. District Court for the Northern District of Illinois is currently considering a variety of motions including motions by Hytera to set aside or modify the jury verdict. Hytera has opposed Motorola’s motion for a permanent injunction on several grounds including that an injunction would injure innocent third parties. HCC and Hytera East and West presented overwhelming evidence that excluding HCC’s products from the U.S. market will harm public safety, impede this country’s ability to respond to a global pandemic, and cause U.S. prices for DMR products to increase. HCC and Hytera East and West explained that the injunction should be denied because Motorola failed to meet its burden of proof or, in the alternative, that reasonable royalty payments on future sales should be ordered rather than an injunction.

Thank you for your continued support. We will provide further updates as more information becomes available.

Alla Huang

President, Hytera America

6 September 2020