A federal appeals panel has ordered a recalculation of damages that Hytera, a Chinese two-way radio maker, must pay Motorola for stealing trade secrets and infringing on copyrights.
The case first landed in Chicago federal court in March 2017, when Motorola Solutions sued Hytera for allegedly stealing more than 10,000 confidential documents and “millions of lines of Motorola Solutions’ highly confidential source code” and using that information to develop and market competing two-way radios and repeaters. The trial started in November 2019; in February 2020 jurors needed only about 2.5 hours to reach a verdict, awarding the Chicago-based Motorola $345.8 million in compensatory damages and $418.8 million more in punitive damages.
After U.S. District Judge Charles Norgle reduced the award to a total of $543.7 million and denied Motorola’s request for a permanent injunction, Hytera appealed to the U.S. Seventh Circuit Court of Appeals and Motorola cross appealed. Judge David Hamilton wrote the panel’s opinion; Judges Michael Brennan and Amy St. Eve concurred.
“The most startling fact about these appeals is that Hytera’s liability is not at issue,” Hamilton wrote. “It concedes that it engaged in the blatant theft of trade secrets and copying of proprietary computer code. Instead, Hytera raises several challenges only to the damages awards under the Copyright Act and the (Defend Trade Secrets Act).”
While the panel upheld an award of $135.8 million in compensatory and $271.6 million in punitive damages under the DTSA, it said the copyright damages “will need to be reduced substantially from the district court’s original award of $135.8 million.”
Hamilton also noted “that for much of the intervening six years of litigation, including after these appeals were filed, Hytera has continued its gamesmanship and deception. It deleted stolen documents rather than producing them. It presented fabricated evidence inflating its research-and-development costs. Its witnesses have repeatedly contradicted themselves in depositions and at trial. It has dragged its feet in paying the royalty ordered by the district court, and it has obstructed discovery into its assets and ability to pay. Meanwhile, Hytera continues to sell DMR radios worldwide that Motorola claims still incorporate its copyrighted code and stolen trade secrets. Whether Hytera’s new DMR products continue the illicit use of Motorola’s trade secrets is the subject of ongoing contempt proceedings before the district court.”
Hytera mounted three challenges to the copyright damages: that they should not apply to sales outside the United States, that they should’ve been apportioned to account for Hytera’s investment in its own profit and that the Copyright Act doesn’t allow recovery for damages predating claims by more than three years.
The panel agreed with Hytera’s position that Motorola failed to prove Hytera downloaded any protected code directly from Motorola servers in Illinois. Taking Motorola’s position on mirrored servers, Hamilton wrote, “would stretch U.S. copyright law far beyond its proper borders, giving global businesses an incentive to store local copies of copyrighted files in the United States as insurance against intellectual property theft worldwide.”
Hytera also will get a chance to prove its theory that its own work contributed to profits from two-way radio sales beyond just what it stole from Motorola, and as such a total profit disgorgement was improper. The panel said it didn’t endorse Hytera’s supporting positions, but said it appeared Judge Norgle “did not engage with them” and ordered him to do so upon remand.
However, the panel rejected Hytera’s attempt to invoke statutory limitations on copyright damages before explaining Norgle correctly assessed that the DTSA does allow for damages stemming from foreign sales, a decision reached through “careful interpretation of the text” of federal legislation that confirmed “Congress was especially concerned with foreign misappropriation of U.S. trade secrets.”
Hamilton also said the panel agreed “with Judge Norgle’s conclusion that under the DTSA, misappropriation does not begin and end with the defendant’s initial acquisition of plaintiff’s trade secrets. Rather, ‘misappropriation’ includes the defendant’s illicit and ongoing ‘disclosure or use’ of the stolen secrets,” which in this instance included exhibiting at American trade shows.
Although it agreed Norgle should’ve apportioned DTSA damages along the lines of Hytera’s copyright damages argument, the panel agreed with Motorola that the outcome was harmless given its alternate method for calculating DTSA damages and because Hytera forfeited its chance to argue the jury should’ve made a finding on how much Motorola lost in profits. It also rejected Hytera’s position that $271.6 million in punitive DTSA damages violated the Fifth Amendment’s due process clause.
“Congress has made a specific and reasonable legislative judgment about punitive damages in cases like this one,” Hamilton wrote, and since the punitive award doubles the compensatory amount, Hytera cannot lower the total.
Finally, the panel said Judge Norgle was wrong to deny Motorola’s request for a permanent injunction that would’ve stopped Hytera from selling the products worldwide and ordered him to reconsider that argument on remand while noting Motorola can either supplement or file a new motion “including additional evidence of Hytera’s litigation misconduct that has come to light since the original denial of a permanent injunction. Since that denial, Hytera has acted in ways that might well have surpassed the judge’s worst-case predictions. Because we have not ruled on the merits of either Motorola’s original motion for a permanent injunction or its motion for reconsideration in finishing with this case, there is no jurisdictional obstacle for the district court in reconsidering Motorola’s original” request.
Motorola Solutions has been represented by attorney Barbara Barath, and others with Kirkland & Ellis, with offices in San Francisco, Los Angeles, Chicago and New York.
Motorola did not respond to a request for comment.
Hytera has been represented by attorney Boyd Cloern and others with the firms of Steptoe & Johnson LLP, of Chicago and Washington, D.C.; and Calfee Halter & Griswold LLP, of Cleveland.
Hytera did not respond to a request for comment.