Motorola Sols., Inc. v. Hytera Commc'ns Corp.

108 F.4th 458

MOTOROLA SOLUTIONS, INC.and Motorola Solutions Malaysia SDN. BHD., Plaintiffs-Appellees, Cross-Appellants, v. HYTERA COMMUNICATIONS CORPORATION LTD., Defendant-Appellant, Cross-Appellee.

No. 22-2370

No. 22-2413

United States Court of Appeals, Seventh Circuit

Argued December 5, 2023

Decided July 2, 2024

Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 1:17-cv-01973 — Charles R. Norgle, Judge.

Steven J. Lindsay, Attorney, Kirkland & Ellis LLP, Chicago, IL, John C. O'Quinn, Jason M. Wilcox, Attorneys, Kirkland & Ellis LLP, Washington, DC, Adam R. Alper, Attorney, Kirkland & Ellis LLP, San Francisco, CA, Michael W. De Vries, Attorney, Kirkland & Ellis LLP, Los Angeles, CA, for Plaintiffs-Appellees, Cross-Appellants.

Boyd Cloern, Alice E. Loughran, Mark Christopher Savignac, John William Toth, Attorneys, Steptoe LLP, Washington, DC, for Defendant-Appellant, Cross-Appellee.

Before Hamilton, Brennan, and St. Eve, Circuit Judges.

Hamilton, Circuit Judge.

This case concerns a large and blatant theft of trade secrets. Plaintiff Motorola and defendant Hytera compete globally in the market for two-way radio systems. Motorola spent years and tens of millions of dollars developing trade secrets embodied in its line of high-end digital mobile radio (DMR) products. For a brief period in the early 2000s, Hytera struggled to overcome technical challenges to develop its own competing DMR products.

After failing for years, Hytera hatched a new plan: "leap-frog Motorola" by stealing its trade secrets. Hytera, headquartered in China, poached three engineers from Motorola in Malaysia, offering them high-paying jobs in exchange for Motorola's proprietary information. Before those engineers left Motorola, and acting at Hytera's direction, they downloaded thousands of documents and computer files containing Motorola's trade secrets and copyrighted source code. Relying on that stolen material, between 2010 and 2014, Hytera launched a line of DMR radios that were functionally indistinguishable from Motorola's DMR radios. Hytera sold these professional-tier radios containing Motorola's confidential and proprietary technology for years in the United States and abroad.

In 2017, Motorola sued Hytera for copyright infringement and trade secret misappropriation. After three and a half months of trial, the jury found that Hytera had violated both the Defend Trade Secrets Act of 2016 (DTSA) and the Copyright Act. The jury awarded compensatory damages under the Copyright Act and both compensatory and punitive damages under the DTSA for a total award of $764.6 million. The district court later reduced the award to $543.7 million and denied Motorola's request for a permanent injunction. Hytera has appealed, and Motorola has cross-appealed.

The most startling fact about these appeals is that Hytera's liability is not at issue. 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 DTSA. As we explain below, we must remand for the district court to recalculate copyright damages, which will need to be reduced substantially from the district court's original award of $136.3 million. On the DTSA damages, we affirm the district court's award of $135.8 million in compensatory damages and $271.6 million in punitive damages.

On Motorola's cross-appeal, we find that the district court erred in denying Motorola's motion for reconsideration of the denial of permanent injunctive relief. On remand, the district court will need to reconsider the issue of permanent injunctive relief. We continue to commend both district judges (Judge Norgle and, after his retirement, Judge Pacold) who have presided over this case for their careful handling of this complex and sprawling case. We remain confident of the court's ability to resolve the remaining issues on remand.

I. Factual and Procedural History

A. Factual History

Motorola and Hytera both design, manufacture, and sell two-way radios and related products worldwide. They are the two main competitors in this global market. They rely on the same underlying software protocols to enable their radios to communicate across brands, but each manufacturer enhances its radios by adding unique hardware and software features. From the late 1980s through the early 2000s, Motorola worked to develop and patent the technology underlying these standard software protocols, known as "digital mobile radio" or DMR.¹

Hytera manufactures and sells different tiers of two-way DMR radios, including commercial and professional. The products at issue in this case are Hytera's professional-tier radios, used by governments and public-safety entities around the world. They sell at premium prices compared to Hytera's non-infringing commercial-tier radios. In 2006, as internal Hytera documents show, Hytera was struggling to develop its own DMR radios comparable to Motorola's. Instead of continuing to compete fairly, Hytera decided to steal Motorola's trade secrets and copyrighted code. Hytera's goal was to "leapfrog Motorola" to become the world's preeminent provider of DMR radios.

In June 2007, the president and CEO of Hytera, Chen Qingzhou, reached out to an engineer who worked for Motorola in Malaysia, G.S. Kok, claiming that Hytera hoped to set up a potential research-and-development center in Malaysia. The two negotiated Kok's departure from Motorola. Hytera offered Kok 600,000 shares of Hytera stock as compensation, worth roughly $2.5 million when Hytera's stock later went public. Internal Hytera emails show that once Kok joined Hytera, he facilitated the hiring of two additional Motorola engineers in Malaysia, Y.T. Kok and Sam Chia. Y.T. Kok initially maintained his employment with Motorola while surreptitiously also working for Hytera. In June 2008, shortly after Y.T. Kok had secretly been added to Hytera's payroll, he downloaded over a hundred Motorola documents in response to specific requests from Hytera about unresolved issues with its own DMR radios. Evidence at trial showed that Y.T. Kok and Chia downloaded more than 10,000 technical documents from Motorola's secure ClearCase and COMPASS databases and brought them to Hytera. At the time of trial, Motorola argued, more than 1,600 of those documents remained in Hytera's possession.

The stolen files included Motorola's source code for its DMR radio project. Segments of the stolen code were later directly inserted into Hytera's products. Proof of the theft and copying included the fact that minor coding errors in Motorola's code appeared in exactly the same spots in Hytera's code.

Hytera's employees understood that their use of Motorola's copyrighted code and trade secrets was unlawful. At times, Hytera modified Motorola's code to conceal its illicit origins. Hytera's engineers also circulated Motorola's code and technical documents, sometimes with the Motorola logo replaced by a Hytera logo, but other times still labeled with Motorola's logo.

Between 2010 and 2014, Hytera launched a line of DMR radios that were, as described at trial, functionally indistinguishable from the DMR radios developed and sold by Motorola. For years, Hytera sold these professional-tier radios containing Motorola's confidential and proprietary technology worldwide, including in the United States. Hytera also regularly attended trade shows in the United States where it marketed and demonstrated its infringing products to customers from around the world. According to Motorola, Hytera has continued to sell products using Motorola's misappropriated trade secrets and copyrighted code up to the present day.

B. Procedural History

This brings us to the present lawsuit. In March 2017, Motorola filed this lawsuit in the Northern District of Illinois alleging that Hytera had misappropriated its trade secrets in violation of the federal Defend Trade Secrets Act of 2016, 18 U.S.C. § 1836(b), and the Illinois Trade Secrets Act (ITSA), 765 ILCS 1065/1 et seq. In August 2018, Motorola amended its complaint to add infringement claims under the Copyright Act, 17 U.S.C. §§ 106, 501 et seq.

The case was tried to a jury starting in November 2019. After three and a half months of trial, the jury reached its verdict. With respect to the DTSA, the jury was instructed that Motorola was seeking damages from May 11, 2016 (the statute's effective date) to June 30, 2019. With respect to copyright infringement, the jury was instructed that Motorola was entitled to recover Hytera's profits through June 30, 2019. The jury was also instructed that damages for Motorola's trade secret claims and copyright claims should not result in double recovery for the same injury. During trial, Motorola argued that it was entitled to all of Hytera's worldwide profits from the infringing products. Motorola presented expert testimony that Hytera's radios would be unable to function without the stolen components.

Hytera, for its part, argued that Motorola's damages should be limited on a number of grounds, including that: (1) copyright damages should be limited to the three-year period before Motorola added its copyright claims; (2) the Copyright Act and the DTSA should not be applied to Hytera's sales outside the United States; and (3) DTSA damages and copyright damages should be "apportioned" to account for Hytera's own contributions to the success of its products. The district court rejected all of these arguments. The jury returned a verdict in favor of Motorola in all respects, awarding Motorola $345.8 million in compensatory damages and $418.8 million in punitive damages, for a total of $764.6 million.

Post-trial motions followed. Hytera moved under Federal Rules of Civil Procedure 50(b) and 59 for judgment as a matter of law and for a new trial or remittitur, respectively, arguing that under both the Copyright Act and the DTSA, the proper...