Motorola bid to dismiss 3G phones lawsuit fails

Reuters News
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Posted: Jul 26, 2011 1:28 PM
Motorola bid to dismiss 3G phones lawsuit fails

By Jonathan Stempel

NEW YORK (Reuters) - Motorola Solutions Inc lost a bid to dismiss a class-action lawsuit accusing it of misleading shareholders about deteriorating prospects for its cellphone business, resulting in investment losses.

In a decision on Monday, U.S. District Judge Amy St. Eve in Chicago said there is a "genuine dispute" as to whether predecessor company Motorola Inc in 2006 and early 2007 hid key information about its ability to compete with rivals including Nokia Oyj and Samsung Electronics Co Ltd.

The plaintiffs, led by two Michigan pension funds, said they lost money as Motorola shares lost more than one-fourth of their value from October 2006 to early January 2007, when the company warned of lower-than-expected quarterly results.

They said Motorola assured them that its so-called third generation (3G) phone product portfolio was "on track" when it knew that portfolio was in "tatters," and that the company entered into $440 million of licensing transactions to obscure a more than $1.1 billion shortfall in operating earnings.

Motorola around that time lost market share to its rivals because of its failure to develop new hit phones to replace its once-iconic Razr. It was also criticized for being slow to develop 3G phones with high-speed Internet connections.

While Motorola contended that its alleged misstatements regarding 3G phones were not material, St. Eve said the plaintiffs introduced "considerable evidence" to the contrary, including that Motorola then called the phones "flagship products" for "some of our lead operators in the world."

The lead plaintiffs are the Macomb County Employees' Retirement System and the St. Clair Shores Police and Fire Pension System. Defendants also included several former Motorola executives, including then-Chief Executive Ed Zander.

Motorola Inc in January split into Motorola Solutions, which sells wireless equipment, and Motorola Mobility Holdings Inc, including its handset and set top box business. These entities are based in Illinois.

Motorola Solutions spokesman Nicholas Sweers said that company is the successor defendant to Motorola Inc in the class-action lawsuit. "Motorola Solutions intends to vigorously defend this case," he said.

Susan Taylor, a lawyer for the plaintiffs, did not immediately return a request for comment.

In afternoon trading, Motorola Solutions shares were up 46 cents at $45.82 on the New York Stock Exchange.

The case is Silverman et al v. Motorola Inc et al, U.S. District Court, Northern District of Illinois, No. 07-04507.

(Additional reporting by Sinead Carew, editing by Gerald E. McCormick)