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 such rivals as Nokia Oyj and Samsung Electronics Co Ltd.

The plaintiffs, led by two Michigan pension funds, said they bought Motorola stock at inflated prices, only to see it lose more than one-fourth of its 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.

We're extremely pleased with the ruling, said Samuel Rudman, a partner at Robbins Geller Rudman & Dowd representing the investors. We believed from the beginning we had excellent claims. The plaintiffs will have their day in court.

Nicholas Sweers, a Motorola Solutions spokesman, said the company is the successor defendant to Motorola Inc in the lawsuit, and intends to vigorously defend this case.

Motorola lost market share to rivals around the time period covered by the lawsuit because of its failure to develop new hit phones to replace its once-iconic Razr.

The company 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.

In afternoon trading, Motorola Solutions shares were up 27 cents at $45.63 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)

Motorola Lawsuit