Monster sues Apple's Beats, says headphones acquired through 'sham transaction'
Apple's Beats is once again being sued, this time on assertions that cofounders Jimmy Iovine and Dr. Dre committed fraud by stealing the Beats by Dr. Dre headphone lineup from audio company Monster and its CEO Noel Lee — who claim to have invented the popular headphones — in a "sham" sale to HTC.
In a complaint lodged with the Superior Court in San Mateo County, Calif., Monster and Lee claim to have lost millions of dollars from its investment in Beats after Iovine and Dre misappropriated the Beats by Dre headphone line through a 2011 sale to Taiwanese handset maker HTC, reports USA Today. HTC is among the defendants listed in Monster's filing.
The suit asserts Beats hid the collective work Monster and Lee put in to the design, manufacture and distribution of the original Beats headphones, then sold 51 percent of the company to HTC for $300 million. Soon after the HTC deal, Iovine and Dre reacquired 25.5 percent of Beats, allowing them to exercise a change of ownership clause that effectively severed ties with Monster, the complaint alleges.
The duo repurchased control of Beats by 2013 and Lee drew down his stake in the company from 5 percent to 1.5 percent, then to nothing. Eight months later, Apple acquired the Beats for $3 billion, representing a huge windfall for Iovine and Dre, but nothing for Lee and Monster.
If Lee kept his 5 percent, it would be worth more than $100 million after the Apple-Beats deal, plaintiffs argue. Monster and Lee are suing for putative damages.
After creating a lucrative niche for itself in the high-end headphone market — and especially after being bought out by Apple — Beats has been hit with multiple lawsuits from plaintiffs who claim to have designed the headphones, invented tech used in Beats' device lineup or came up with the idea to sell high-fashion headphones at premium prices.
In September, Beats filed a complaint of its own against Stephen Lamar for using the terms "Beats Electronics Co-Founder" and "co-founder of Beats by Dr. Dre" in advertisements for his latest audio startup ROAM Audio.
Lamar contends he was first to come up with the idea of branding high-end headphones backed by a prominent recording artist. In 2006, Lamar supposedly pitched the business model to Iovine, who in turn suggested Dre be brought in for promotion purposes. Lamar then tasked design studio Pentagram to create a fashion-forward headphone, which ultimately became the original Beats product.
Iovine has asserted quite the opposite in subsequent interviews and speeches, saying Beats' success comes largely from his partnership with Dre, who lends a musical ear to final hardware designs. Little to no mention is made of Lamar, Pentagram, Monster or Lee.
Most recently, Beats settled a lawsuit in October leveled by Bose, which asserted patent infringement of noise-canceling headphone technology.