Apple's Beats unit sued by Monster over headphone deal

Monster claims it was eased out fraudulently from a development deal with Beats ahead of Apple's acquisition

Apple's Beats Electronics and its cofounders have been sued in a U.S. court for allegedly easing out headphones developer Monster from a partnership ahead of the 2014 acquisition by the iPhone maker.

Describing a 2011 investment by HTC in Beats as a "sham transaction," Monster and its founder Noel Lee have alleged that the deal was used by Beats to invoke a clause in its contract with Monster to end the partnership while retaining all rights to the headphone technology.

HTC, which has also been named as a co-defendant in the complaint filed Tuesday in the Superior Court of California, San Mateo County, acquired a majority stake in Beats for about US$300 million, with the plan to use the headphones technology with its mobile phones.

By July 2012, Beat's founders bought back half that equity from HTC, making the earlier ending of the partnership with Monster by invoking a change of control provision a "complete sham," according to the complaint, which cites as evidence a conversation in May last year between Monster executives and a board member of HTC. By September, 2013 Beats had bought back the remaining equity held by HTC.

Apple declined to comment on the suit. HTC could not be immediately reached for comment.

Beats' cofounders Jimmy Iovine and Andre Young, popularly known as Dr. Dre, entered into a partnership in January 2008 with Monster to develop and promote Monster's "Beats By Dr. Dre" product line, a licensed marketing label for a line of Monster headphones, according to the complaint. Monster claims it handled all designing, engineering, manufacturing, production, marketing, and distribution of the headphones in return for a license to the Beats brand and celebrity marketing by Iovine and Dre.

"Simply put, Monster did all the work, financed the entire effort, and paid Iovine and Dre a royalty for their marketing efforts," according to the complaint. By 2009, Beats Electronics had been added to the license and promotion agreement as a party and Lee was offered a 5 percent stake in Beats' equity to cement ties between the two companies.

Citing the change of control provision in the agreement after the HTC investment, Beats acquired Monster's "Beats By Dr. Dre" product line, including all development, engineering, manufacturing, marketing, distributing, and retail rights.

If the partnership had expired on its own terms some months later, this transfer would not have happened, according to the complaint, which holds that as a result Monster and Lee lost millions of dollars.

Lee had also sold most of his 5 percent stake in Beats in September 2012, after HTC sold back half its stake to Beats, as he "was concerned that he was being kept in the dark by Beats about material aspects of the business." He was later persuaded to offload the remaining 1.25 percent share to Beats, resulting in a total loss of over $100 million if he was still a 5 percent stakeholder after the Apple acquisition was announced, according to the complaint.

Beats' founders have falsely claimed that Beats, through Iovine and Dre, successfully spearheaded all of the designing, engineering, manufacturing, production, marketing, and distributing of "Beats By Dr. Dre" products, the complaint added.

Monster has asked for damages including punitive damages, and a jury trial for all relevant issues.

John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. Follow John on Twitter at @Johnribeiro. John's e-mail address is john_ribeiro@idg.com

Join the newsletter!

Or

Sign up to gain exclusive access to email subscriptions, event invitations, competitions, giveaways, and much more.

Membership is free, and your security and privacy remain protected. View our privacy policy before signing up.

Error: Please check your email address.

Tags Applelegalhtcconsumer electronicsMonsterBeats Electronics

Keep up with the latest tech news, reviews and previews by subscribing to the Good Gear Guide newsletter.

John Ribeiro

IDG News Service
Show Comments

Brand Post

Bitdefender 2018

Secure and Save before time runs out with Bitdefender Exclusive Clearance Offer! Get Bitdefender Total Security 2018 Now!

Most Popular Reviews

Latest Articles

Resources

PCW Evaluation Team

Emily Tyson

MSI GE63 Raider

If you’re looking to invest in your next work horse laptop for work or home use, you can’t go wrong with the MSI GE63.

Laura Johnston

MSI GS65 Stealth Thin

If you can afford the price tag, it is well worth the money. It out performs any other laptop I have tried for gaming, and the transportable design and incredible display also make it ideal for work.

Andrew Teoh

Brother MFC-L9570CDW Multifunction Printer

Touch screen visibility and operation was great and easy to navigate. Each menu and sub-menu was in an understandable order and category

Louise Coady

Brother MFC-L9570CDW Multifunction Printer

The printer was convenient, produced clear and vibrant images and was very easy to use

Edwina Hargreaves

WD My Cloud Home

I would recommend this device for families and small businesses who want one safe place to store all their important digital content and a way to easily share it with friends, family, business partners, or customers.

Walid Mikhael

Brother QL-820NWB Professional Label Printer

It’s easy to set up, it’s compact and quiet when printing and to top if off, the print quality is excellent. This is hands down the best printer I’ve used for printing labels.

Featured Content

Latest Jobs

Don’t have an account? Sign up here

Don't have an account? Sign up now

Forgot password?