Audio equipment manufacturers Monster LLC recently sued Beats Electronics LLC, which is now owned by Apple Inc.
Monster alleged that Beats Electronics and its co-founders Dr. Dre and Jimmy Iovine conspired to get Monster out of a deal with Beats prior to Apple’s acquisition of Beats for $3.2 billion last year.
Monster and Beats under a partnership, which was formulated in 2008, created “Beats by Dr. Dre”, a line of high-end and colorful head phones that became extremely popular among celebrities and teenagers. Monster alleged that Beats acquired the rights for these headphones through deceit and fraud by undergoing a sham transaction with HTC. HTC had agreed to buy a 51% share in Beats for $300 million in the year 2011. However, Beats ended up repurchasing 25.5% of its shares from HTC within one month of the deal. This enabled Beats to end its partnership with Monster due to change of ownership clause.
Monster claims that it helped Beats in launching the Beats brand of headphones by developing and manufacturing them but the change of ownership prompted by HTC deal needed Monster to transmit all of the intellectual property to Beats. Monster wants HTC, Beats and the co-founders of Beats to compensate for the damages.
The complaint by Monster did not state an amount in damages; it only demands a general, special and punitive damages against Beats, its co-founders and HTC.
Monster CEO Noel Lee decreased his shares in Beats from 5% to 1.25%. Noel Lee later sold his remaining shares 8 months before Apple agreed to buy Beats in 2013. According to Lee, he was misled into believing that there will not be any deal in the next year or two. The complaint states that Lee’s 5% share in the company would have made him gain $100 million.
Monster’s suit against Beats state that the deal between Beats and Apple was several years in the making and it was underway when Lee sold his shares. The suit also states that Beats is trying to hide Monster and Mr. Lee’s role in designing and engineering the headphones.
Apple is not named as a defendant in this case and the lawsuit has been filed against Beats and its co-founders Dr. Dre and Jimmy Iovine. When Beats was reached for a comment its spokesperson refused to say anything and said that both the co-founders of the company were not available to answer any question. HTC didn’t respond either when asked to comment on the lawsuit.
Apple thought that the acquisition of Beats will help the company boost its iTunes music. Although Apple was the pioneer in this business yet it was going down because of the increasing competition mainly from companies like Spotify and Pandora. In order to make a comeback in the music streaming business Apple decided to purchase Beats in May 2014 and this deal was Apple’s largest ever.
Whether Monster will succeed in suing Beats and get the amount in damages or not is yet to be seen. Whatever the outcome might be, one thing that is certain is that Apple has nothing to do with the lawsuit as its name was not among the defendants.
