Apple’s Beats Electronics And Dr Dre Sued By Monster

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Monster sues Apple’s Beats Electronics, alleging “fraud, deceit and corporate betrayal” over headphone development

Audio equipment maker Monster has lashed out at its former partner, after it was revealed that it is suing premium headphone maker Beats Electronics.

And the lawsuit has dragged Apple into the legal tussle, as it now owns Beats after it agreed to pay $3bn (£1.8bn) for the company back in May 2014.

Corporate Betrayal?

Apple’s acquisition of Beats also meant that Beats co-founders Jimmy Iovine (a music producer) and Dr. Dre (hip-hop artist) joined the iPad maker. But the Monster lawsuit is targeting not only Apple’s Beats Electronics, but also Iovine and Dr Dre, as well as HTC America (a holding company of Taiwanese smartphone maker HTC Corp).

According to the complaint (PDF) filed Tuesday in Superior Court in San Mateo County, California, Monster alleges that the “Beats by Dr. Dre” line of headphones was developed in partnership with Beats co-founders Jimmy Iovine and rapper and producer Dr. Dre.

auction4Essentially, what the complaint boils down to is this. Monster alleges that the defendants fraudulently acquired Monster’s “Beats By Dr. Dre” product line including all development, engineering, manufacturing, marketing, distributing and retail rights, via a “sham” transaction with HTC.

Monster and Beats had joined forces back in 2008, but the two firms later parted company in 2012. The two firms had reportedly teamed up when the son of Monster’s CEO Noel Lee flew to Los Angeles to find partners for the headphone prototypes that Monster was building. He reportedly met Jimmy Iovine.

Later Iovine and Dr Dre approached Monster, interested in its technology. Monster claims that it provided all of the audio engineering while Dre and Iovine used their sports and entertainment contacts and influence to promote the iconic headphones. Indeed, for years Monster was the exclusive manufacturer of Beats By Dr. Dre headphones.

“Sham Transaction”

But then things began to get messy in 2011, when HTC said it would buy a 51 percent stake in Beats for $309m (£205m). Less than a month after that transaction, Beats bought back half of HTC’s interest in the company.

The Monster lawsuit alleges that Beats “fraudulently acquired” the line of headphones and its technology with a “change of control” clause when HTC acquired the 51 percent stake in Beats.

“In September 2011, months before Monster’s agreement with Beats was set to expire, Defendants improperly terminated the arrangement through a “Change of Control” provision, claiming a 51% interest in Beats had been purchased by HTC,” said Monster in its complaint. “By exercising their “Change of Control” rights in a sham transaction with HTC, Defendants fraudulently acquired Monster’s “Beats By Dr. Dre” product line, including all development, engineering, manufacturing, marketing, distributing, and retail rights.

“Had the partnership expired on its own terms, there would have been no transfer of Monster’s “Beats By Dr. Dre” product line, including all development, engineering, manufacturing, marketing, distributing, and retail rights,” reads the complaint. “Defendants also absconded with Monster’s global distribution chain, key retail relationships, and intellectual property.”

“Beats manufactured a false narrative to erase the contributions of Monster and Noel Lee in the eyes of the public, including dealers, Beats consumers, Monster consumers, and eventually Apple shareholders,” said the lawsuit. “As a result of their corporate betrayal, Defendants were able to make hundreds of millions of dollars on the sale of Monster’s “Beats By Dr. Dre” product line to Apple.

Apple has reportedly refused to comment on the lawsuit.

The lawsuit comes as Apple seeks to exploit the technology it acquired with the Beats deal. Last November, it was reported that all Apple iPhones and iPads will receive the Beats subscription music service sometime in 2015.

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Author: Tom Jowitt
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