Dr. Dre's Beats Sued by Monster over "Sham" Deal
Published Jan 07, 2015Last year, Dr. Dre and Jimmy Iovine earned a ton of cash when their Beats Electronics company was bought out by Apple. Not everyone associated with Beats has profited from the situation, however, since the headphone makers are now being sued by their former business collaborators at audio company Monster.
According to a legal complaint filed in California, Monster CEO Noel Lee alleges that the audio cable makers were primarily responsible for designing Beats' headphones, and that Dre and Iovine stole their product through a series of unfair deals. Lee argued that Iovine and Dre helped to promote the brand through their celebrity status, but Monster was responsible for the audio engineering.
So how did Beats allegedly get control of the design? Well, reports over the years have suggested that Lee and his son Kevin got roped into a poor deal by the businessmen at Beats, and Beats gained permanent control of everything that Monster developed. Monster handled manufacturing and distribution, while Dre and Iovine reportedly got the glory and ownership of the design.
"A terrible situation took place that basically robbed Mr. Lee of his invention," Lee's lawyer Joe Cotchett said [via Forbes].
Monster was eventually forced out of the equation completely due to a deal with smartphone maker HTC in 2011. While Lee originally had a five percent share in Beats, the HTC deal cut his ownership down to a little more than one percent. He eventually sold his shares for $5.5 million in the fall of 2013, with the understanding that the company wouldn't be sold for a number of years. At the time, he said that the split was amicable.
Of course, Beats was sold to Apple for $3 billion in the spring of 2014; Lee's five percent stake would have been worth $150 million. Lee's lawsuit refers to the whole HTC deal as a fraudulent "sham acquisition" intended to push Monster out of the picture.
The suit was filed in California's San Mateo County Superior Court. While Lee's account suggests that Monster signed some unfair contracts, it remains to be seen whether any of these deals were actually illegal.
Meanwhile, Beats has also been facing a $20 million lawsuit from David Hyman, who sold his streaming service to the company in 2012. Last spring, he sued Dre and Iovine for bad faith.