CONTRACT / COMMERCIAL
Headphones maker Monster and its chief executive yesterday launched legal action against Apple’s Beats Electronics for allegedly conspiring to dupe Monster out of a deal with Beats before it was sold last year to the iPhone maker for $3.2bn (£2.12bn). Noel Lee, whose firm Monster helped launch Beats by Dre in 2008, says his company was betrayed and its technology “pirated”. He alleges he “lost millions” after Dre and Iovine “improperly took control” of Beats through a “sham” transaction. After severing ties with Monster, Beats was purchased by Apple for $3 billion (£1.9 billion). In legal papers filed in California, Lee alleges rap producer Dr Dre was barely involved in creating the headphones that carried his name. But the range quickly became a highly desirable brand with celebrities and music fans, and Dre’s endorsement was key to its success. When the firm was sold to mobile phone manufacturer HTC in 2012, Dre and Iovine made $100m (£66m) each, Forbes estimated.
But Lee claims the deal forced him to cut his share in the company from 5% to 1.25%. He says he then had no other option but to sell his remaining stake for $5.5m (£3.6m) near the end of 2013. Lee alleges he sold the shares after being misled by a board member that no “liquidity event” was on the horizon for the next year or two. It also claimed that Iovine and Apple senior vice-president Eddy Cue told a technology conference that the deal was several years in the making. Apple isn’t named in the suit. His legal case describes the HTC deal as “fraudulent” and “a sham” intended to shift ownership of Beats to Dre and Iovine. HTC later sold its shares back to the Beats. Lee says if he’d still had his 1.25% stake, he would have received more than $30m (£19.8m) in the Apple deal. His original 5% stake would have been worth around $150m (£99m).
This is the second lawsuit against the firm since Apple bought it last year following the patent action by Bose Corporation over technology for cancelling noise in earphones. That case was settled under undisclosed terms in October. Dr Dre and Jimmy Iovine are also being sued by David Hyman, who sold his music streaming service MOG to Beats in 2012. That court case, filed shortly before the Apple deal was sealed, is taking place now in Los Angeles.