Former hedge fund manager and founder of Jibe Audio, Steven Lamar, filed a lawsuit against Beats Electronics LLC, and its co-founders Dr. Dre and Jimmy Iovine claiming breach of contract, breach of the covenant of good faith and fair dealing, bad faith and denial of contract, breach of fiduciary duties and other allegations.

Beats electronics

Case background and allegations against Beats Electronics

In his cross complaint with the Superior Court of California in Los Angeles, Lamar claimed that he discussed his concept regarding headphones endorsed by musical artists in 2006, and envisioned a partnership between technology that would provide a superior audio experience, iconic product design and brand identity promoted by a well-known and respected artist.

According to Lamar, Iovine recommended Dr. Dre to be the celebrity artist to endorse the headphones. The former hedge fund manager also stated in his complaint that he engaged Pentagram to assist in developing the design and corporate identity to be marketed and sold under the name Beat by Dr. Dre.

Lamar claimed that the Beats Headphones business model he developed consisted of noise cancelling, non-noise cancelling and wireless headphone models.

In July 2006, Monster LLC agreed to become the distribution partner of Beats Headphones, and at the time they “contemplated that Iovine and Dr. Dre would receive a 20% royalty (while maintaining ownership of the brand name “Beats by Dr. Dre”) and 5% royalty for Lamar and Pentagram on the gross sales of Beats Headphones, less percentage withheld for market promotion expenses. They also contemplated an equity interest for Lamar for the origination of and contributions to the business model, product concepts, brand identity and iconic designs.

On July 28, 2006, Dr. Dre and Iovine filed a case against Lamar and his firms as well as Pentagram for breach of oral contract involving the manufacture, marketing and distribution of Beats line of headphones. They reached a global settlement and entered into three agreements including the Global Settlement Agreement, the Royalty Agreement and the Pentagram-Lamar Settlement Agreement.

Lamar emphasized that under the royalty agreement, he and his firm are entitled to receive royalties on sales revenues of covered headphones. According to him, Jibe has not received any royalty payments for any other model of covered headphones (Solo, Pro, Wireless, Mixr, Studio, or Studio Wireless) except the Studio model of Beats Headphones to date.

Prayer for relief

Lamar is seeking judgment for general damages and special damages for an amount to be proven at a trial, injunctive and declaratory relief, accounting, constructive trust, cost of suit incurred, attorney’s fees, punitive damages, prejudgment interest and further reliefs as the court may deem just and proper.

Apple in talks to buy Beats Electronics

Lamar’s lawsuit came after reports that Apple Inc. (NASDAQ:AAPL) is close to acquiring Beats Electronics LLC for $3.2 billion, which if finalized would be the largest acquisition to date by the iPhone maker.