Apple-owned Beats Electronics is now the target of a very interesting fraud lawsuit, to say the least. Monster LLC, which makes audio equipment and cables, alleges it was robbed of revenue because a deal Beats struck with HTC a few years ago. In addition to Beats itself, co-founders Dr. Dre and Jimmy Iovine and HTC Corp are named as defendants in the case.
Details on the case against Beats Electronics
Apple paid $3.2 billion to acquire Beats last year. According to The Wall Street Journal, Beats “fraudulently acquired” the headphone line sold under the Beats by Dr. Dre brand. Monster alleges that the acquisition came through what it calls a “sham transaction” with HTC Corp. HTC paid $300 million for a 51% stake in Beats Electronics in 2011.
The complaint claims Beats bought back 25.5% of its shares from HTC within a month after that deal closed. As a result, the company was able to cut ties with Monster because of a change-of-ownership-clause.
Monster claims it lost out
Beats Electronics launched the Beats by Dr. Dre headphone brand in 2008. According to Monster, it developed, manufactured and distributed the headphones, and in exchange, it received the rights to license the Beas brand. Monster also benefited from celebrity marketing by Dr. Dre and Jimmy Iovine.
The change-of-ownership clause that was triggered by the deal with HTC apparently forced Monster to give all of the intellectual property rights to Beats Electronics. Monster alleges that it lost millions of dollars in revenues as a result.
Monster CEO sells Beats stake
Because of the HTC deal, Monster CEO Noel Lee also said he cut his 5% stake in Beats down to 1.25% because he was worried about a lack of transparency. Lee sold the rest of his shares in September 2013, which was eight months before Apple struck a deal to acquire Beats.
The Monster executive claims he sold his shares because a board member led him to believe that there wasn’t a “liquidity event” coming up anytime in the next couple of years. However, the complaint states that later, Iovine and Apple SVP Eddy Cue said at a conference that they had spent years putting the deal together. Monster has not named Apple as a defendant in the lawsuit.
Lee and Monster allege that his 5% stake in Beats would have been valued at over $100 million. In addition, the case claims the defendants attempted to change history by hiding Lee’s and Monster’s roles in the design and engineering of the Beats by Dr. Dre headphones.
Not the first lawsuit Beats has brought Apple
This isn’t the first time Apple is facing trouble related to its acquisition of Beats Electronics. In July, Bose filed suit against Beats in connection with the design of the noise-canceling technology that’s used in the Beats by Dr. Dre line. That case, however, deals with patents, and of course Apple has plenty of experience battling patent lawsuits.
