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).
In a complaint filed in Superior Court in San Mateo County, California, Monster alleged that Beats, its co-founders Jimmy Iovine and Dr Dre, “fraudulently acquired” the Beats by Dr Dre line of headphones through a “sham transaction” with HTC. The Taiwanese smartphone maker agreed to purchase a 51 per cent stake in Beats for $300m in 2011.
The complaint claims Beats repurchased 25.5 per cent of its own shares from HTC less than a month after the deal closed, allowing Dr Dre’s firm to end ties with Monster due to a change-of-ownership clause.
Monster helped in 2008 to launch the Beats brand of headphones, which retail in Britain for a minimum of £99, and flashy and pricey lines of music accessories that proved popular among celebrities and teenagers. Monster said it developed, manufactured and distributed the headphones in exchange for the licensing rights to the Beats brand and celebrity marketing by Iovine and Dr Dre – real name Andre Young.
Monster asserted that the change-of- ownership clause triggered by the HTC deal required Monster to transfer all intellectual property to Beats, costing the company millions in lost revenue.
Claiming a lack of transparency at Beats after the deal, Monster chief executive Noel Lee also cut his five per cent stake in the firm to 1.25 per cent.
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.
A Beats spokeswoman declined to comment, and said Iovine and Dr Dre weren’t available for comment. HTC didn’t respond to a request for comment.