News — January 8, 2015 at 1:59 pm

Monster Sues Beats By Dre Over Alleged ‘Fraud and Deceit’

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In 2008, Monster helped launch the pricey Beats brand of headphones but are now taking them to court over fraud claims

In 2008, Monster helped launch the pricey Beats brand of headphones but are now taking them to court over fraud claims

Audio equipment manufacturer Monster has filed a lawsuit against Beats electronics, alleging that the headphone maker’s co-founders knowingly and unfairly cut Monster out of the equation before it was purchased by Apple last year to the tune of $3.2 billion.

 

Back in 2008 Monster and Beats collaborated on the production of the now ubiquitous Beats headphones, with Monster leveraging their knowledge of hardware design and cable technology with Beats taking care of the image and marketing. Under the agreement, Dr. Dre and Beats co-founder and record executive Jimmy Iovine solidified an arrangement where Beats would retain permanent ownership of everything that Monster developed. In addition to this Monster were also responsible for a lot of the heavy lifting in being responsible for the manufacturing and distributing of the product.

 

Whichever way you look at it, Monster were taking on the lions share of work but the arrangement certainly wasn’t illegal. This claim specifically refers to a ‘sham’ transaction where HTC bought a majority share in the company in 2011 for $309 million. One year after this transaction, Beats bought back half of HTC’s interest in the company and, under a change of ownership clause, was able to end its relationship with Monster and ‘improperly erase’ Monster  from the company.

 

HTC has been named as a defendant in the suit

HTC has been named as a defendant in the suit

The complaint goes on to say that this change of control was used as a means to end the relationship between Monster and Beats, allowing Beats (having gleaned intelectual property and sufficient knowledge of manufacturing and distribution) to outsource production before its eventual sale to Apple.  Noel Lee, Monster CEO and co-plaintiff claims that his original 5% stake in the company would have been worth more than 100 million after the Apple acquisition was announced.

 

Technology website Gizmodo was emailed the following statement from Monster’s lawyers:

“As stated in the Complaint, these claims arise out of deliberate acts of corporate betrayal in the consumer electronics industry… The Complaint asserts Defendants, including Jimmy Iovine and Dr. Dre, engaged in a conspiracy and course of conduct to improperly take over Monster’s incredibly successful line of ‘Beats By Dr. Dre’ products, as well as Monster’s intellectual property.”

 

For anyone versed in legalese, the full details of Monster’s complaint can be found here

212 2015-01-06 Monster Complaint