Audio engineering company Monster has sued Beats, Dr. Dre and HTC over alleged “fraud and deceit” in the way that Beats acquired the rights to the popular “Beats by Dr. Dre” headphones.
In 2008 Monster entered into a relationship with Dr. Dre and Beats to design and manufacture the now famous “Beats by Dr. Dre” headphones. The headphones have been credited with single-handedly creating the $300-plus headphone market. Since 2008 the high-end headphone market has grown to over $1 billion and has led to other celebrity endorsed headphone products.
Had the partnership expired on its own terms, there would have been no transfer of Monster's years of work on Beats By Dr. Dre.
Monster’s problem is that it was cut out of the partnership due to what it is calling a “sham” transaction with HTC. In 2011 HTC bought a 51 percent stake in Beats for $309 million. But according to the complaint Beats then quickly bought back half of HTC’s interest. It is alleged that Beats intentionally bought back the stock from HTC so that it was able to cut out Monster altogether via an ownership clause.
The result, according to the suit, is that Beats then continued to make millions of dollars from work done by Monster and its founder Noel Lee. According to Monster’s lawyers, “Had the partnership expired on its own terms, there would have been no transfer of Monster’s years of work on Beats By Dr. Dre.”
To complicate matters Apple bought Beats last year for $3 billion. Monster is claiming that Beats made misleading claims during 2013 when it said that there was no pending “liquidity event” (i.e. a major transaction). If Monster had retained its original stake in Beats then it would have received over $100 million from the Beats-Apple deal.