Monster claims Beat Dr Dre deal based on a ‘sham’

AUDIO equipment-maker Monster is suing Apple’s Beats Electronics and others for allegedly conspiring to dupe Monster out of a deal with Beats.

AUDIO equipment-maker Monster and its chief executive have sued Apple’s Beats Electronics, its co-founders Jimmy Iovine and Dr Dre and Taiwanese smartphone- maker HTC for allegedly conspiring to dupe Monster out of a deal with Beats before the company was sold to Apple for $US3.2 billion ($3.9bn) last year.

In a complaint filed in the ­Superior Court in California’s San Mateo County, Monster said Beats “fraudulently acquired” the Beats by Dr Dre line of headphones through a “sham transaction” with HTC, which agreed to purchase a 51 per cent stake in Beats for $US300 million in 2011.

The complaint asserts that Beats repurchased 25.5 per cent of its own shares from HTC less than a month after the deal closed, ­allowing Beats to end its relationship with Monster due to a change-of-ownership clause.

Monster helped launch the Beats brand of headphones, a flashy and pricey line of music accessories that proved popular among celebrities and teenagers, in July 2008.

Monster said it developed, manufactured and distributed the headphones in exchange for the licensing rights to the Beats brand and celebrity marketing by Mr Iovine and Dr Dre, whose real name is Andre Young.

Monster said 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.

Worried about a lack of transparency at Beats after the HTC deal, Monster chief executive Noel Lee also reduced his 5 per cent stake in Beats to 1.25 per cent.

In September 2013, eight months before Apple agreed to buy Beats, Mr Lee sold his remaining shares. Mr 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.

But Monster claims Mr Iovine and Apple senior vice-president Eddy Cue later told a technology conference the deal was several years in the making. Apple isn’t named as a defendant.

The complaint alleges Mr Lee’s 5 per cent share in Beats would have been worth more than $US100m. The suit also claims the defendants tried to rewrite history by concealing the role played by Monster and Mr Lee in designing and engineering the Beats by Dr Dre line.

The Beats deal was Apple’s largest. Apple eyed Beats’ streaming music service as a way to bolster its iTunes music offerings as album downloads, a business that Apple pioneered, started to slow in the face of streaming services such as Spotify and Pandora.

The deal closed in August, Dr Dre and Mr Iovine assuming senior roles on Apple’s music team.

The Wall Street Journal