Monster sues Beats, its founders and HTC over what it calls a "sham transaction" to end partnershipBy Shawn Knight 16 comments
Monster has filed a lawsuit against Beats Electronics, makers of the popular Beats by Dre headphones, as well as its founders Dr. Dre (real name Andre Young) and Jimmy Iovine and Taiwanese smartphone maker HTC for allegedly working together to boot Monster out of its partnership with Beats before the company was acquired by Apple last year for $3 billion.
Monster was instrumental in helping to launch the Beats brand of headphones in July 2008. The company claims it developed, manufactured and distributed the headphones on Beats' behalf.
The problem, as noted in the suit filed in Superior Court in San Mateo County, California, primarily targets Beats' deal with HTC in 2011. At that time, Beats sold a 50.1 percent controlling stake in their company to the handset maker for $300 million.
The suit alleges that Beats then bought back 25.5 percent of its shares from HTC less than a month after the initial deal closed and acquired the remaining stake in 2013.
Beats then exercised a change-of-ownership clause in its agreement with Monster enabled due to the HTC deal and as a result, Monster had to hand over all of the intellectual property related to the line to Beats. It's a move that cost Monster millions in lost revenue, the suit claims.
Monster CEO Noel Lee also sold off his five percent stake in Beats, the last portion of which was reportedly sold in September 2013 after Lee was allegedly told that there was no "liquidity event" (an acquisition) planned for the next couple of years.
That information reportedly contradicts what Iovine and Apple Senior Vice President Eddy Cue said at a technology conference, noting that the acquisition was several years in the making. Had he held on to the five percent stake, it would have been worth more than $100 million following the Apple acquisition.
If true, the business deal certainly seems shady but then again, exercising a clause in a contract isn't exactly a crime. Either way, it'll no doubt be interesting to see how this matter plays out in the coming months.