California audio group Monster is suing Beats, the headphone brand co-founded by hip hop artist Dr Dre and acquired by Apple for $3.2bn last year, alleging it unlawfully squeezed the company out of doing business with it before the lucrative deal.
The strongly worded complaint, filed in a California court this week, accuses Beats of “deliberate acts of corporate betrayal” and names Dr Dre, Jimmy Iovine, the music producer and Beats co-founder, and HTC, the Taiwan-based smartphone maker, as defendants.
Monster helped launch Beats headphones back in 2008 and used to make its equipment. But Dr Dre and Mr Iovine ended the agreement in 2012.
It has now accused Beats of using the HTC deal as a pretext to end its partnership with Monster via a “change of control” clause in the commercial contract between the parties, under which Beats acquired all intellectual property rights to the brand when the company changed owners.
Less than a month after the HTC investment closed, Beats bought back half of the shares it had just sold, according to the complaint — “making the ‘Change of Control’ excuse a complete sham”.
Around the time of the HTC deal, Noel Lee, Monster’s chief executive, sold most of his 5 per cent stake in Beats due to concerns about being “kept in the dark” about the performance of the business, the complaint says.
It goes on to state that in 2013, Mr Lee sold the rest of his shares after being told by a member of the board that no “liquidity event” was imminent — eight months before the sale to Apple.
The document alleges that Monster has lost “millions of dollars” in revenue because of the terminated partnership and that Mr Lee’s stake would have been worth more than $100m.
Apple’s purchase of Beats was its largest-ever acquisition. The Financial Times reported that it wouldbundle Beats’ music-streaming service into its iOS operating system from early this year, ramping up pressure on competitors such as Spotify.
Apple and Monster did not respond to requests for comment.
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