Audio equipment maker Monster sues Beats over alleged fraud

[January 07, 2015]  By Devika Krishna Kumar

(Reuters) - Audio equipment maker Monster LLC has sued Beats Electronics LLC, owned by Apple Inc, over alleged "fraud and deceit" in the way that Beats acquired control of the rights to the popular "Beats by Dr. Dre" headphones.

Under a partnership formed in 2008, Monster and Beats developed "Beats by Dr. Dre", a line of colorful, high-end headphones that vie with the likes of Skullcandy Inc and Bose Corp.

According to the suit filed in San Mateo (Calif.) County Superior Court on Tuesday, Monster engineered the success of the headphones and was unfairly cut out before Beats was sold to Apple last year.

The complaint names Beats co-founders Jimmy Iovine and Dr. Dre as well as HTC America Holdings Inc, a unit of Taiwanese smartphone maker HTC Corp <2498.TW> among others, as defendants.

Iovine is the co-founder of Interscope Records, a rap music pioneer that branched out to include acts like Lady Gaga and U2. Dr. Dre is a U.S. rapper and music producer.

The defendants fraudulently acquired Monster's "Beats By Dr. Dre" product line including all development, engineering, manufacturing, marketing, distributing and retail rights, via a "sham" transaction with HTC, according to the complaint.

In 2011, HTC said it would buy a 51 percent stake in Beats for $309 million. Beats bought back half of HTC's interest in the company soon after the transaction, the complaint said.

The complaint alleges the defendants used the change of control as an excuse to end its relationship with Monster in 2012, and that they had made millions off the work of Lee and Monster.

The suit alleges Iovine and Dr. Dre "improperly erased" Monster and Monster's founder Noel Lee from Beats' history.

Beats was not immediately available for comment.

The complaint did not mention a dollar amount in damages. It seeks general and special damages as well as punitive damages against Beats, HTC and the individuals named.

In May 2014, Apple bought Beats hoping to win points with the music industry and turn Beats Music into a strong competitor to Spotify and other streaming services.

(Reporting by Devika Krishna Kumar in BENGALURU; Editing by Ryan Woo)

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