Although the tech industry is awash in multiple patent lawsuits at any given time, it's pretty rare when we see an actual fraud lawsuit brought against a company in the tech world. That's exactly what just began though. Monster, Inc., the company famous for expensive cables and surge protectors is suing Beats, Dr. Dre and HTC for fraud related to the Beats by Dre headphones.
Here's the gist of it... In 2008, Monster's founder, Noel Lee, worked out a deal with Dr. Dre and his fledgling Beats Audio company to design, produce and manufacture the “Beats by Dr. Dre” headphones. Since that time, The "high-end" headphones market has grown astronomically into a $1 Billion market with multiple celebrity endorsements. A vast majority of this market was spear-headed and is controlled by "Beats by Dre."
The problem is that Monster got "shamed" out of their shares in the deal. In 2011 HTC famously bought a 51% stake in Beats Audio for $309 Million. Anyone in the mobile industry will remember that not long after that, Beats Audio bought back half of HTC's interest in Beats, and then eventually worked out a deal to sell all of it back.
Monster alleges that Beats intentionally bought back the stock from HTC in order to purposefully cut out Monster altogether because of an ownership clause in the contract. According to Monster’s attorneys, “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.”
Of course, fast forward to the present, and Beats Audio was bought up by Apple for $3 Billion last year. Monster contends that it was their work in designing the headphones that Beats profited from, and they deserve a cut of the pie, to the tune of $100 million. Monster specifically claims that Beats made misleading claims in 2013, because Beats claimed there weren't any pending “liquidity events” (i.e. a major transaction).
Noel contends that if he had known about the Apple buyout, he would not have reduced his stake in Beats and missed out on the resulting windfall. Overall, this is going to be a tough case for Monster to prove in court. They have to prove that Beats intentionally planned all of this, and that there was malice involved if they want to win a settlement.
What do you think? Does the whole thing smell stinky to you too?
Source: Monster sues Beats and HTC for fraud over their headphone deal