Not that long ago, Monster made the headphones for Beats. How it got cut out of that process is now the center of a lawsuit against Beats and its co-founders that was filed in Northern California this week. The complaint, which was spotted by USA Today, alleges that Beats co-founders Dr. Dre and Jimmy Iovine concealed business dealings and slowly cut out Monster and its CEO Noel Lee's involvement on its way to selling to Apple in a $3 billion deal made last year.
Beats will "squeeze" a trusting partner out of the equation
The complaint goes on to say that the company has a "pattern and practice" to "lure entrepreneurs, musicians, and electronic product developers with promises of growing a business as partners," then quickly turn around and "squeeze the trusting partner out of the equation." That's only after they've plucked things like intellectual property, as well as production and supply secrets, the complaint adds.
In this case, Monster and company say that very thing happened when Beats inked its deal to provide some of the sound technology in products with HTC. Monster says it was in the dark about the deal, despite assurances that Lee would be able to refuse new investments as a stakeholder. A month later, Beats ended up killing the deal with Monster, with Iovine saying that HTC was buying a large chunk of interest in the company.
As if that weren't enough, Monster goes on to say that Beats began attacking it in backroom dealings, or what it calls "Monster-bashing." This occurred during the annual Consumer Electronics Show in 2012 and 2013, the complaint says, eventually leading to Beats representatives threatening to yank products if they had to share the same shelf space:
Beats told Monster's distributors and retailers to drop Monster headphones as a product line, forcing them to choose between Beats and Monster. These sales representatives and dealers were the same distributors and retailers that Monster had introduced to Beats. A senior Beats executive announced: "We are going to take Monster down!"
Beats declined to comment.
This isn't the first suit against Beats by a disgruntled business partner who says they were squeezed out. Steven Lamar was a hedge fund manager before switching gears to work on early Beats headphone models. He sued the company last year over alleged discrepancies with the royalties he was paid for designs he worked on during Beats' early days. Lamar had plans to launch his own headphone line last year, which were marred by a retaliatory lawsuit from Beats over Lamar's references to himself as one of Beats' co-founders on his marketing materials.
In this case, Monster's Lee argues his specific expertise was something near and dear: cables. "As a company, Monster started when Lee recognized that not all audio cables sound the same," it says. "Lee formed Monster to bring better audio cables to the market, improving the sounds of all speakers, recording consoles, and video systems."
The lawsuit shouldn't come as too much of a surprise based on previously released reports of animosity. That includes details in a 2013 Gizmodo story which outlined the messy breakup between the two companies following the HTC deal. Much of that narrative is about who actually designed the technologies and what they were promised.