Beats founders sued by Monster over "sham" deal

Beats Electronics founders Dr Dre and Jimmy Iovine are being sued by Monster founder Noel Lee, whose boutique audio company (best known for its HDMI cables) played a hand in launching Beats By Dre in 2008.

Legal documents filed in California allege that when Beats sold a 50.1% share to mobile phone manufacturer HTC in 2012 – giving Dre and Iovine each $US100m (Forbes) – it was a “sham”.

The papers allege that not only was Dre barely involved in the manufacturing of the headphones, but through the sale to HTC, he and Iovine forced Lee to sell his remaining 1.25% stake for $US5.5m at the end of 2013. Lee has called the transaction “fraudulent”, saying the pair used the deal to take off with the technology developed by Monster as well as its global distribution chain and key retail relationships. The papers also note the fact HTC sold Dre and Iovine back half of its stake in July 2012 for $US150m.

Crucially, it's estimated that if Lee had his 1.25% stake at the time of Beats' $US3 billion acquisition by Apple in May last year, he would have been given a payout of $US30m. Furthermore, if he had kept his original 5% stake, he would have been paid around $US150m.

It’s the second suit to be brought against Dre and Iovine since Beats’ sale to Apple. In July, Bose Corp, the high end soundsystem and headphone manufacturer, accused Beats of violating five patents for noise-cancellation technology. The case was settled under undisclosed terms in October.

Australia will be the second country to get Beats' streaming service, Beats Music. However no definite date has been set for when Beats will replace the MOG streaming service and launch with Telstra.