Dr Dre and Jimmy Iovine, the founders of Beats Electronics, are being sued by a former business partner who co-designed the high-end audio range, recently bought by Apple for $3bn (£1.9bn).
Noel Lee, whose firm Monster is thought to have played a central role in creating the original Beats headphones, has filed a legal complaint in California claiming he “lost millions” after being tricked into severing ties with Beats through a “fraudulent” deal shortly before its sale.
A member of the influential hip-hop group NWA, Dr Dre – real name Andre Young – is a celebrated rap producer and entrepreneur. Mr Iovine was the co-founder of rap label Interscope Records, which now represents a diverse roster of artists including Maroon 5 and Madonna.
In the complaint Mr Lee claims that his firm, founded in Nevada in 1979 as Monster Cable, was responsible for schooling Dr Dre and Mr Iovine in the manufacturing and distribution of their headphones line. The suit alleges that Dr Dre’s “primary contribution” to Beats technology “was to bless Monster’s headphones when he exclaimed: ‘That’s the shit!’”
Yet while Monster remained the exclusive manufacturer of Beats By Dr Dre audio equipment for several years, the brand’s success was sealed by Dr Dre’s endorsement, which ensured the headphones were seen on the heads of multiple celebrities.
When Beats hit the market in 2008, it single-handedly created a new high-end headphones market, which within five years was worth $1bn annually. Mr Iovine has said that Beats alone had revenue of more than $1bn in 2014.
In 2012, Beats was sold to Taiwanese mobile phone manufacturer HTC, reportedly netting Dr Dre and Mr Iovine $100m apiece. Mr Lee claims the deal obliged him to cut his five per cent stake in the firm to 1.25 per cent. The following year he sold his remaining stake for $5.5m.
Yet the suit alleges Beats quickly bought back 25.5 per cent of its own shares from HTC. The deal, Mr Lee says, was “a sham” designed to cut his firm out of Beats’ success. He claims his 1.25 per cent stake would have been worth more than $30m in last year’s $3bn sale to Apple, the tech giant’s biggest-ever acquisition. His original five per cent stake would have made him some $150m.
Dr Dre is thought to have earned around $650m before taxes in 2014. Monster’s law firm, Cotchett, Pitre & McCarthy, said in a statement that Dr Dre and Mr Iovine “made millions off the work of Monster and Lee, while the plaintiffs lost millions”.
Since Apple bought Beats in May 2014, the firm has also faced a lawsuit from the Bose Corporation over its patented noise-cancellation technology, which was settled privately in October. Dr Dre and Mr Iovine are currently being sued for bad faith by entrepreneur David Hyman, who sold his music streaming service, MOG, to Beats in 2012.Reuse content