Monster sues Beats Electronics over alleged fraudulent deal

Monster is suing Beats Electronics, its founder, and HTC, for fraud over a deal that involved the Taiwanese manufacturer sell back a 25.5% stake of the company only months after it bought 51% of Beats in 2011.

In a complaint (PDF) filed Tuesday in  California Superior Court, Monster alleges that the Beats by Dr. Dre line of headphones was developed in partnership with Beats co-founders Jimmy Iovine and rapper and producer Dr. Dre. The lawsuit claims that Beats “fraudulently acquired” the line of headphones and its technology with a “change of control” clause when Taiwanese phone maker HTC acquired a 51 percent stake in Beats in 2011.

“Had the partnership expired on its own terms, there would have been no transfer of Monster’s ‘Beats By Dr. Dre’ product line, including all development, engineering, manufacturing, marketing, distributing and retail rights” the complaint alleges.

“Defendants also absconded with Monster’s global distribution chain, key retail relationships and intellectual property.”

Less than a month after the HTC purchase, Monster alleges that Beats repurchased half the interest HTC had just acquired.

“At that point, defendants had improperly acquired a company that had been built in a partnership with Monster,” the lawsuit alleges.

In what Monster described as an act of “corporate betrayal,” Dre and Iovine made hundreds of millions of dollars when they sold the company to Apple last year for $3.2 billion.

HTC purchased 51 percent of Beats in 2011 for about $300 million, the investment that allowed for a “change of control” of the Beats company to Iovine and Dr. Dre.

“They told Lee at the time that they had to sell to HTC because they were broke,” Cotchett said. “Then, HTC goes to Lee and says, ‘We’re not giving them any money, we’re paying them in payments.”

Cotchett continued,

“The loss to Monster is in the hundreds of millions of dollars, but we’ll let experts decide that,”

After that ownership switch allowed Beats to escape its contract with Monster, the founders repurchased half that equity from HTC less than a year later.

The lawsuit, which also names two other Beats executives and HTC as defendants, seeks unspecified punitive damages.

Apple declined to comment on the lawsuit.