Monster’s Noel Lee Sues Beats, Shoulda Made $100M from Apple Deal
After missing out on vast fortunes attained by Beats and founder Dr. Dre, Monster and CEO Noel Lee sue for fraud.
Gizmodo famously told a sad tale two years ago of how Monster LLC (then Monster Cable). gave up the farm to seal a headphone deal with Dr. Dre, and then lost everything when the rapper abandoned Monster for HTC, which had acquired 50.1% of Beats.
Apparently, desperate to sign the original deal with Dre and partner Jimmy Iovine, chairman of Interscope Geffen A&M Records, Monster gave up all rights to any intellectual property created for Beats, which arguably spawned the category of high-end headphones.
One year later, Apple acquired Beats for $3 billion, making Dre and Iovine supremely rich.
Monster and CEO Noel Lee got nada.
At the time, Lee was gracious, publicly congratulating Dre and Iovine and proclaiming, “We are glad to see that the company that we started together would turn into a Monster.”
He added, “I want to thank Jimmy and Dre for pioneering the way in marketing and Beats Music, and putting a spotlight to the value of companies in our space. We will find the collaborations and opportunities that will change the game once again.”
Now Lee is singing a different tune, and it sounds something like this: You screwed us and you must pay.
Monster filed a lawsuit last week against Apple’s Beats Electronics LLC, Iovine, Dre and HTC for allegedly conspiring to dupe Monster out of a deal with Beats before the company was sold to Apple.
In a complaint filed in Superior Court in San Mateo County, Calif., Monster said Beats “fraudulently acquired” the Beats by Dr. Dre line of headphones through a “sham transaction” with HTC, which agreed to purchase a 51% stake in Beats for $300 million in 2011.
The complaint asserts that Beats repurchased 25.5% of its own shares from HTC less than a month after the deal closed, allowing Beats to end its relationship with Monster due to a change-of-ownership clause.
Monster said the change-of- ownership clause triggered by the HTC deal required Monster to transfer all intellectual property to Beats, costing the company millions in lost revenue.
Worried about a lack of transparency at Beats after the HTC deal, Monster CEO Noel Lee also reduced his 5% stake in Beats to 1.25%.
In September 2013, eight months before Apple agreed to buy Beats in May 2014, Mr. Lee sold his remaining shares. In the suit, Mr. Lee alleges he sold the shares after being misled by a board member that no “liquidity event” was on the horizon for the next year or two.
The complaint alleges that Lee’s 5% share in Beats would have been worth more than $100 million. For now, Monster has its own line of DNA- and Adidas-branded headsets.
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Julie Jacobson is founding editor of CE Pro, the leading media brand for the home-technology channel. She has covered the smart-home industry since 1994, long before there was much of an Internet, let alone an Internet of things. Currently she studies, speaks, writes and rabble-rouses in the areas of home automation, security, networked A/V, wellness-related technology, biophilic design, and the business of home technology. Julie majored in Economics at the University of Michigan, spent a year abroad at Cambridge University, and earned an MBA from the University of Texas at Austin. She is a recipient of the annual CTA TechHome Leadership Award, and a CEDIA Fellows honoree. A washed-up Ultimate Frisbee player, Julie currently resides in San Antonio, Texas and sometimes St. Paul, Minn. Follow on Twitter: @juliejacobson Email Julie at email@example.com
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