Tech firm Monster sues Beats and founders Dre and Iovine

Mike Snider | USA TODAY

Monster, which co-designed the original Beats By Dr. Dre headphones, is filing suit against Beats Electronics, the firm acquired by Apple in May and co-founded by musician Dr. Dre and producer Jimmy Iovine.

The audio tech company and its CEO, Noel Lee, say in the suit that he and Monster invented the technology behind the Beats By Dr. Dre headphones. The suit claims that Iovine and Dre (Andre Young) committed fraud in pirating the headphones away from Lee and Monster.

The suit, filed in San Mateo (Calif.) County Superior Court, charges that the Beats co-founders concealed the role of Monster and Lee in designing and engineering the headphone line, as well as educating them about engineering, manufacturing, distributing and selling the headphones that Monster and Lee invented.

After severing ties with Monster, Beats was purchased by Apple for $3 billion. But as the Beats co-founders made millions, Monster lost millions from its investment in the rise of Beats, the suit charges. Had Lee retained his original 5% interest in Beats, his total stake in the Beats-Apple deal would have been worth over $100 million, the suit alleges.

When contacted, Apple said that it did not have comment on the suit.

Founded in Nevada in 1979 as Monster Cable, Monster assisted in the design of the popular Beats By Dr. Dre headphones. In a previous interview, Lee, who at one time had been a laser-fusion design engineer at Lawrence Livermore Laboratory, said that Monster made 150 samples before Dre and Iovine saw any prototypes. "They went through 20 before it felt right," Lee said.

After hitting the market in 2008, the headphones virtually created a high-end styles category of $300-plus headphones. High-end headphones became a $1 billion market in wholesale revenue in 2013, and Iovine has said Beats itself had revenue surpassing $1 billion last year.

Even before Beats and Monster's five-year manufacturing and distribution deal ended, HTC invested $300 million in Beats in 2011.

Iovine and Dre bought back the entirety of Beats in 2013, a year before Apple acquired the company for $3 billion. Monster lists HTC and Beats board member Paul Wachter among the defendants.

Those transactions were a "sham" that Beats used to exercise its "change of control rights" to fraudulently get the headphones away from Monster, said Joseph Cotchett, an attorney with the California-based law firm of Cotchett, Pitre & McCarthy, which is representing Monster. "Had the partnership expired on its own terms, there would have been no transfer of Monster's years of work on Beats By Dr. Dre."

After conspiring to get rid of Monster, Beats also damaged Monster's reputation for developing products, the suit says.

Monster and Lee are asking for punitive damages.

In an exclusive story published last year by Gizmodo, Monster founder Noel Lee and son Kevin Lee shed light on how they were outmaneuvered by the might of Dre, Iovine and Interscope and suggested that they weren't properly compensated for the development of the original headphones.