Monster CEO: Beats Electronics 'duped' him

Mike Snider | USA TODAY

Show Caption Hide Caption Monster CEO: Beats 'duped' me USA TODAY's Mike Snider talks exclusively to Head Monster Noel Lee about the Beats lawsuit.

LAS VEGAS — Beats co-founders Jimmy Iovine and Dr. Dre conspired to push aside audio tech firm Monster, which had designed and made Beats By Dr. Dre headphones, to gain complete control of the popular product line, Monster CEO Noel Lee charges in his lawsuit filed Tuesday.

Beats Electronics committed a case of "corporate betrayal" against Monster, which had been its partner in launching the headphones in 2008.

When Beats sold a 51% share of the company to HTC in 2011, that set in motion a "change of control" that required Monster to hand over its intellectual property -- research and development -- along with its marketing and distribution information on "a silver platter," Lee said in an exclusive interview on the eve of Monster's annual awards party and concert here at the Consumer Electronics Show.

Later Beats repurchased HTC's stake in the company and committed fraud and deceit against Lee by convincing him to sell his own stake in Beats, he alleges in the suit. Had Lee had his 5% stake in Beats when Apple acquired the company in May 2014, he would have made $100 million in the $3 billion transaction, the lawsuit says.

The HTC deal was a "sham transaction" to "exclude Monster and Lee from future profits from the sale of the "Beats By Dr. Dre" product line and, ultimately, the sale of Beats as a company, to Apple," the suit alleges.

Having severed ties with Monster and approving the acquisition by Apple, the Beats executives "made millions off the work of Lee and Monster," the suit says. And since Beats "misappropriated the 'Beats By Dr. Dre" technology and manufacturing and distribution channels, Monster and Lee lost millions of dollars," the complaint says.

In the aftermath, "I came to realize that I think I've been duped," Lee said during the interview here.

Apple declined to comment on the lawsuit and Beats has not responded to a request for comment.

Beyond the financial and intellectual property harms that Monster and Lee claim, they also say that Beats aims to "deceptively rewrite history" by erasing Monster's participation in the rise of the premium headphone lineup.

Beats co-founder Iovine is described in the suit as "a respected but ruthless music mogul." As for Dre, "other than his celebrity status as a rapper, Dre's primary contribution was to bless Monster's headphones when he exclaimed: 'That's the shit!'" the suit says.

That's one of the reasons for filing the suit, Lee said. "To right the record."

The U.S. headphone market amounted to about $2 billion in 2014, according to The NPD Group, with half made up by premium products such as Beats By Dr. Dre. Beats has about 60% of the premium market, compared with Monster's single-digit percentage.

As the smaller company, Monster is trying to strike back at Beats, which is now attached to Apple, NPD analyst Ben Arnold said. The move could also be an effort to help Monster "gain market share," he said.

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