Apple’s rumoured $3.2bn acquisition of Beats headphones is turning into a lawsuit magnet.
Steven Lamar, a former hedge fund manager, founder of Jibe Audio and co-founder of Beats has filed a lawsuit against Dr Dre and Jimmy Iovine stating breach of contract and demanding as much as 4% royalties on headphones sales.
“Lamar's concept envisioned a partnership between technology that would provide a superior audio experience and an iconic product design and brand identity promoted by a well-known and respected music artist," states Lamar's cross-complaint filed with the Superior Court of California in Los Angeles. "Iovine proposed that Dre be the celebrity musical artist to endorse the headphones."
The case was first reported by the Hollywood Reporter. It's the second lawsuit Beats has faced since the news of a possible acquisition by Apple surfaced. David Hyman, former Beats chief executive and Mog music service founder which Beats acquired in 2012, filed a suit for $20m in May claiming that he was hired and deliberately fired before he could collect his equity grant owed from the Mog purchase.
‘Father of Beats’
Lamar, the self-proclaimed founder of Beats, has been described as the real “Father of Beats” by Mike Klasco, an audio engineer who worked on the original version of the headphones. Lamar also claims to have had the idea of celebrity-endorsed headphones, which propelled Beats to the forefront of headphones brands.
In 2006, Lamar worked with Robert Brunner, the former director of industrial design at Apple and a parter of the Pentagram design company at the time, to come up with the big, bold design of the first set of Beats headphones, which have formed the basis of designs for the majority of the company’s later models.
The cross-complaint describes Lamar as “the founder of Beats headphones, its design and corporate identity” and argues that his royalty entitlement should include future models of Beats with a design similar to the originals, instead of just a subset of the original design.
Beats and Apple’s history started in 2006
The document also details a meeting between Lamar and Jerry McDougal, Apple’s vice president of retail, in 2006 where Lamar presented the company’s first three headphones and proposed to sell Beats directly through Apple’s retail stores, marking Beats’ first meeting with Apple.
McDougal then introduced Lamar to Don Inmon who was responsible for product placement in Apple stores, leading the two to work on the correct packaging size for Beats headphones to be compatible with Apple’s store displays.
Ultimately Beats chose cable supplier Monster over Apple to be sole distributor of Beats headphones, with the deal seeing Dre and Iovine getting a 20% royalty on all sales, and Lamar a 5% cut. Beats eventually fell out with Monster.
Rows from the off
In 2006 Dre and Iovine later filed a suit against Lamar - who was reported at the time to be unhappy with his royalty deal – and his company SLS International, claiming breach of an oral contract and attempting to create headphones very similar to Beats without their involvement. The suit was quickly settled, resulting in Lamar being paid a 4% royalty on some of Beats headphone sales.
That royalty was to be split between Pentagram and Lamar. But Lamar claimsin the new complaint that “Brunner surreptitiously negotiated a separate agreement with Iovine, Dre, and/or Beats Electronics for monetary compensation” and “effectively cut Jibe and Lamar out of the royalty stream” for the so-called “covered headphones” design. He is demanding a trial by jury.
Beats Electronics declined to comment on the suit.
• What does Apple stand to gain from a Beats acquisition?
