Beats' Dr. Dre and Jimmy Iovine Sued Over 'Sham' Deal

Monster Cable founder accuses his former partners of squeezing out his ownership following a deal with HTC

Dr. Dre and music exec Jimmy Iovine have been targeted in a new lawsuit by a former Beats partner. Credit: Jonathan Ferrey/Getty

A former partner of Beats Electronics founders Dr. Dre and Jimmy Iovine has filed a lawsuit against the duo, accusing them of improper business dealings. Monster Cable founder Noel Lee alleges that Iovine and Dre duped him into lessening and then selling his stake in Beats Electronics prior to the company's $3 billion deal with Apple, according to The Associated Press.

Dre and Iovine first teamed with Lee's Monster, a maker of audio components, to craft the first Beats by Dre headphones in 2008; Monster claims to have a major hand in shaping the original look and sound of Beats headphones. Three years later, mobile phone company HTC purchased a 50.1 percent stake in Beats, which led to the termination of Beats' contract with Monster. According to the suit, Lee – who once owned a five percent share of Beats – had his stake pared to 1.25 percent following the HTC deal.

Less than a year later, Iovine and Dre bought back half of HTC's stake in Beats, and by September 2013, the Beats founders had repurchased all the shares it had previously sold to mobile phone giant. It was around this time that Lee sold his remaining ownership for $5.5 million. However, as Lee notes in the lawsuit, his original five percent stake in the company is now worth $150 million after Beats' deal with Apple. Had Lee even sold his 1.25 percent share after the Apple deal, it would have been valued at over $30 million.

In the suit, Lee calls Beats' deal with HTC a "sham" used to sever Monster's partnership with the headphone makers and dilute Lee's holdings in Beats. He also alleges that when he sold his remaining portion of Beats back to the company in the autumn of 2013, executives told him that they had no plans to sell Beats in the near future, The Guardian reports. Less than a year later, Beats was Apple property.

Also named in the suit are HTC America and Beats investor Paul Wachter. Apple, however, was not listed in the lawsuit. As The AP notes, the lawsuit is contradictory to Lee's own comments after his Beats partnership ended in late-2013, with Lee saying the split was "amicable" and that he was compensated "very generously" in royalties.