Monster CEO Noel Lee files fraud lawsuit against Apple-owned Beats

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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Chinese fakes cash in on Dr. Dre’s Beats headphones bonanza

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Three weeks ago, hip-hop star Andre Young — better known as Dr. Dre — made news as his Beats Electronics line, a maker of premium headphones, was valued at more than $1 billion thanks to an investment from the Carlyle Group.

But the former N.W.A. rapper is not the only one profiting from his headphone line. Across the Pearl River Delta in southern China, counterfeit Beats are flowing out of factories, assembly workshops and shops, attracting businesspeople that sell the headphones on global markets.

A CNN reporter approached wholesale companies about buying in bulk in order to learn how the underground sale of knock-off headphones works.

Business is very good,” said a woman, who, with her family, runs a wholesale company selling copied headphones in one of Shenzhen‘s many mega-malls. “You buy cheap from me, you sell expensive in your home country, we all make a lot of money,” she added.

To prove her point, she shows an Excel spread sheet on her laptop listing customers from all over the world: Italy, Denmark, United States, Canada, Dubai, Russia and more. She said she recently sold a large amount of counterfeit Beats by Dr. Dre for $50,000 to a British businessman who sent them to the UK by jet — which is considerably more expensive than container ship — and sold them as originals.

While top-line Beats headphones retail for $400, the Shenzhen operators interviewed sell knock-off versions wholesale for $70. “A lot of people are making a lot of money on Beats right now,” she said.

Factory owners here have a nose for what’s hot and what’s not. Nearly 70% of all fake goods — including DVDs, clothing, and electronics goods — seized worldwide from 2008-2010 came from China, according to the World Customs Organization.

And looking at the shops in Shenzhen’s Huaqiangbei commercial district — a destination for buying electronics, especially fakes — Beats by Dr. Dre are definitely hot, prominently displayed next to iPhones, Samsung gear and Nikon cameras. To look at them, some are clearly fakes with poor packaging and logo color schemes that are wildly different from those well-known products.

At another Shenzhen store, a sales executive at a factory and trading company, connects a pair of fake Beats Pro to her iPhone and puts them on the reporter’s head. The sound quality is surprisingly good. In the U.S., an original pair would cost $400. She offers her best quality headphones for the wholesale price of $70, medium quality for $45 and “so-so quality” for $30.

Medium quality is most popular, but the trend is going towards high-end. Consumers want good sound,” she said, adding that she can deliver 100 units of any Beats product by the following day. For 1,000 items it will take a week. “Since it’s copies, we don’t want to have too much in stock,” she said.

On the streets and down in the subway, in-ear Beats headphones are sold for as little as $1. According to the company website, real in-ear Beats sell for $100 and up.

Beats Electronics, the company behind the Beats by Dr. Dre brand, said that the company shows “a fierce commitment” to fight piracy and that it works in close collaboration with anti-counterfeiting organizations, police and customs authorities to identify counterfeit sellers, distributors and manufacturers on key markets. They also scan online marketplaces for unauthorized use of Beats trademarks.

Since efforts began, Beats has seized hundreds of thousands of counterfeit products in more than 50 countries,” the company said.

The U.S. government has long complained about the theft of intellectual property in China… However it appears that Chinese officials are moving to crack down on counterfeit trade. A month-long joint operation with U.S. Customs in July resulted in the seizure of more than 243,000 counterfeit products using trademarks from Beats by Dr. Dre., Apple, Blackberry and Samsung. U.S. Customs and Border Protection said the operation was the biggest bilateral customs enforcement effort ever conducted by the U.S.

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Chinese fakes cash in on Dr. Dre’s Beats headphones bonanza

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