Beats Founders Take A Beating In Royalty Lawsuit

Beats Electronics LLC (“Beats”), founded by music mogul Jimmy Iovine and rap icon Dr. Dre, was sued by ex-partner Steven Lamer in 2014 for unpaid royalties on Beats products that were based on prototypes he developed. This lawsuit followed a series of previous disputes and legal entanglements between Beats, Lamar, and Pentagram, including rows over a trademark, distribution and royalties.

The 2014 suit alleged Lamar’s company Jibe Audio LLC had the original idea and concept for Beats and that he discussed his concept of a music artist-endorsed headphone product line with Iovine in 2006 and later asked another Beats partner, Pentagram Design, to help develop the design and corporate identity for the headphone product line under the name “Beats by Dr. Dre.” According to Lamar, he only received royalties for one model of headphones, and was entitled to royalties on several others.

After four years of litigation, the case finally went in front of a California jury, and just this week, the jury found Beats founders Iovine and Dre owe Lamar $25.25 million dollars in unpaid royalties. Lamar maintained he was owed as much as $109 million dollars for royalties on a dozen headphone products, which was countered by a Beats legal expert who asserted that even if Lamar was entitled to royalties, a claim Beats denied, the most Lamar could be entitled to was $15 million dollars.

During the trial, Beats argued that the brand’s headphone designs and products changed considerably over the years since Lamar’s initial involvement in 2006, asserting that over $30 million dollars was spent improving and redesigning Beats’ products since 2007, and that Lamar’s initial designs were essentially superseded. After a model-by-model analysis on all the headphones in question, the jury found Lamer was not entitled to royalties on all twelve different headphone models, rather only three. In that sense, it was a victory for Beats and its two high-profile founders because the amount of unpaid royalties could have been significantly higher had the jury determined Lamar was entitled to royalties for all twelve models under dispute.

Iovine and Dre sold the Beats empire, including Beats Music and Beats Electronics, to Apple for $3.2 billion dollars in 2014, so one suspects they will be able to pay the $25.25 million dollar judgment with relative ease, but it is still a stiff verdict, particularly one against an adversarial party where there is unpleasant personal history.

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