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Beats Headphones Royalty Dispute Saga Heads to Trial
Former hedge fund manager Steven Lamar, who helped launch Dr. Dre's Beats headphones a decade ago, won the right to go to trial against the rap artist and record producer after the California Court of Appeal revived his $100 million case over unpaid royalties.
Dr. Dre released the Beats line of headphones in 2008 with the launch of the Studio model. Apple Inc. bought Beats Electronics, the company behind the brand, for $3 billion in 2014. But lingering in the background has been litigation involving Steven Lamar that dates back to the origins of the best-selling headphones. California's Second District Court of Appeal recently revived Lamar's claims that Dr. Dre and record producer Jimmy Iovine, co-founders of Beats Electronics, owed him royalties on all 10 models of Beats headphones, not just the Studio. Jibe Audio LLC v. Beats Electronics LLC, B267633 (Sept. 19, 2016).
In 2006, Iovine and Dre sued Lamar and related companies, alleging breach of oral contract for manufacture, marketing, and distribution of the Beats headphones. The parties reached a global settlement in 2007. Lamar's current case originated when a design shop that was collecting royalties from Beats Electronics sought declaratory relief over the rights after Lamar began complaining he was owed payments. Lamar and his company, Jibe Audio, cross-sued Dr. Dre, Iovine, Beats Electronics and designer Robert Brunner, alleging the cross-defendants breached the 2007 settlement under which Lamar claims he was to receive 4% of every set of headphones sold. But Los Angeles Superior Court Judge Malcolm Mackey granted summary judgment after concluding that the written settlement agreement involved only the Studio.
However, the court of appeal found the agreement's language ambiguous at best. “There is no language in the contract limiting the agreement to a single product or model,” wrote Presiding Judge Roger Boren. “Thus, the agreement is certainly reasonably susceptible to an interpretation that it covers more than just the original, Studio, headphone model.”
The cross-defendants had also argued that, though Lamar signed the settlement agreement, he hadn't signed the related royalty agreement. But the court of appeal determined “the question of whether Lamar is a party to the Royalty Agreement is not easily answered by the fact that his signature does not appear on the document. The Royalty Agreement was specifically referenced in the [settlement agreement], and was attached thereto as exhibit A. The [settlement agreement] stated clearly that its intent was to resolve the rights of the parties, including Lamar. Lamar read and understood the entire negotiated agreement ' which consisted of three contracts ' before signing it. Lamar was certainly a party to the larger settlement agreement, and the Royalty Agreement was part of this larger negotiated deal.”
The ruling is another victory for Lamar in his long battle over royalties: Last year, a Los Angeles Superior Court judge dismissed a separate case in which Apple claimed Lamar was falsely advertising himself as a co-founder of Beats. It's also a setback for Beats Electronics, which secured the dismissal of fraud claims on Aug. 29 in another case brought by former partner Monster LLC.
Lamar's attorney, Steve Morrissey, a partner at Susman Godfrey in Seattle, praised the California appeal court for reversing Judge Mackey's “pretty shocking” summary judgment decision. “We had a mountain of evidence this contract was not limited to some single headphone,” he said. “And the court of appeal read the language the way we did.”
A lawyer for Dr. Dre, Iovine and Beats Electronics, Miriam Vogel, senior of counsel at Morrison & Foerster in Los Angeles, and Clifford Yin, a partner at San Francisco's Coblentz Patch Duffy & Bass, who represents Brunner, did not respond to requests for comment.
Amanda Bronstad writes for The National Law Journal, an ALM sibling of Entertainment Law & Finance.
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