Apple's (AAPL) Beats Sued by Monster for Fraud

Monster LLC has filed a lawsuit against Apple's (Nasdaq: AAPL) Beats Electronics LLC, alleging fraud and deceit over how Beats acquired control of Beats by Dr. Dre headphones.

Beats and Monster entered a partnership in 2008 to develop Beats by Dr. Dre, which was a line of colorful headphones designed to compete with the likes of Bose and Skullcandy (Nasdaq: SKUL). Monster claims it was unfairly cut out of the partnership before Apple acquired the company last year.

The suit was filed in San Mateo (Calif.) County Superior Court on Tuesday.

HTC agreed to acquire a 51 percent stake in Beats in 2011 for $300 million. Monster noted that Beats then reacquired 25.5 percent of its own shares back from HTC less than a month after the deal closed, which allowed Beats to end its partnership with HTC due to a change-of-ownership clause.

The end-of-ownership clause also caused Monster to transfer all of its intellectual property rights to Beats, costing it millions of lost revenue.

Monster CEO Noel Lee was nervous about transparency issues and reduced his stake from 5 percent down to 1.25 percent. Lee also sold the rest of his stake in September 2013 after a board member said not liquidity event was on the horizon.

Apple then purchased Beats Electronics is May 2014.

Shares of Apple are positive early.

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