Apple's Beats Owes $25 Million in Royalties to Early Developer

(Bloomberg) -- Apple Inc.'s Beats Electronics owes $25 million in royalties to one of the early designers of the Beats by Dr. Dre headphones.

A jury in Los Angeles on Wednesday agreed with Steven Lamar that under a 2007 settlement with Beats' founders, rapper Dr. Dre and Interscope Records' Jimmy Iovine, he was entitled to a cut of the sales of the headphones that were based on the original Studio model.

"The jury's verdict reflects Mr. Lamar's contribution to the origin of the Beats by Dr. Dre headphones product line," his lawyer, Brian Melton, said in a telephone interview.

Lamar claimed that in January 2006, he took his idea for high-quality headphones with an iconic design and promoted by a well-known musician to Iovine, who proposed Andre Young, the producer and rapper known as Dr. Dre., as the celebrity to endorse the headsets. Lamar said he worked on the concept and design of the Beats headphones until a falling out with the Beats founders in 2006 that prompted them to sue him for breach of contract.

Under the subsequent settlement, Lamar alleged, he signed over the rights to the Beats design in exchange for royalties on all models that were derived from the design he worked on, not just the Studio model first sold in 2008.

The jury awarded him royalties on the later Studio models of the Beats headphones, but not on other models, according to his lawyer. Since the claim was for breach of contract, Lamar is entitled to interest and attorney fees, which could take the total amount of the judgment to more than $40 million, Melton said.

Representatives of Apple and Beats didn't immediately respond to requests for comment on the verdict.

Apple bought Beats in 2014 for $3 billion, a deal that got the technology giant into high-end headphones and music streaming.

Beats, Bose, Sennheiser, Sony and Skullcandy are the leading players in a headphone market that will generate $20 billion in annual revenue by 2023, nearly doubling this year's projected sales, according to Research and Markets. Researcher NPD Group said last year that sales of AirPods and Beats headphones gave Apple 27 percent of the wireless headphone market and almost half the dollars spent on the category.

The case is Jibe Audio LLC v. Iovine, BC533089, California Superior Court, Los Angeles County.

To contact the reporter on this story: Edvard Pettersson in Los Angeles at epettersson@bloomberg.net

To contact the editors responsible for this story: Elizabeth Wollman at ewollman@bloomberg.net, Peter Blumberg, Edvard Pettersson

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