LOS ANGELES – A California appeals court judge recently cleared the way for the founders of Beats by Dre headphones to settle their dispute over royalties in a courtroom.
The decision against Beats creators Dr. Dre and Jimmy Iovine, in which former partner Steven Lamar claims he is owed royalty money on “derivative” versions of the headphones’ original design, reversed a lower court summary judgment dismissing the case.
Stephen E. Morrissey, the attorney with the Seattle-based Susman Godfrey law firm representing Lamar, told the Northern California Record that Lamar is pleased that he will get his day in court.
“If they had radically changed the design of the headphones, it wouldn’t be covered by the royalty agreement," Lamar told the Northern California Record. "We wouldn’t be here. But if you look, they look exactly like the original drawings.”
Lamar said his client must wait for a review period at the California Supreme Court before the case can officially move forward. He said he expects that to happen within weeks and that a trial is likely by late fall.
At issue is a royalty agreement between Lamar and Beats co-creators Dre and Iovine, who signed the deal in 2008 before selling the company to Apple for a reported $3 billion. Dre and Iovine have contended that the agreement with Lamar, a former hedge fund manager who was brought in by Beats in 2006 to find investors, a designer and a manufacturer, was for the initial design used in the rollout of the headphones and not for subsequent versions.
“(Lamar) was involved in the development and planning of the businesses when it was starting in 2007,” Morrissey told the Northern California Record.
Lamar claimed, and the appeals court judge agreed, that the agreement didn’t clearly define that the royalty deal was limited to the original headphones version.
“It’s the same patent, but they just stopped paying him,” Morrissey said.
The royalty agreement itself was born of a 2006 dispute between Lamar, Dre and Iovine and followed a lawsuit they filed against Lamar for failing to perform under their contract. The two agreed to pay Lamar a four percent royalty fee on the headphones afterward.
Lamar’s claim was rejected by a Los Angeles Superior Court judge last year. The appeals court called the royalty agreement “ambiguous” when it comes to the issue of whether it extends to subsequent versions.
"Based on the extrinsic evidence presented and the language of the contract, we find that it is equally, if not more, plausible that the parties contemplated the interpretation for which Lamar advocates,” the judge wrote.
Morrissey said if you look at the design of the new headphones and the original version that there is little difference between the two. He said Lamar understands the agreement doesn’t extend to wholly different models or products, such as the ear buds that Beats also sells.
Contractually, Morrissey said Lamar has proof that several different models using the original design concept were being considered when he was brought on as a consultant. He said the case against Beats would not include its owner Apple, since the royalty agreement is separate from that partnership.