Beats ordered to pay ex-business partner $25M

Beats Audio LLC must pay one of its former business partners $25 million for unpaid royalties, a Los Angeles County Superior Court jury concluded Wednesday.

The jury found Beats entered into an agreement with Steven Lamar, a former hedge fund manager who claims he came up with the concept for a high-end line of headphones paired with a high-profile celebrity endorsement. Under that agreement, Lamar was to be paid for "any headphones" produced based off the product's original design.

The jury also found Beats had breached its contract while Lamar had held up his end of the 2007 agreement at the dispute. Jibe Audio Inc. v. Beats Electronics LLC et al., BC533089 (L.A. Super. Ct., filed Jan. 13, 2014).

The verdict, though welcome by the plaintiff's counsel, was short of the $110 million Lamar had asked for in royalties for all Beats headphones produced before his suit's 2014 filing, but the jury only awarded him royalties for three: the Studio 2 Remastered, the Studio 2 Wireless, and the Studio 3.

With royalties for all three totaled, the jury awarded Lamar $25 million, in addition to royalties for future sales of the products.

The jury's decision seemed to split the difference between the two sides' requests. That's odd, said Brian Kabateck, a partner at Kabatack, Brown & Kellner LLP not involved in the case, but it could be grounds for the defendants to justify an appeal.

"This isn't like a personal injury case where someone's saying, 'I'm entitled to $500,000 for emotional distress,'" Kabateck said. "This is based on very specific claims."

What Kabateck saw as a compromise verdict, Lincoln Bandlow, a partner at Fox Rothschild LLP not involved in the case, called "rough justice."

It's something jurors turn to fairly regularly to produce a middle-ground solution to an all-or-nothing dispute, Bandlow said.

"They're trying to reward the plaintiff for what he was truly involved in. But now that he's gone, they're saying he shouldn't be getting paid for things where he wasn't putting in the time and effort," Bandlow said.

While Beats would likely raise the issue at appeal, Bandlow said he felt the result wouldn't help Beats' chances of successfully appealing the decision. And it's possible they might not even file one.

Bandlow said the dissolution of Lamar's partnership was akin to a divorce, in which both parties agreed the other had contributed in some way to their shared fortune. But putting an exact dollar figure on the amount of work done by each party is difficult, he said.

Brian Melton, a partner at Susman Godfrey LLP who served as counsel to Lamar, said he was "proud of the way the case came through." He hoped the outcome of the trial -- which he noted came only after an appeals court remanded the case back to state court following its initial dismissal in 2015 -- would embolden creators who felt cheated.

"The jury's verdict is a verdict for those with great ideas. And there are a lot of folks like that in this town," Melton said. "I believe that every person who has a great idea should be able to pursue their rights in a court of law just like this one."

Arturo Gonzalez, a partner at Morrison & Foerster LLP who led the case for Beats, deferred comment to Apple Inc.

An Apple spokesperson did not respond to a request for comment Wednesday.

Producer Jimmy Iovine and music mogul Andre Young, who were named defendants in the case as co-founders of Beats, weren't present when the verdict was read late Wednesday morning. While Young, better known as Dr. Dre, was present during closing arguments, Iovine was not.

Kabateck said Iovine may come to regret that call.

"You've got jurors listening to a trial for a couple weeks, and the defendant doesn't even show up for the last day?" Kabateck said. "The jurors might take offense to that."