A prime concern for entrepreneurs starting a business should be the formalization of both terms and ownership rights in IP. This is highlighted recently in a case filed by Beats Electronics, the fashionable headphone company owned by rapper Dr. Dre that recently made headlines by being sold to Apple for a rumored $1 Billion plus. This past week, Beats lodged a complaint alleging false advertising and unfair competition against Steven Lamar. Lamar has claimed to have co-founded the company with Dr. Dre, and the suit alleges that such claims are being made to help Lamar’s company Roam LLC as it launches a competing headphone called Ropes.
Lamar, via his audio company Jibe, had originally been involved in a partnership of some sort with Beats Co-founder Jimmy Iovine and Dr. Dre. Any partnership that had existed had dissolved, and Iovine and Dr. Dre had, during settlement negotiations, granted Lamar 4% royalty on certain headphone designs. Whether Lamar is owed royalties on other designs is being disputed via other lawsuits.
Nevertheless, Lamar, of late, has been describing himself in the press and social media as a co-founder of Beats. Beats filed suit to enjoin Lamar from doing so. The filing says that Lamar “…does not have — nor has he ever had — any ownership interest in the company,” and that “…Jibe Audio was not responsible for the ‘concept, design, manufacturing and distribution’ of Beats’ headphones” and “demands Lamar be enjoined from making misleading statements about his role in the company, be ordered to remove statements made on social media sites, issue a public clarifying statement, and be ordered to pay the Apple subsidiary profits and treble damages.”
Much of the time and expense that the parties are presently incurring could have been avoided had the parties properly articulated their relationship at its beginning. Specifically, they should have articulated the nature and scope of the partnership, along with the ownership in the IP rights (including design) of the headphones. Later, during the relationship, they should have kept track of whose input was used during the design of the headphones. The little bit of time and expense that would have been involved in formerly articulating this relationship would have been well worth the hassle that they are embroiled in now.