SLS gets tangled in West Coast lawsuit

Rapper Dr. Dre, whose real name is Andre Young, and Jimmy Iovine, chairman of Interscope Geffen A&M Records, filed the suit against SLS, Pentagram Design Inc., Jibe Audio LLC and former SLS President Steve Lamar. Ten unnamed parties are also listed as defendants.

Los Angeles entertainment attorney Howard King, who filed the suit in Los Angeles County Superior Court on behalf of his clients, declined to speak with SBJ. King also represented Dr. Dre and heavy-metal band Metallica in a lawsuit against file-sharing behemoth Napster.

Young and Iovine are seeking at least $1 million in damages and a court injunction blocking production of the headphones, according to the suit.

The plaintiffs allege that they had an oral contract with SLS to manufacture and market Beats headphones, which they designed and had planned to trademark.

But SLS “pulled a classic bait-and-switch” by secretly attempting to register the Beats trademark and partnering with a third party – Jibe Audio LLC – to make and distribute the headphones, according to the suit.

SLS Chairman and CEO John Gott did not return calls seeking comment on the pending litigation, and an attorney for the company wasn’t listed in court documents.

Photos of the noise-canceling headphones are posted on Jibe’s Web site, www.jibeaudio.com, which states that the San Francisco company “collaborates with high-profile musicians and producers to bring their passion and knowledge to the process.” Following the launch of the headphones, Jibe plans to introduce a line of docking stations for iPods, MP3 players and cell phones, according to the site.

Deal goes sour

Court records show that Young and Iovine began negotiating the deal with SLS in early 2005 after they were introduced to former SLS President Steve Lamar.

SLS initially proposed a design created by California-based Pentagram, which records show the plaintiffs rejected. Lamar later promised Young and Iovine they could design the headphones and that they would receive royalties on sales, stock options and warrants associated with the product line, according to the suit.

Lamar also promised the headphones would hit stores by Christmas 2006, the plaintiffs alleged.

Attempts to reach Lamar, who lives in California, were unsuccessful.

After the headphones were redesigned, Lamar allegedly proposed that Jibe Audio – a company with little or no funding – replace SLS as the contracting party, records show. In May, when Young and Iovine objected to SLS’ withdrawal, Lamar “threatened to take the headphones design elsewhere,” according to the suit.

Two months later, the plaintiffs learned that Lamar had left SLS to become CEO of Jibe and that SLS was moving forward with plans to manufacture and distribute the headphones under the Beats trademark, court records show.

In late June, SLS announced that DGM Audio LLC would develop and sell a new line of headphones using its ribbon-driver technology and trademarks.

Under the licensing agreement, SLS is entitled to a minimum of $300,000 in royalties next year, $600,000 in 2008, $900,000 in 2009 and $1.2 million every year thereafter.

SLS estimated $1.5 million in royalties for every 100,000 sets of headphones sold, according to a news release.

“DGM has the ability to fund these efforts and bring the SLS headphone technology to the forefront of the consumer industry, allowing us to build our core business and develop our other patented technologies,” Gott said in the release.

Lamar resigned from SLS in conjunction with the announcement, and Gott indicated in the release that he expected Lamar to “pursue a role with DGM” and “build on programs he initiated at SLS.”

Net losses

Earlier this month, SLS reported a $2.2 million net loss from operations for the second quarter, compared to a $2.4 million loss for the same period last year. The company attributed the loss to expenses from the May launch of its Q Line Gold Home Theater System – endorsed by recording exec Quincy Jones – in Best Buy stores.

Earnings for the quarter were $2.7 million, compared to $855,353 for the same quarter last year. Company officials said demand for the Q Line products and its Cinema product series – a line of technology recently installed at Springfield’s Campbell 16 Ciné – has grown.

Since SLS began trading on the American Stock Exchange in October, the company’s stock has plummeted to its lowest levels in a year. Shares closed Aug. 16 at 30 cents, compared to a 52-week range of 27 cents to $2.52.[[In-content Ad]]