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Not the Sound You Want to Hear

May 08, 2014

Posted in Business Litigation, Business Start Ups, Corporate Law

photo - 50 Cents worthIt’s the sound of a $15.2 million dollar arbitrator’s award against you. Curtis J. Jackson, III, (more popularly known as the rapper “50 Cent”) stole trade secrets, breached a fiduciary duty, engaged in a civil conspiracy, breached a confidentiality agreement and was unjustly enriched, according to an arbitrator’s decision against him concerning the design and sale of a set of headphones.

The total award is music to the ears of the plaintiffs Sleek Audio, LLC, which includes $4.5 million for attorney’s fees and costs. Sleek claims Jackson worked with it to develop a set of headphones, then took their design and used it for headphones sold by a company he controls. The decision was made public in a filing in the U.S. District Court for the Southern District of Florida.

Mr. Jackson (or “Fiddy” to his fans) is trying to make the most of his music career and create a business empire (Forbes magazine estimates his net worth at $140 million). That includes selling headphones, which he became interested in after witnessing the success of Dr. Dre’s line of “Beats by Dre” headphones.

Jackson invests in Sleek and the company gets much more than it bargained for

Jackson invested $1.3 million in Sleek in 2010, which at the time had designed ear buds, but not headphones.Sleek had been seeking investors due to a cash flow crunch and connected with Jackson. He became a member of the LLC, signed a confidentiality agreement and had a seat on its board, with the understanding the company would create headphones for him. They ended up being the “Sleek by 50” model.

Jackson also is the majority owner and CEO of another company, SMS Audio, which also sells headphones. According to the arbitrator, SMS hired the same designers used by Sleek to come up with an identical set of headphones and stole a list of 3,639 names of potential customers and their contact information from a Sleek webpage in 2011. SMS’ versions are known as “Synch by 50” and “Street by 50.”

After Sleek discovered those headphones appeared to be identical to its “Sleek by 50” model, it sued Jackson. According to the decision, Jackson tried to justify his actions by saying Sleek was not a functioning company at the time.

Arbitrator finds evidence favors Sleek

The arbitrator, through Sleek’s expert’s testimony, found a “multitude of mechanical design details” in common and the “likelihood of such an overlap of features and design details to be arrived at independently by two design groups is infinitesimally small.”

The arbitrator also found that when SMS hired the same designers (at Jackson’s direction) who developed the “Sleek by 50” to design a similar product for SMS, those employees relied on Sleek’s trade secrets and incorporated them into the SMS headphones. Sleek’s expert testified that it would normally take eighteen months for a company like SMS to go from a concept to a working prototype, but they did it in 28 days.

The arbitrator’s decision shows the importance of a qualified expert witness who is good at testifying, because much of the decision is based on the testimony of Sleek’s engineering expert. It’s also yet another example of a misbehaving company with its hands caught in another company’s intellectual property cookie jar, in part thanks to incriminating e-mail messages.

You don’t need to be a multi-millionaire rapper or involved in high tech headphones to find yourself in the middle of this kind of dispute. If your company is involved in intellectual property issues, such as the possible theft of product designs or customer lists, contact my office for a free consultation.