Jibe Audio v. Beats Elec., No, B267633 (Cal. App. - 2nd Dist. Sep. 19, 2016).
A California appellate court holds that the headphone company Beats, Dr. Dre and Jimmy Iovine may owe the plaintiff royalties for more than the first headphone model, the Studio model, because the contract at issue (a settlement agreement) was ambiguous and disputes of material fact existed. Accordingly, summary judgment in favor of the defendants was reversed so that a jury could decide the case.
The case was a question of contract interpretation under California law, and the Court considered extrinsic evidence outside of the 4 corners of the contract. "The Beats parties and Brunner contend that the Royalty Agreement was only intended to cover one product: the Studio headphone. They argue that the agreement was not intended to cover sales of the entire line of Beats headphones. Lamar, on the other hand, argues that the Royalty Agreement requires Beats to pay a royalty on the sale of every headphone whose design embodies or is a minor or cosmetic modification to the original headphones design."
We find that the contract is ambiguous as to whether it contemplated royalties only for the Studio headphone model or for other headphones that embody the headphones design depicted in Schedule I to the Royalty Agreement. The extrinsic evidence thus must be admitted to assist in the second step of contract interpretation. The factual conflict in the evidence regarding the meaning of the contract must be resolved by a jury.