While bidding for the contract to build an electronics plant in the Communist country of Carnelia, Justin Hammer lost the bidding contract to Stark International. Hammer reacts in a personal manner with a vendetta against Tony Stark. Hammer plans to ruin Stark's reputation by defaming Iron Man. Hammer has his engineers build the hypersonic scan transmitter which is integral in his plans to ruin Stark. This device transmits a signal that could breach the refractory coating of Iron Man's armor and take control of the armor. Hammer tests the device three times before attempting to take full control.
While aboard SHIELD's Helicarrier, Iron Man is eavesdropping on a group of rogue SHIELD agents who hired the first Spymaster to assassinate Stark. The spotlight feature in Iron Man's chest beam spontaneously activates and illuminates the agents.
During an underwater fight with Namor, the plexiglass sealing plates in Iron Man's helmet opens which allows water to flood into the armor through his mouth and eye slits.
The jet booster on Iron Man's right boot jet fires up mid-flight, throwing him off balance and sending him through an office building (which is actually played out to be the Marvel Offices). Additionally, neither of his boots responds to his commands.
Hammer is satisfied with the test results of his transmitter and proceeds with his plan to use it on the day when Iron Man visits the UN Building. Iron Man performs a thorough diagnostics and systems check on his armor. The armor proves to be operating according to specifications and Iron Man dismisses the faulty actions of his armor as temporary malfunctions or glitches.
During this time, Stark becomes romantically involved with Bethany Cabe who is a bodyguard and security specialist. Despite having feelings for Stark, Cabe dislikes his bodyguard Iron Man. Unable to know that Stark is Iron Man, Cabe views Iron Man as a gloryhound for the media. When the Melter, the first Blizzard and Whiplash are robbing a casino in Atlantic City, Stark and Cabe are also present at this time. Stark is able to separate himself from Cabe and changes into Iron Man. After Iron Man defeats the trio of villains with Cabe's timely assistance, she criticizes him for fighting super-villains when he should be donig his job which is to protect Stark. This is the beginning of a rift in their relationship.
The signing ceremony for the contract between S.I. and Carnelia is held at the UN Building. The Carnelian ambassador requested that Iron Man be present at the event. Cabe is also present at the ceremony as the bodyguard for the Carnelian ambassador. Cabe displays her distaste with the armored Avenger by insulting Iron Man a few minutes prior to the ceremony. The Carnelian ambassador is a fan of Iron Man and one of the major reasons that Stark International was chosen to build the plant in Carnelia. However, during the signing ceremony, Hammer uses the hypersonic device to activate Iron Man's repulsor and blasts the ambassador, killing him.
The conflicts between Stark and Cabe worsen and they spend time apart as Stark attempts to clear Iron Man of murder charges. Stark is forced to surrender Iron Man's armor (but secretly keeps a spare for himself), and Stark begins his own investigation of who is taking control of his armor. After getting some combat training from Captain America, Stark agrees to let Scott Lang follow up a lead. When Iron Man and Bethany Cabe were attacked at the casino a few days back, one of the assailants, Whiplash, said that their employer's name was Hammer. Scott Lang as Ant-Man questions Whiplash at Riker's Island Prison for more information. Lang, as Ant-Man, coerces Whiplash into revealing that Hammer is in Monaco and Lang gave the location to Stark.
Later, Hammer gets Whiplash, the Melter and the Blizzard out of custody. Soon Stark and Jim Rhodes land in Monaco, then Stark is captured by Hammer's henchmen and brought to his headquarters via an amphibious craft. Stark learns that although Hammer is not as public a figure as Stark, Hammer's wealth and power is second only to that of Stark's influence. Stark International had been Hammer's business rival for a long time but the Carnelian contract was the most recent competition between the two. Stark also learns that losing the Carnelian contract to him was the main reason that Hammer discredited him.
Stark then tries to escape the complex, only to learn that it is a moving, floating, houseboat. Stark is put in a cell, but then he escapes again, destroys the transmitter and changes into his Iron Man armor. Hammer sends his minions after Iron Man, who dispatches them easily, and then Hammer attempts to escape to international waters by powering up jet powered lift pods on the bottom of his floating Villa.
Iron Man cracks the structure in half but Hammer is able to escape in another vehicle with the aid of the first Spymaster. Stark is able to prove Iron Man's innocence when he captures the scientist who created the hypersonic scan transmitter. As a result of Hammer's actions, though, Stark experiences psychological repercussions. Along with other issues that plagued Stark, he would soon be driven further into alcoholism. Stark engages in binge drinking and alienates those close to him such as Cabe and Edwin Jarvis. Stark eventually asks for help from Cabe and Jarvis and successfully recovers from this addiction when he admits to being an alcoholic.
Tony Stark falls off the wagon when he becomes the target of Obadiah Stane.