Starwood Sues Hilton, Executives

Friendly competition in the hotel industry turned to war yesterday, as Starwood Hotels sued Hilton and several of its executives, alleging corporate espionage, theft of trade secrets and unfair competition. Starwood says Hilton used W’s trade secrets to fast-track the roll-out of its Denizen luxury lifestyle brand. The suit, filed in U.S. District Court in New York, names Hilton Hotels Corp. and two leaders of its Luxury & Lifestyle Brands Group: Ross Klein, global head of the group, and Amar Lalvani, head of development.

Before joining Hilton last June, both Klein and Lalvani held similar positions with Starwood and were involved in development of the W hotel brand. According to the suit, Klein and Lalvani, with the help of Hilton, “stole massive amounts of proprietary and highly confidential Starwood information which was used to expedite Hilton’s entry into the lifestyle hotel market, reposition its luxury brands and substantially reduce its costs and risks of doing so.” Starwood believes the duo, along with other former Starwood employees they recruited to Hilton, stole more than 100,000 electronic files—truckloads of paper if printed—that included information on the W brand that Hilton used to develop its Denizen brand, which it launched last month.

“The wholesale looting of proprietary Starwood information, including a step-by-step playbook for creating a lifestyle luxury brand, unfairly enabled Hilton to launch a new brand in only nine months instead of the usual three to five years,” said Kenneth Siegel, Starwood’s chief administrative officer and general counsel, in announcing the filing of the suit.

Among the items Starwood says Klein and Lalvani took with them to Hilton include:

• Forward-looking strategic development plans and confidential financial information on Starwood’s lifestyle and luxury brands;

• Proprietary current and prospective negotiation strategies with owners and non-public contact information for owners, developers and designers of its lifestyle and luxury brands;

• Step-by-step details on how to convert a hotel property to a lifestyle luxury hotel, including training materials, operational materials, marketing and promotional strategies, brand handbooks, proprietary design details and other signature elements; and

• Marketing and demographic studies for which Starwood paid substantial sums to third parties.

It seems as though Hilton, in part, tipped off Starwood to the alleged theft. Last November, Starwood initiated arbitration with Klein over his employment contract and separation agreement and asked Hilton to preserve any information relevant to the proceedings. In February, Starwood says it received from Hilton boxes of documents as well as computer hard drives, zip drives and thumb drives. Further, the suit alleges at that time Hilton said Klein and “other employees who formerly worked for Starwood” had “brought to Hilton documents or materials that they developed or acquired while they worked for Starwood.”

The suit seeks preliminary and permanent relief and compensatory and punitive damages from the defendants. It also asks that Hilton return all confidential Starwood materials it may still possess and destroy any materials it developed using the Starwood info. That includes intelligence Hilton used to create and promote the Denizen brand. Such relief could put the roll-out of the brand in jeopardy.

Hilton officials weren’t available to comment on the suit.

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