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Starwood sues Hilton alleging corporate espionage, theft of trade secrets, and unfair competition

Written by editor

Starwood Hotels & Resorts Worldwide, Inc.

Starwood Hotels & Resorts Worldwide, Inc. announced today it has filed a lawsuit against Hilton Hotels Corporation and its senior executives Ross Klein, global head of Hilton Luxury & Lifestyle Brands, and Amar Lalvani, global head of Hilton Luxury & Lifestyle Brand Development, in the United States District Court for the Southern District of New York.

The lawsuit alleges that Klein, former President, Starwood Luxury Brands Group, and Lalvani, former Senior Vice President, Starwood Luxury Brands Group, aided and abetted by 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.

Klein and Lalvani were recruited to Hilton in June 2008 following its highly-leveraged US$20+ billion acquisition by Blackstone Group. The lawsuit alleges that Klein and Lalvani, directly and through other Starwood luxury brands employees they recruited to Hilton, stole more than 100,000 electronic files – truckloads of documents when printed – before and after they joined Hilton, in violation of both their contractual and fiduciary duties. The lawsuit also alleges that among the stolen materials was confidential information about Starwood’s W® hotel brand, which Hilton used in the development of its Denizen brand.

Kenneth Siegel, Starwood’s chief administrative officer and general counsel, said: “Starwood seeks to avoid litigation, but the egregiousness of the conduct and the volume of highly-confidential documents taken, left us no choice but to take this strong action to protect our brands and intellectual property for the benefit of our investors, associates, owners, and customers. The wholesale looting of proprietary Starwood information, including a step-by-step playbook for creating a lifestyle luxury hotel brand, unfairly enabled Hilton to launch a new brand in only nine months instead of the usual three to five years.”

Siegel continued: “Over the past 10 years, we’ve invested an enormous amount of time and tens of millions of dollars to create and develop our W® brand. The result of these efforts is a clear leadership position in the lifestyle luxury category with 29 W® hotels operating and more than 20 opening around the world in the next three years. As a market leader, we expect and welcome fair competition because it keeps us focused on innovation and delivering an ever-better experience to our consumers. This, however, is a blatant case of theft of trade secrets, computer fraud, and unfair competition.”

In November 2008, Starwood initiated arbitration with Klein over the non-solicitation provisions in his employment contract and separation agreement and put Hilton on notice to preserve relevant information. Three months later, and just days before Hilton announced the launch of its new lifestyle brand, Starwood received from Hilton eight large boxes of hard copy documents, as well as computer hard drives, zip drives, and thumb drives containing more than 100,000 electronic files downloaded from Starwood computers, much of it highly proprietary. It was at this point that Starwood first became aware of the theft.

In delivering this mountain of confidential material to Starwood, Hilton informed Starwood that Klein and “other Hilton employees who formerly worked for Starwood” had “brought to Hilton documents or materials that they developed or acquired while they worked for Starwood.” Hilton also told Starwood that former employees had additional Starwood materials “at home.”

The materials taken by Klein and Lalvani and others working in concert with them are among Starwood’s most competitively-sensitive information, including but not limited to:

– 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.

Starwood is seeking preliminary and permanent injunctive relief and compensatory and punitive damages from Hilton, Klein, and Lalvani. The lawsuit seeks a court order enjoining Hilton from using or benefiting from Starwood’s confidential information, requiring Hilton and the individual defendants immediately to return all Starwood confidential information and requiring Hilton and the individual defendants to certify the destruction of all materials derived in any way from Starwood confidential information, including plans for the promotion and roll-out of Hilton’s Denizen brand. Starwood is also requesting that Hilton be ordered to provide a detailed accounting of all revenues and expense savings derived from the use of the Starwood confidential information and other appropriate relief.