A federal lawsuit filed this month by Starwood Hotels and Resorts Worldwide Inc. against a chief competitor and two former Starwood executives reveals a head-to-head battle for luxury-hotel brand dominance that allegedly involved corporate espionage and theft.
In a complaint filed in U.S. Southern District Court in White Plains, attorneys for Starwood, the international hospitality industry giant headquartered in White Plains, accused the former president and senior vice president of Starwood”™s Luxury Brands Group, Ross Klein and Amar Lalvani, of stealing more than 100,000 electronic and hard-copy files containing the company”™s “most competitively sensitive information.” The materials included information about Starwood”™s WÂ Hotels brand that allegedly was used by their new employer, Hilton Hotels Corp., to develop its Denizen hotel brand, an upscale rival to Starwood”™s luxury brands.
Starwood attorneys in their lawsuit called it “the clearest case imaginable of corporate espionage, theft of trade secrets, unfair competition and computer fraud” and said the sheer volume of materials taken “may be unprecedented.”
The company”™s general counsel, Kenneth Siegel, in a statement following the recent court filing, said the “wholesale looting” included a “step-by-step playbook” for creating a lifestyle luxury hotel brand and enabled Hilton to launch its Denizen brand in nine months instead of the usual three to five years at substantial cost savings.
Hilton Hotels Corp. has not yet responded in court to the complaint. A Hilton spokesperson last week said Klein, Lalvani and their luxury and lifestyle team have been placed on paid administrative leave pending the company”™s review of the situation. Further development of the Denizen Hotels brand has been temporarily suspended as a result of the lawsuit.
Klein and Lalvani in 2008 were recruited by Hilton and began work there as global head of luxury and lifestyle brands and global head of luxury and lifestyle brand development, respectively. Starwood in its complaint suggests the recruitment of Klein by Hilton President and CEO Christopher Nassetta and Klein”™s alleged theft of confidential information stemmed from pressure to deliver immediate results following the Blackstone Group”™s highly leveraged $20 billion acquisition of Hilton in 2007.
Klein, whom Starwood said fraudulently “extracted” a severance payment of more than $600,000 when he left the company, allegedly took home proprietary information that he loaded on his personal laptop computer or forwarded to a personal e-mail account for Hilton”™s use. Lalvani, who soon followed Klein to Hilton, also allegedly downloaded large quantities of confidential information for Hilton.
Starwood said Hilton Hotels and its new private-equity owner also recruited several other Starwood executives and managers, often through Klein and Lalvani, and urged them to bring with them more secret Starwood information in violation of their employment contracts with Starwood. That exodus of talent to its rival prompted Starwood last November to begin an arbitration proceeding against Klein for violating his agreement not to solicit employees from the company.
As part of the arbitration proceeding, Hilton in February turned over to Starwood eight boxes of computer drives and paper records containing proprietary Starwood files. Hilton informed its competitor that recruited employees had more Starwood materials at their homes.
Despite knowing of their thefts, Hilton continued to employ Klein and Lalvani as its brand leaders, Starwood attorneys said in the complaint. In meetings with owners and developers who are in contractual relationships with Starwood, Klein and Lalvani have represented Hilton while using Starwood”™s playbook. “Hilton has embraced and is continuing to seek benefit from the wrongdoing of Klein and Lalvani,” the complaint claims. Â
Starwood noted that Hilton”™s return of the allegedly stolen information came on almost the same day that it announced plans to launch a new brand. The upscale hotel brand, Denizen, was launched in March.
Â
Starwood attorneys said Hilton”™s new brand name “has a familiar ring within Starwood.” The returned files included confidential references to a W Hotel concept named a “zen den.” And Klein”™s public statement that Hilton”™s Denizen brand will use a “restro-lounge” concept followed Starwood”™s confidential plans, included in the returned files, for the launch of a “restro-lounge” concept in its W hotels, attorneys noted.
Starwood is seeking a court order to stop Hilton from using or benefiting from its rival”™s proprietary information and to destroy all material derived from that information, including documents related to the promotion and roll-out of Hilton”™s Denizen brand. That would force the hotel chain to start over in its brand development. Starwood also wants federal Judge Stephen C. Robinson to order all revenues and expenses saved by Hilton from the use of the allegedly pilfered information to be held for transfer to Starwood.
Starwood also seeks to have its corporate rival and Klein and Lalvani barred “for a reasonable time” from pursuing any hotel owners for hotel properties in locations identified in the confidential files as targeted for Starwood Luxury Brand Group properties. The defendants also would be temporarily barred from negotiating with any investors with whom Starwood currently has management contracts.
Starwood also seeks compensatory and punitive damages to be decided at trial.  Â
Siegel, who is also Starwood”™s chief administrative officer, said the “egregiousness of the conduct” and the volume of the alleged theft “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.”
He said Starwood has spent “tens of millions of dollars” to develop its W luxury hotel brand over the last 10 years.
Twenty-nine W hotels now operate and more than 20 will open around the world in the next three years, he said.
“As a marker leader, we expect and welcome fair competition because it keeps us focused on innovation and delivering an ever-better experience to our consumers,” Siegel said. The Hilton affair, however, “is a blatant case of theft of trade secrets, computer fraud and unfair competition.”
