Starwood sues Hilton over Denizen; Denizen project temporarily suspended

[KeithMEL]

http://online.wsj.com/article/SB123992288290027113.html

Starwood Hotels & Resorts Worldwide Inc. sued Hilton Hotels Corp. late Thursday, accusing its rival of using stolen confidential Starwood documents to develop a new luxury hotel chain.

The lawsuit, filed in federal district court in White Plains, N.Y., alleges that Ross Klein and Amar Lalvani, two former Starwood executives who joined Hilton last summer, stole more than 100,000 electronic and paper documents containing "Starwood's most competitively sensitive information."

"This is the clearest imaginable case of corporate espionage, theft of trade secrets, unfair competition and computer fraud," the complaint alleges.

In addition to monetary damages, Starwood is seeking a court order that could, in effect, force Hilton to cancel the rollout of the Denizen Hotels chain, which it unveiled last month.

...

Messrs. Klein and Lalvani, who were named as defendants in the lawsuit, were president and senior vice president, respectively, of Starwood's luxury-brand group, which includes the company's highly successful W Hotels chain. Both men allegedly played key roles in expanding and managing the brand's image.

According to Starwood's complaint, Hilton began courting the Starwood executives in February and March of 2008. It was at that time, the suit alleges, that Mr. Klein "secretly misused his position" at Starwood to compile and steal confidential information.

The complaint alleges that in their last months at Starwood, the two executives smuggled out thousands of confidential documents via email and in direct shipments from Starwood to their homes and to Hilton.

http://online.wsj.com/article/SB124032641110939349.html

Federal authorities in New York are investigating allegations that Hilton Hotels Corp. used information taken from rival Starwood Hotels & Resorts Worldwide Inc. to create a new luxury-hotel brand.


Hilton said Tuesday it is temporarily suspending development of its Denizen Hotels, the brand at the center of the controversy, as a precautionary move.


The Beverly Hills, Calif., company said it received a federal grand-jury subpoena Monday from the U.S. attorney's office for the Southern District of New York asking for documents relating to Hilton's employment of former Starwood employees.


...


In addition to suspending the Denizen project, Hilton said Tuesday it has placed the two high-ranking employees named in Starwood's lawsuit, Ross Klein and Amar Lalvani, on paid administrative leave "pending Hilton's review of the situation."


The two men, who joined Hilton last summer, were executives in Starwood's luxury group, which includes the company's highly successful W Hotels brand. Neither Messrs. Klein nor Lalvani could be reached for comment.


Hilton also placed on paid administrative leave its luxury-hotel development team, which includes several former Starwood employees.

I remember thinking 'Wow this is so W.' when I first read promo stuff from Denizen. I mean, both Andaz and Edition, developed by Hyatt and Marriott respectively, seems to have v different feels to them despite having similar concepts to the W. Denizen seems to have an identical flair. Was tempted to stay at Denizen when it opens even but in light of this - maybe not.

[Gunnar Smithsen]

Here's something I came across in my world wide web travels

It will be interesting to see the developments in this case

[phaleesy]

I know absolutely nothing about intellectual property, so I am talking gibberish as usual.

Would it still be theft IF the ideas and concepts were developed by the two individuals in the first place?

I am asking because I tend to transfer the 'tools' which I developed or improved on from previous work places, and implementing them in the next place I work in. Am I 'stealing'?

[Lobster]

I know absolutely nothing about intellectual property, so I am talking gibberish as usual.

Would it still be theft IF the ideas and concepts were developed by the two individuals in the first place?

I am asking because I tend to transfer the 'tools' which I developed or improved on from previous work places, and implementing them in the next place I work in. Am I 'stealing'?

If their contract states that the intellectual property rights remain with the company which it almost certainly would then this is theft even if they wrote it. However it is unlikely in your case that you are committing theft. The restrictions stop you taking documents that you have written and also if you have developed something which is copywritten or patented then you can not take it with you. Otherwise the whole job market is basically based on people taking what they have learnt in one employer and using it in the next.

[trekkie]

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[HUGE AL]

...so I am talking gibberish as usual.

AGAIN?!

[taipeiflyer]

the most clear example i can think of is university research. when i submit the research paper and do the presentation, it automatically becomes property of the university and royalty fees paid for in dept materials used externally is earned by the university.

what spg is alleging is that their 2 former employees probably used blueprints that were conceptualised and used for future properties. something similar to 2 former citibank employees who mined citibank(singapore) database and transferred them to ubs database recently.

Problem is that such lawsuits often run into millions and long drawn. Considering that the starwood group lost 4.7% in management revenue last quarter and now they want to spend additional amounts to fight it in court, you have to wonder where is the money coming from. Most hospitality groups are experiencing drop in revenue due to drop in business travel.

So either that the group has a lot of money to waste or they intend to raise additional revenue from cutting customer benefits.

So if you want your spg suite upgrade and lounge access still, maybe you may wish to send a firm complaint letter to one of the lurkers to tell them to stop their nonsense.

i cannot believe your opinion! if the allegations are true, this is STEALING, plain and simple. SPG should pursue this case vigorously and with all available resources. failure to do so would seemingly show indifference to theft. if they do not pursue this case, all of their top executives will be plucked by other hotel groups at top dollar, because the other hotel group will want access to spg developmental plans and trade secrets, which would create even greater losses in revenue for SPG. think things through a little.

[trekkie]

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[Gunnar Smithsen]

If their contract states that the intellectual property rights remain with the company

I believe this is the million dollar question, and until such time as this point is confirmed the speculation mill will generate more than enough power to run a small african nation.

It will then come down to the exact wordings of the said contracts - and I'm sure Hilton have engaged the services of sufficient counsel to argue that there's a loophole somewhere in these contracts.

[taipeiflyer]

I believe this is the million dollar question, and until such time as this point is confirmed the speculation mill will generate more than enough power to run a small african nation.

It will then come down to the exact wordings of the said contracts - and I'm sure Hilton have engaged the services of sufficient counsel to argue that there's a loophole somewhere in these contracts.

as someone who has an emphasis in corporate law, i have never come across a company that permits its employees (especially executives) to retain documents after that employee has left the company, let alone make them available to a direct competitor. such an act is corporate espionage.

[taipeiflyer]

they have already done so by their press releases but if they continue to pursue the litigation, there is reputational loss, litigation fees and arbitration fees and research and other costs which may far exceed any remedy they may get. Its a lot easier to improve their internal procedures and work on new models. If its theft, the group have to decide whether its worth to pursue it. In this case no, as the loss is based on projected numbers only.

If you read their last earnings release statement, they acknowledged they lost 4.7% in management revenue which is their "bread and butter". the group also announced plans to improve management revenue.

If they are spending millions on this case alone and continue to lose management revenue from operations (which is likely), the only way they can report a profit is if they cut out costs like member benefits.

And i remind you that spg is the only programme that offers suite upgrades to their platinum members. The other being IC royal ambassador which is a pay-for-benefit programme.

I am speaking from a customer view and what you are saying is that the company should protect its rights at all costs but in doing so, it only makes customers like myself suffer.

Are you sure i'm not thinking carefully?

looking at things from strictly a customer view is an exceptionally selfish way to look at the situation, not to mention a narrow view. this is not even a case so much of monetary damages... this is a prime example of another company being estopped from duplicating a successful business model, without any sort of acknowledgement, financial or otherwise, to the rightful owners of that business model. the financial losses that could mature from allowing hilton to go forward with "new W" would be more far-reaching. many, many companies are posting losses- SPG is no different- but as with all things, the economy will recover. however, losing a loyal customer base to a rival is something that often times is permanent. if SPG permits hilton to just go forward without any legal redress, and those losses are realized, the impact on the loyalty program will be much more substantial. SPG needs to be firm and vigorous in its legal strategy.

[Kyo]

Have to agree with taipeiflyer on this one. A corporate entity should take the necessary measures to defend and protect its branding and IP (even ones that are not commercially marketed yet or in the developmental stages) or risk losing claim/ownership over such brand/IP.

In a not-entirely similar case, but I think with similar principles (hey, I'm not a legal expert in the hospitality industry) there was a case I read somewhere on Engadget (believe written by someone in the legal industry) stating the example of Apple, should it decide not to pursue with litigation on other companies 'copying' the iPod (even the name), would compromise its position to lay claim to its brand/IP later on.

Having said that, with ALL the experience Hilton has running all sorts of hotel properties, you'd expect them to have somebody in the organisation who would try to think out of the box once in awhile and have the expertise to implement the 'boutique hotel' strategy without having to just poach employees externally.

I find an inherent problem with such massive organisations, including the one from which this board draws its namesake, is that creativity and individualistic/breakaway ideas tend to be hammered down in the name of conformity - the corporate inertia is simply too much of a weight, compromising the agility and autonomy necessary to encourage or foster the needed creativity to challenge and engage the situation.

Well done to Hyatt and Edition for giving it a go, by themselves, though. I reckon that's what Hilton should've done - their own thing with their own twist.

[Lobster]

they have already done so by their press releases but if they continue to pursue the litigation, there is reputational loss, litigation fees and arbitration fees and research and other costs which may far exceed any remedy they may get.

There is a basic formula which shows how much risk there is of someone committing fraud. How much money can they get away with + how difficult is it to steal + what are consequences likely to be if they are caught.

Fraud is a mjor cost for companies they therefore work on all three elements of the equation. By taking this case to court they are not trying to just recover what they might have lost in this case but also trying to put off other fraudsters becasue they will see that there are consequences if they are caught.

[HUGE AL]

If its theft, the group have to decide whether its worth to pursue it. In this case no, as the loss is based on projected numbers only.

Are you sure i'm not thinking carefully?

With these statements, you definitely are not. Do you not think that SPG has the money and army of attorneys to weigh the risks here?

Perhaps you represent SPG (NOT JOKE [credit: Borat]) with your summation statement.

[trekkie]

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