On April 16, Starwood filed a lawsuit against Hilton, Klein, global head of Hilton luxury and lifestyle brands, and Lalvani, global head of Hilton luxury and lifestyle brand development, alleging that the parties participated in corporate espionage, theft of trade secrets and unfair competition. Both Klein and Lalvani are former Starwood employees instrumental in the development of Starwood's W brand, its upscale boutique chain. The suit charges that both executives, aided 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."
Hilton subsequently halted development of its Denizen brand and placed Klein and Lalvani on paid administrative leave. The company also acknowledged receipt of a federal grand jury subpoena and stated it had returned materials to Starwood in February.All parties agreed to the injunction on April 24, which is in effect for 90 days. The action prohibits Hilton, Klein and Lalvani from further developing the Denizen brand; entering into discussions with prospective owners, developers and/or franchisees regarding Denizen; and using, directly or indirectly, any documents or information obtained from Starwood. Hilton was also ordered to return any Starwood information in its control and Klein and Lalvani were mandated to preserve or provide to their counsel all Starwood data in their possession. Further action in the suit was stayed pending further court order.A spokesperson for Hilton declined to further comment on pending litigation. Request for comment from Starwood were not returned by press time.
But beyond the drama of two of the biggest names in the lodging industry slugging it out in court, the suit may have some long-lasting implications for the business.Mitch Miller, principal of Miller Law Group PC in Palo Alto, CA and an expert on lodging legal issues, declines to the comment on the specifics of the Hilton/Starwood case. However, he says the suit demonstrates the importance of intellectual property in the lodging business, particularly as it pertains to branding.
"Over the past 15 years, intellectual property has become evermore important and protected in our industry," he states. "While the party line from the brands and the big hotel companies is that it's no big deal. The reality is that all of their contracts have been more assertive and expressed in their attempts to protect intellectual property."
Yet the threshold question, Miller says, revolves around whether the data companies may seek to protect is truly confidential proprietary information, and if so, what damages can an aggrieved party obtain. "Where does the generic end and the proprietary begin?" Miller asks. "These are fact-finding questions in a courtroom on the issues of intellectual property."
As for the future of the Denizen brand, Millers suggests that Hilton may have halted development of the brand because of the general economic climate and not the lawsuit. But David Loeb, senior research analyst and managing director at Robert W. Baird & Co. Inc. in Milwaukee, disagrees. "There are conflicts between companies in the same industry all the time, but it's unusual to see them go public and get to the point of lawsuits," he says. "Starwood clearly wanted to slow down Hilton as a competitor in the space that Starwood has carved out for themselves with the luxury-tier lifestyle brand and that was part of what was motivating them."
Loeb, however, holds out a degree of hope that the brand can be launched at some point in the future. "I would be surprised if Hilton was able to move ahead with Denizen in the near term," he says. "That doesn't mean that Hilton won't eventually with the right people develop a new brand that competes in this space. I think it's going to be hard with these people to actually develop that brand."
Loeb further maintains now may not be the right time to launch a luxury boutique concept, given the general economic climate that has cut into discretionary consumer spending as well as corporate travel budgets. "I don't think it favors lifestyle luxury," he says. "Everybody wants to be in that space, and it's going to be a very crowded sector with somewhat diminished demand going forward."
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