January 15, 2010 / 4:02 PM / 10 years ago

UPDATE 3-Starwood accuses Hilton execs of stealing secrets

 * Starwood: 44 executives knew of trade secret theft
 * Asks for monitors to ensure Hilton compliance
 * Hilton declines to comment  (Adds link to complaint)
 By Deepa Seetharaman
 NEW YORK, Jan 15 (Reuters) - Starwood Hotels & Resorts Worldwide Inc HOT.N accused 44 Hilton Worldwide executives of stealing trade secrets, escalating a battle of alleged corporate spying between the hoteliers.
 In an amended complaint in Manhattan federal court, Starwood said Hilton Chief Executive Christopher Nassetta knew that two Hilton employees were sifting confidential information from Starwood and using it to create a new hotel chain.
 The amended complaint is the latest twist in the lawsuit between Starwood and Hilton. Starwood first sued Hilton in April, saying two of the company's executives, Ross Klein and Amar Lalvani, developed a new group of hotels for Hilton called Denizen, using a confidential formula crafted by Starwood.
 Before shifting to Hilton, both Klein and Lalvani were employees of Starwood, where they were in charge of efforts to expand and develop Starwood's luxury brands, including its popular W hotel chain.
 Attorneys for both Klein and Lalvani said the lawsuit has no merit.
 Nassetta has not been named a defendant in the case, but Starwood said in court papers filed on Thursday that he did not voice any objections to the use of confidential information.
 "At least 44 Hilton executives were personally involved in or aware of and condoned Hilton's wrongdoing," including five on its executive committee, Starwood said.
 Starwood wants the court to appoint monitors to ensure Hilton complies with any injunctions the court has granted and may grant in the future. Not only that, it wants the court to prevent Hilton from expanding its luxury and lifestyle brands, including its Waldorf Astoria hotels, for a "reasonable time."
 "The Hilton luxury and lifestyle brands ... are all infected by Hilton's wrongful use of Starwood confidential information," Starwood said in the complaint. "Hilton knows this."
 Hilton spokesman Aaron Radelet declined to comment. Hilton is the world's fourth-largest hotel chain by number of rooms. Starwood ranks eighth.
 To read Starwood's complaint, please click on the following link: here
 EXPANDING ALLEGATIONS
 In the original lawsuit, Starwood accused Hilton and two former executives of stealing trade secrets to speed Hilton's foray into the lifestyle hotel market with a new brand, Denizen. [ID:nN16293349]
 Hilton said at the time the lawsuit had no merit. Klein and Lalvani have since left Hilton and the development of the Denizen hotel chain has been halted.
 "Starwood's complaint paints an exaggerated, misleading and false picture of what really happened," said Ronald Nessim, an attorney for Klein. "While mistakes were made by everyone involved, including himself, Starwood and Hilton, Ross Klein acted in good faith and with no intent to injure Starwood."
 Christopher Morvillo, an attorney for Lalvani, said: "Starwood's amended complaint, like the one before it, contains numerous misleading statements and mischaracterizations of fact."
 The lawsuit sheds light on the highly competitive nature of the U.S. hotel industry and the growing importance of the so-called lifestyle brands to the future growth of hotel companies.
 The introduction of Starwood's "W" hotel in 1998 unveiled the voracious appetite of travelers for trendy hotels with chic designs and a crowded bar. Major hotel operators have been clamoring to gain a foothold in this market, which can command a higher room rate.
 "You might say (Starwood) invented the lifestyle brand," said Janet Brashear, an analyst with Bernstein Research. "It's their core competitive position. They've got to defend it."
 Starwood now claims that Hilton's head of global development, Steven Goldman, also knew of the alleged theft.
 "The status of every deal in Starwood's pipeline was contained in deal log reports that Lalvani e-mailed to his personal e-mail account after he was recruited by Goldman, but prior to his leaving Starwood," the complaint said.
 A representative for Goldman could not be immediately reached.
 Starwood said Nassetta could be under pressure to deliver solid results after private equity firm Blackstone Group LP (BX.N) bought Hilton for $26 billion in 2007.
 Nassetta was previously chief executive of real estate investment trust Host Hotels & Resorts Inc (HST.N).
 "Intense pressure -- whether from Blackstone or otherwise -- is no excuse for corporate espionage and it is no excuse for the massive theft and wide-scale use of confidential and proprietary Starwood information," Starwood said.
 Blackstone declined comment.
 The case is Starwood Hotels & Resorts Worldwide Inc v. Hilton Hotels Corp et al, U.S. District Court, Southern District of New York, No. 09-3862.  (Reporting by Santosh Nadgir in Bangalore and Deepa Seetharaman in New York; Additional reporting by Megan Davies in New York; editing by Derek Caney, Robert MacMillan and Andre Grenon)   

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