Hilton Worldwide Inc. will be banned for two years from creating a luxury "lifestyle" hotel chain under an agreement to settle a corporate-espionage lawsuit.
The settlement stems from a suit filed last year by rival Starwood Hotels & Resorts Worldwide, which accused Hilton officials of stealing confidential Starwood documents to develop a new boutique-style chain that would appeal to modern tastes.
Terms of the settlement continue a court order that Hilton cease development of its Denizen lifestyle chain. Now, Hilton can never develop its Denizen lifestyle brand and can't start developing a similar brand for two years. Hilton also must allow a court-appointed monitor to review its marketing and branding materials to make sure they don't benefit from the information obtained from Starwood documents.
The deal also includes an unspecified payment to Starwood, according to the court documents.
The dispute between the two chains shocked the hotel world. Starwood is known for brands such as Sheraton, W and Westin. Hilton is a storied chain with a 90-year history and is now owned by private-equity investors Blackstone Group LP, which purchased the company for $26 billion in 2007.
The allegations had placed a cloud over Hilton, observers said, and taken up considerable time from Chief Executive Chris Nasetta and other managers. "It's important to put this type of situation behind them," said Bjorn Hanson, dean of New York University's Tisch Center for Hospitality, Tourism and Sports Management.
The lawsuit alleged that Ross Klein and Amar Lalvani, two former Starwood executives who had joined Hilton, took more than 100,000 documents to recreate the success of Starwood's W Hotel. Neither man could be reached for comment; both left Hilton after the suit was filed. Starwood said it discovered Hilton had the documents only after Hilton return them to Starwood. Hilton officials said they returned the documents out of "an abundance of caution.
Hilton's delay in developing a lifestyle hotel came at a convenient time given that new hotel construction is at its lowest level in years. In the future, the two-year delay could become a problem as the industry emerges from the recession, industry observers said Wednesday. It leaves a hole in Hilton's marketing to younger travelers seeking a high dollar hotel option.
Hilton's Mr. Nasetta said in a statement Wednesday that the company is "committed to fair, ethical and robust competition in the marketplace." The hotel chain "regrets the circumstances surrounding the dispute with Starwood Hotels & Resorts Worldwide and is pleased to bring an end to this prolonged litigation," his statement continued.
The settlement specifies that a criminal complaint from the U.S. attorney for Manhattan continues. A person close to the matter said Hilton has received indication from the U.S. attorney that it does not intend to file charges, although the company continues to cooperate with the investigation.
A spokeswoman for the Department of Justice declined to comment.
Source : WSJ
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