• Settlement delays Hilton’s lifestyle aspirations

The settlement of the corporate espionage dispute between Hilton Worldwide and Starwood Hotels & Resorts has bought to an end almost two years of litigation, which means that the Denizen Hotels brand will make it no further than its launch party at IHIF in Berlin in March 2009.

The agreement is also thought to put on hold Hilton's ambitions towards the luxury lifestyle market for two years, at a time when the segment is attracting plenty of development cash and W, Starwood's brand in that space, is expanding.

 

The dispute escalated in the period between early 2009 and the settlement at the end of last year. Starwood initially sued Hilton and executives Amar Lalvani and Ross Klein, alleging that they had stolen documents relating to its W brand, containing "competitively sensitive information" to create Denizen. Starwood later upped the ante to allege that the misconduct reached to the top of the Hilton corporate hierarchy.

Details of the terms under which the lawsuit was been bought to a close are to remain confidential, with only the consent by Hilton Worldwide to an injunction "that includes certain business restrictions for a period of two years" being made known. However, leaks and speculation have been rife.

Key to Hilton's expansion plans and ability to compete with W, it is believed that the company must be supervised by two federally-appointed monitors to ensure conduct such as the alleged use of Starwood's documents does not occur again, and to ensure that all Starwood documentation is removed from Hilton. What form this supervision will take is unclear, although having monitors involved in the business is likely to add a layer of delay to the group's workings.

It is also reported that Hilton agreed to pay $75m to Starwood, with the company also said to be entitled to a further $75m in hotel management contracts although what this means in reality was not made clear in the Bloomberg report. There are additional comments in the press that the agreement forbids Hilton from buying or franchising any Starwood lifestyle brand hotel that Starwood operates and prevents Hilton from hiring any Starwood employee for its luxury and lifestyle brands group for the duration of the two-year period.

Denizen would have filled a gap in the Hilton's brand stable. At the time of its launch Chris Nassetta, president and CEO, said that the flag "rounds out our luxury and lifestyle portfolio". Hilton was thought to have around 20 hotels in development under the brand, with the Trafalgar in London expected to be the first to open. The hotel has since been refurbished and opened as an unbranded Hilton property, very much in the luxury lifestyle vein.

Nassetta responded to the announcement of the settlement with Starwood, saying that the company "regrets the circumstances surrounding the dispute … and is pleased to bring an end to this prolonged litigation.

He added: "Hilton Worldwide is committed to fair, ethical and robust competition in the marketplace, and we will continue to focus on what we do best – providing exceptional services for all of our guests around the world."

In a statement Frits van Paasschen, president and CEO of Starwood said: "Given the facts, we had no choice but to stand up and protect our brands on behalf of our investors, associates, owners and customers", adding that the settlement "restores a level playing field for fair competition".

According to reports, a court filing deposited in the southern district of New York has said that a federal grand jury would continue looking into whether Hilton and its former executives should face criminal charges.

The Wall Street Journal reported that Hilton has received indication that prosecutors do not intend to file charges against the company. There was, however, no word on where this left former executives Klein (Hilton's global head of luxury, now chief brand officer and executive VP of Harry & David Holdings, the speciality food and gift retailer) and Lalvani (Hilton's global head of luxury and lifestyle brand development, now founder of One Day Partners, a travel consultancy) or indeed Steve Goldman (Hilton's head of global development, now CEO of Groupe du Louvre).

In a statement, Klein's lawyer Ronald Nessim told Hotel Check-In: "Although Mr. Klein continues to deny the allegations against him in Starwood's Complaint, he is pleased that this litigation has been resolved. Mr. Klein remains committed to acting ethically and with integrity in all his endeavors."

Christopher Morvillo, Lalvani's lawyer, said: "Amar is very pleased that this matter has been amicably resolved and looks forward to focusing his attention, energy and considerable talents on more productive and constructive endeavors."

 

HA Perspective: After close to two years of every detail of the conflict between the two companies appearing in the press, right down to emails between Klein and Lalvani, in contrast the complete terms of the settlement are being kept strictly between the parties involved, indicating a desire to move on from what has been an uncharacteristically-unpleasant episode for the industry.

There can be little doubt that, once the two years are up, Hilton will look to compete with W and the close scrutiny that the new brand will come under should ensure that it will seek to make it truly unique and extraordinary, something for the sector to look forward to.

While on the one hand, the settlement means one less brand for the hotel sector (at least for now), it also means that somewhere in those documents must be something that the market has been crying out for – a precise, legal definition of a luxury lifestyle hotel.

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