Did Hilton Spy on Starwood Hotels?

Scott Reeves  Apr 22, 2009 3:50 pm

Did Hilton Spy on Starwood Hotels?
 
Cloak-and-dagger hijinks among the white-glove hotel set.
 

 
Hey, room service, where are those stolen documents?

In New York, the US Attorney's Office is looking into allegations that Hilton Hotels spied on Starwood Hotels & Resorts (HOT), pilfering proprietary information to launch its own luxury hotel chain.

Two former Starwood executives, Ross Klein and Amar Lalvani, allegedly swiped about 100,000 files and used them to help Hilton enter the lucrative “lifestyle” hotel market. Klein, the former head of Starwood’s W brand, allegedly took a job with Hilton last summer to set up Denizen, Hilton’s lifestyle division - without notifying Starwood of his defection.

Starwood claims that Denizen is a clear knockoff of its planned “zen den.” But denizen is also a noun meaning a resident or an inhabitant; a person who regularly frequents a place. Think of all the denizens of your local dive bar. Maybe Hilton is just being unbearably cute and clever with its new brand name - and Starwood may have to stretch to make this one stick.

Nevertheless, earlier this week, Hilton announced it had temporarily suspended its development of Denizen, apparently as a precautionary measure.

Hilton says a federal grand jury has subpoenaed documents related to Starwood's allegations; Hilton says it has placed the 2 employees in question on paid leave pending a review.

The US Attorney's Office for the Southern District of New York seeks records about the hiring of the 2 employees and details on materials Hilton returned to Starwood last February.

The action is being pursued under the Economic Espionage Act of 1996; though it sounds more than a little goofily grandiose, this is serious business. Prolonged legal wrangling could damage Hilton’s image and slow earnings - not something Blackstone Group (BX), which acquired Hilton about 2 years ago, wants to hear. Starwood needs to protect its proprietary information.

Does the idea of this kind of intellectual-property theft make sense to anyone outside the world of hotel management? Hotels, much like airlines, gas stations and fast food, are essentially alike in the various price ranges, and one’s generally as good as another.

But assuming the allegations have merit, are the folks at Hilton so lacking in imagination that they’ve got to send in the ninjas to steal from the competition? Couldn’t Hilton’s marketing folks just get sloshed on rye, muscatel -- or in a pinch, good old Night Train -- and come up with The Next Big Thing in the hotel biz?

(Here’s a thought: Force customers to sleep with the lights on, so they can appreciate your decorating prowess.)

The alleged caper sounds so ham-fisted that it could be turned into a bad sit-com - let's call it Purloined Towers. to air after Paris Hilton's The Simple Life.
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