Hilton, Starwood settle corporate espionage lawsuit on trade secrets

Washington Post Staff Writers
Wednesday, December 22, 2010; 9:26 PM

Anyone looking forward to courtroom testimony in a corporate espionage lawsuit against Hilton Worldwide is in for disappointment.

The Mclean-based hotel giant has settled a lawsuit in which rival Starwood Hotels & Resorts accused Hilton of using stolen trade secrets to launch a niche brand called Denizen Hotels and advance other Hilton lines such as its Waldorf Astoria Collection.

The settlement, disclosed in a federal court filing Wednesday, calls for the appointment of an independent monitor to make sure Hilton doesn't take advantage of the documents allegedly purloined from Starwood.

For just over two years, the settlement also prohibits Hilton from creating any hotel brand that would compete "in the lifestyle hotel or branded boutique space."

There was more to the settlement, but some terms were kept confidential, Hilton said.

"Hilton Worldwide regrets the circumstances surrounding the dispute . . . and is pleased to bring an end to this prolonged litigation," Hilton chief executive Christopher J. Nassetta said in a news release. Under the settlement, Hilton denied Starwood's allegations.

The Justice Department previously revealed that it was conducting a criminal probe, and the document filed in court Wednesday said a grand jury is still investigating.

Starwood operates hotels under brand names that include St. Regis, W Hotels, Westin, and Sheraton. The company's lawsuit, filed in U.S. District Court for the Southern District of New York, alleged a far-reaching effort by Hilton to exploit internal Starwood documents obtained when Hilton hired executives away from Starwood.

Hilton's "senior management personally induced and used Starwood employees to serve as corporate spies . . . to provide Hilton with real-time information about Starwood's confidential development plans," the lawsuit said.

The litigation began after Hilton informed Starwood in February 2009 that it had found confidential Starwood information at Hilton and in the homes of Hilton employees. Hilton turned over to Starwood thousands of Starwood documents and computer files.

Starwood alleged that Nassetta was told of the theft months earlier and that, in November 2008, an executive whistleblower within Hilton sent Nassetta a letter describing the wrongdoing.

Hilton introduced its Denizen brand in March 2009, and Starwood alleged the concept was developed using Starwood's internal documents.

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