Hilton Sued for Corp. Espionage

Highlights include Starwood Hotels & Resorts Worldwide (HOT), Blackstone Group (BX) and Marriott International (MAR).

Allegations of corporate espionage have hit the hotel industry, as Starwood Hotels & Resorts Worldwide (HOT) announced last night that it has filed a lawsuit against Hilton Hotels Corporation, a subsidiary of the Blackstone Group (BX).

The suit alleges that two former Starwood executives, who moved to Hilton in June of last year, stole more than 100,000 electronic files from Starwood, including proprietary and highly confidential information. Starwood has accused Hilton and the two executives of committing corporate espionage, stealing trade secrets and unfair competition.

Starwood claims that this information was used by Hilton reduce the time, the risk and the cost required by Hilton to enter the lifestyle hotel market, and to reposition its luxury brands.

Last month, Hilton announced the introduction of Denizen Hotels, a new lifestyle brand. Starwood claims that confidential information about its W brand was used by Hilton in the creation of its Denizen brand. Starwood states that this information allowed Hilton to create a new brand in only nine months, compared what it claims is the usual three to five years.

Starwood is seeking not only monetary damages, but a court order that would require Hilton to destroy all materials derived from Starwood’s confidential files, including plans for the promotion and roll out of the Denizen brand. This could potentially force Hilton to cancel the rollout of the new chain.

The hotel industry is in the midst of an extremely challenging operating environment. Operating metrics continue to deteriorate, and competition among the large companies in the industry, including Starwood, Hilton, and Marriott (MAR) is fierce.

We expect that this lawsuit will take quite a while before it is resolved, but a victory for Starwood could prove to be beneficial, especially once the operating environment improves. In the near-term, however, we do not expect that the news should materially move the stock.

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