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Hilton and Starwood Settle Legal Dispute

December 23, 2010 By: David Eisen

A legal dispute rapt with corporate espionage and pitting two of the largest hotel operators has ended. Hilton Worldwide and Starwood Hotels & Resorts have settled a legal dispute stemming from April 2009 when the former president of Starwood’s luxury brands, Ross Klein, and colleague Amar Lalvani, bolted from Starwood to develop a new lifestyle brand for Hilton to be called Denizen. Starwood, in their case, accused Klein and Lalvani of stealing more than 100,000 proprietary documents that, they said, contained the blueprints for developing a lifestyle brand, similar to that of Starwood’s seminal W brand. They also accused Hilton executives of condoning the pilfering.

As part of the settlement, Hilton will pay $75 million to Starwood $75, which is entitled to another $75 million in management contracts, The New York Times reports. In addition, an injunction prohibits Hilton from unveiling any lifestyle brand for two years, forbids them from buying or franchising any Starwood lifestyle brand hotel that Starwood operates, and prevents them from hiring any Starwood employee for two years for its Hilton Luxury & Lifestyle Brands Group.

“Hilton Worldwide regrets the circumstances surrounding the dispute with Starwood Hotels & Resorts Worldwide and is pleased to bring an end to this prolonged litigation,” said a contrite Christopher Nassetta, Hilton's CEO, in a statement.

The settlement brings closure to an episode that felt more Hollywood than hotel. Among the claims: Starwood had been developing a concept called the “zen den.” The complaint noted that Hilton executives referred to the Denizen brand as a “den of zen."

The decision is a serious blow to Hilton, preventing them from joining in the lifestyle brand craze and competing with such brands as W and Marriott International’s new Edition brand. The outcome is also not positive for Blackstone Group, which shelled out $26 billion for the hotel chain in 2007, at the height of the market. 

“Given the facts, we had no choice but to stand up and protect our brands,” Frits van Paasschen, Starwood's CEO, said in a statement. “This settlement reinforces this protection and restores a level playing field for fair competition.”

Meanwhile, Klein, Lalvani and Hilton executives still potentially face criminal charges, though The New York Times reports that criminal charges against the hotel chain are not probable.

Still, while Lalvani sounds content to move on, Klein remains adamant about his innocence. “We continue to deny the allegations in the complaint, but we're glad this civil matter is behind him and will continue to act ethically and with integrity in the future,” Ronald J. Nessim, a lawyer for Klein, told The New York Times.


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About the Author

David Eisen
David Eisen is the managing editor of Hotel Management and Hotel Design. He has been covering the lodging industry for the past 7 years and, to paraphrase George Bernard Shaw,...

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By David Eisen | December 23, 2010
The settlement resulted in an injunction that restricts the company from developing its Denizen lifestyle chain of hotels. Hilton also had to pay Starwood a cash settlement as part of the deal.