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NEW YORK CITY-Starwood on Thursday filed a corporate espionage lawsuit against Hilton Hotels Corp. and two former Starwood executives over trade secrets for Starwood’s W hotels. The suit, filed in US District Court for the Southern District in Manhattan, charges that the executives stole proprietary information which was then used to develop Hilton’s Denizen brand. Hilton says the suit has no merit.

Starwood’s lawsuit alleges that Ross Klein, global head of Hilton luxury and lifestyle brands, and Amar Lalvani, global head of Hilton lifestyle and luxury brand development, stole more than 100,000 electronic and hard-copy files from Starwood after Hilton recruited the two executives. Klein and Lalvani had been senior executives with Starwood’s luxury brands group before joining Hilton in June 2008, following the Blackstone Group’s $26-billion buyout of Hilton in October 2007.

The confidential files thus passed along to Hilton–which included strategic development plans, term sheets and playbooks on converting a standard hotel into a luxury property–were used to accelerate its entry into the lifestyle hotel market, the Starwood complaint alleges. “This brand-in-a-box information provides Hilton with the means to bring a competitive hotel chain to market expeditiously and without expending tens of millions of dollars and years of development, thereby avoiding the inevitable and costly trial and error along the way,” according to the complaint.

Starwood first became aware of the alleged theft in February, following its initiation last November of arbitration proceedings with Klein over alleged violations of the non-solicitation provisions in his employment contract and separation agreement. At that time, Starwood requested relevant information from Hilton, which in February delivered eight boxes of hard copy documents as well as computer hard drives, zip drives and thumb drives with files that had been downloaded from Starwood computers.

Hilton informed Starwood that Klein and “other Hilton employees who formerly worked for Starwood” had “brought to Hilton documents or materials that they developed or acquired while they worked for Starwood,” the complaint states. Hilton also told Starwood that former employees had additional Starwood materials “at home.” A few days later, according to the complaint, Hilton announced the launch of Denizen.

In the complaint, Starwood says it’s seeking “preliminary and permanent injunctive relief and compensatory and punitive damages” from Hilton, Klein and Lalvani, including a court order enjoining Hilton from using or benefiting from Starwood’s confidential information, and says it wants the case to be heard by a jury. A Hilton spokeswoman tells GlobeSt.com, “Hilton Hotels Corp. believes this lawsuit is without merit and will vigorously defend itself. We fully intend to move forward on the development of our newest brand, Denizen Hotels.”

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