Starwood Sues Hilton Hotels for Alleged Industrial Espionage

[August Jackson]

All,

I read this article in today's Washington Post: Instead of Zen Dens, Starwood Builds an Espionage Case Against Hilton. Starwood's lawsuit alleges a systematic process of Starwood employees being recruited to join Hilton taking large volumes of strategically-important documents with them.

Putting aside the question of law for a moment, if what is alleged is true it's clear that this is an instance of questionable ethics. Hilton alleges that the documents they returned to Starwood are "not all that sensitive." Does the sensitivity of the information matter as a question of ethics?

Here are some excerpts that summarize the details of the alleged industrial espionage:

Earlier this year, Hilton Hotels shipped eight boxes to Starwood Hotels and Resorts. Companies don't typically send much mail to their competitors, and Starwood's general counsel discovered something odd in the boxes: thousands of Starwood documents and electronic files.

Lawyers from Hilton, which is moving to Tysons Corner from Beverly Hills this summer, included a letter saying they found the material in the homes and offices of star employees the firm had recruited from Starwood. The material, according to the letter, had been reviewed and didn't seem all that sensitive. Hilton was returning it "in an abundance of caution."

Starwood's attorneys did not agree. They hit Hilton with a 91-page lawsuit alleging "the clearest imaginable case of corporate espionage," saying that "the sheer volume of theft is extraordinary, and may be unprecedented." The files included Starwood's strategic development plans and materials for a boutique hotel using the words "zen den." Hilton allegedly drew from the material, apparently using a little wordplay, in developing a hip new boutique hotel called Denizen.

The lawsuit, filed in April, alleges that when [Hilton CEO Chris] Nassetta began the recruiting process, [then-Starwood employee Ross] Klein requested "large volumes of confidential information from Starwood employees, which he took home, had loaded on a personal laptop computer and/or forwarded to a personal e-mail account, and which he then took to and used at and for Hilton." The lawsuit also contends that Klein signed an employment agreement -- which he faxed to Hilton from Starwood's office -- but waited three days to tell his boss he was leaving, all the while requesting more documents.

"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 many years on development, thereby avoiding the inevitable and costly trial and error along the way," the lawsuit contends. "Instead, Hilton has been able to exploit the time and tens of millions of dollars that was invested by Starwood to create these materials."

What are the ethical behaviors related to employees coming from competition and contributing to the competitive intelligence of their new employer? Is brining over documentation completely out of the question? Is there a different standard for sales materials (such as brochures and pamphlets) versus work papers with or without confidentiality markings? How about debriefings of the new hires?

[Joseph di Candeloro]

Without knowing all of the specifics of the (somewhat weird) lawsuit cited above, I hesitate to comment on it. It certainly serves as an interesting illustration... No matter how broad or convoluted the legal definition of work product, a company must operate within that definition. Accepting as "intelligence" that which is as good as contraband should be clearly proscribed by company policies. But that is only the legal side of things, and one deals with a slippery issue indeed when the Ethics thereof are determined by Law, rather than the other way around. But that is the way it is, so I would say that transferring some of the responsibility is recommendable. Why not encourage the implementation of a Work Product Legal Questionaire for each new hire? "Can you define work product?", etc.

As for pure Ethics, well, this may sting a little. The Ethics of the marketplace are the Ethics of play and games. So the answer is simple. One must play by the rules, and what's more, one must assume that others, including one's competition, will do the same. The willful skirting of rules is common in any game, but too much of this, especially in big business, begins to take the form of soft gangsterism. What's fair play and what isn't must be determined by clear rules, not by simply knowing what one can get away with... Which means that sometimes the love of the game itself has to be greater than the love of winning.

[Tadeusz Lemańczyk]

Joseph, we never know ALL specifics of any lawsuit but we must always assess and decide. The question is therefore "Do we know ENOUGH specifics?"

By the way, your conclusion "Which means that sometimes the love of the game itself has to be greater than the love of winning" concerns all of us. Don't insist that the following JPG pasted to the web page Did Corporate Spying Doom Denizen Hotels? ( http://www.luxist.com/2009/04/23/did-corporate-spying-doom-denizen-... ) is indifferent to you. ;-)

Best,
Tad

[Vivek Raghuvanshi]

LOL, good one Mr Lemanczyk. Ha...ha...ha...

You have a way to put things across.

Hindsight:

The way to become rich is to put all your eggs in one basket and then watch the basket - Andrew Carnegie.