Security Briefing – 20 April 2009

Starwood Hotels & Resorts Worldwide has sued its major rival, Hilton Hotels, for what it claims is, “the clearest imaginable case of corporate espionage, theft of trade secrets, unfair competition and computer fraud”. Ross Klein and Amar Lalvani, both of whom left Starwood for Hilton in 2008, have been accused of stealing over 100,000 electronic and hard copy files containing ‘proprietary and highly confidential Starwood information’ in order to help Hilton expand its luxury hotel offerings.

Lawsuit puts launch of Denizen Hotel brand into doubt

The lawsuit alleges that Klein downloaded the confidential files onto a laptop computer using a personal email account. Starwood states that the information included a guide to creating a luxury concept, board presentations, development plans, training materials and market research studies. The stolen information allegedly helped to expedite Hilton’s entry to the lifestyle hotel market, reposition its luxury brands and reduce the costs and risks involved in the process.

Hilton unveiled the Denizen Hotels brand in March, with developments planned in Beverley Hills, California, Abu Dhabi and other cities worldwide, and it has been looking to expand its brand internationally, with a target of adding over 1,000 hotels outside of the US in the next decade. Kenneth Siegel, Starwood’s general counsel, stated that the theft of trade secrets had enabled Hilton to launch the Denizen brand in only nine months rather than the more usual three to five years. Starwood are seeking a court order that could prevent the launch of the Denizen chain.

In a separate dispute, Starwood began arbitration proceedings in November 2008 seeking to prevent Klein from recruiting Starwood employees. Since being bought by private equity company Blackstone in July 2007, Hilton has hired 10 managers and executives from Starwood. It was during investigations into the ‘poaching’ of these employees that Starwood discovered the alleged theft of trade secrets by Klein and Lalvani.

The global financial crisis has increased competition amongst hoteliers with declining occupancy rates and revenue. The Blackstone group is under intense pressure for improved profits after buying Hilton Hotels at a top-of-the-market price. Business travel makes up about 70 percent of Hilton’s revenues and, as such, the hotel chain has been hit by the decrease in corporate travel spending.

International Operations Group – Analysis

Cases of corporate espionage are set to increase during 2009 as economic pressures continue to build. In conjunction with our counter-surveillance partners, we have already seen a significant increase in the number of cases, where espionage has allegedly occurred. Almost every industry is susceptible. Our recent experience, however, relates to confirmed security incidents within the fashion, logistics, media and financial sectors, in the past two months alone.

One of the common shortfalls within the organisations we have consulted to, is a lack of sufficient security policies and procedures. We have seen lax access control and a somewhat lackadaisical approach to security in general. Companies must ensure that appropriate measures are taken to reduce the likelihood of information being stolen. This may include the enhancement of physical security policies and procedures, an increase in security camera coverage, stricter controls on the classification and management of critical information and various other measures, tailored to specific business environments. Organisations must ensure that these security enhancements are publicised internally, via security awareness programs. Regular counter-surveillance inspections should also be conducted, as a part of an enterprise-wide security program.

International Operations Group – Services

International Operations Group can assist in the detection and deterrence of acts of espionage. We offer an enhanced range of surveillance detection and technical surveillance countermeasure (TSCM) capabilities and use up-to-date technology equipment and processes to ascertain whether an organisation or individual is the target of surveillance or internal espionage. Our security consultants are experienced at operating in corporate, executive management and government environments across the globe.

Please email us at intel@interopsgroup.com or telephone us on +61 2 8003 3933 for additional information or confidential counter-espionage support.

For more information on our fee-based intelligence updates or bespoke reporting, please email Rob Stevenson - rob@interopsgroup.com. Rob can also be telephoned on +61 [0] 420 244 909.