Hotel giants Hilton Worldwide and Starwood Hotels and Resorts have agreed to settle a 2-year-old corporate espionage case that accused Hilton and its top executives of stealing Starwood secrets in order to create a lifestyle hotel brand.

In a federal court filing just before Christmas, Starwood and Hilton said they had agreed to a number of restrictions against Hilton, including a two-year ban on Hilton’s ability to launch  or acquire any lifestyle brand like the Denizen brand it had been creating. Starwood had accused Hilton of using former Starwood executives and confidential Starwood information in the development of Denizen.

Hilton declined to release monetary details of the settlement, but the New York Times reported it agreed to pay Starwood $75 million to settle the case.

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

“Hilton Worldwide is committed to fair, ethical and robust competition in the marketplace, and we will continue to focus on what we do best: providing exceptional services for all of our guests around the world.”

Although the civil case has been settled, it was unclear whether Hilton could still face criminal charges. Although federal prosecutors have declined to confirm or deny criminal probes, the U.S. Attorney’s Office in New York in March had asked for a six-month halt to the lawsuit, saying Starwood’s aggressive discovery process was threatening to undermine its investigation of the case.

Starwood sued Hilton in April 2009, accusing former executives Ross Klein and Amar Lalvani of stealing more than 100,000 electronic files before and after they left Starwood to join Hilton. At Starwood, Klein and Lalvani oversaw luxury and lifestyle brands, including the popular W brand.

The suit alleged that Klein and Lalvani used the information in the development of Denizen, which would have competed against W. Hilton put Denizen on hold after the lawsuit was filed.

In January, Starwood filed an amended complaint alleging that Nassetta and numerous other Hilton executives knew that Klein and Lalvani were using confidential Starwood information. It also claimed that Lalvani was acting as a corporate spy while he was still employed by Starwood.

According to a 13-page filing in federal district court in New York Dec. 22, Hilton also agreed to return all documents to Starwood.

Hilton is also banned for the next two years from hiring any Starwood employee to work on Hilton’s luxury and lifestyle brands, or from acquiring, operating or franchising any hotel that is currently a Starwood lifestyle-branded property.

A monitor will be appointed to oversee terms of the settlement.

Clarification: Hilton agreed to a two-year ban on launching a lifestyle brand. An earlier version of this report said that the ban was on developing a lifestyle brand; a Hilton spokesman said that the company is not prohibited from internal development.


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