Intellectual Property

Be Our Guest...

Hotel talk -- a safe fallback for whenever we need to actually speak to others.

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“So where are you staying?” The frequency with which we ask and are confronted by this question is informed in no small part by a general sense of interest in the hospitality industry that we all share. We love to share hotel horror stories, where rooms and service do not rise to the level of our expectations, just as much as we like to extol the virtues of our favorite hotel. Discussing hotels is often an easy conversation to have with business colleagues when small talk is in order. It is also a safe topic for those cagey snatches of polite conversation when forced to share space with opposing counsel for any period of time. Hotel talk — a safe fallback for whenever we need to actually speak to others.

As an IP lawyer, I was forced to confront the demands of travel very early in my career. Frequent travel is in some ways one of the defining characteristics of a productive career as an IP litigator. In fact, there are periods where an IP litigator can be compared to a traveling salesman, such as during deposition season in a case, where hitting three cities in a week is not an unheard of itinerary. With that volume of travel comes exposure to a variety of hotels, whose relative levels of comfort (or when lucky even luxury) are often defined by the budget of the client or the location of the action for which one is traveling. But whether work takes them to Dubuque or Dubai, any regular traveler soon appreciates just how competitive the hotel industry actually is.

With competition comes the temptation to take shortcuts. Especially where the competition is at its most cutthroat — which is pretty much everywhere in the hotel industry. Budget hotels compete fiercely for each and every price-sensitive customer, with offers of free breakfast and free HBO, just as much as corporate-travel mainstays like Westin and Hyatt compete for the loyalty of road warriors with club lounges and points programs. Likewise, some of the industry’s fiercest competition (as it is with law firms) is at the very pinnacle of the market, where super-luxury brands from Park Hyatt to the Four Seasons strive to capture market share at the expense of each other. Knowing full well that only a small slice of the population can afford entry through their doors, luxury hotels understand that satisfying the pickiest and most demanding of clientele is key to their survival. It is not surprising, therefore, to hear of a juicy corporate espionage story being told in a California court proceeding involving two of Los Angeles’ most prominent luxury hotels.

On one side of the dispute we have the Peninsula Beverly Hills, a five-star entrant in Forbes Travel Guide and one of LA’s grandest places to stay. (I remember attending a small-cap investor conference in West Hollywood one year, where it seemed like everyone who needed to let everyone else know where they were staying was letting slip that they were at the Peninsula.) There is real power to the Peninsula brand, reinforced by the company’s advertisements in magazines geared toward affluent consumers, ads that star smiling white-gloved bellhops and impeccably attired front desk staff. Across the globe, the fleet of green Rolls-Royces parked outside the iconic Peninsula Hong Kong stands eveready to shuffle guests to and from the airport. In short, Peninsula hotels are synonymous with luxury — and are priced to match.

On the other side of the dispute — which dates to 2017 and is scheduled for trial later this year — we have perhaps the hottest hotel star in the Beverly Hills firmament, the Waldorf Astoria Beverly Hills. Touted from its 2017 opening date as the “hotel to beat in LA,” the Waldorf is the huge Hilton chain’s flagship property (at least until the Waldorf NYC reopens after a long renovation) and a worthy competitor to LA’s longer-tenured luxury establishments. According to the Peninsula, however, the Waldorf’s immediate impact on the LA hotel scene was ill-gotten, as the Waldorf’s inexperienced management allegedly executed a scheme with a former Peninsula employee to use the Peninsula’s trade secrets as a way to get an immediate foothold in the super-competitive local luxury hotel market.

At the center of the dispute is the Peninsula’s “former diplomatic sales manager,” Houssem Tasco, whose job responsibilities included the all-important work of sourcing lucrative Middle Eastern clients who “routinely run up multimillion-dollar bills for their stays.” In the Peninsula’s latest filing — a proposed fourth amended complaint that lays out new details concerning the alleged theft of trade secrets by Tasco for his new employer the Waldorf’s benefit — Tasco is accused of harboring confidential Peninsula documents on his personal computer. Included in the information Tasco allegedly misappropriated are key details concerning the all-important Middle Eastern guests. As well as Tasco’s illicit taking and transmission to his new employer of the Peninsula’s operating manual. Much is made of the fact, as would be expected in the Peninsula’s proposed amended complaint, that the true scope of Tasco and the Waldorf’s malfeasance has only come to light during discovery. And that Tasco has been promoted twice during the pendency of the lawsuit.

In response, the Waldorf’s ownership has pointed to the Peninsula’s supposed penchant for trying to stifle competition using legal means. Publicly, at least, the case has developed into a bit of a mutual smear campaign, with both sides unafraid to characterize the other as the bad actor. While the marketing impact of a lawsuit like this should not be underestimated, particularly for an incumbent like the Peninsula hoping to reinforce its status as the standard-bearer in the local market, there is always the risk that a potential client finds the entire situation distasteful — and decides to take their business elsewhere.

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Ultimately, this case reinforces how trade secret disputes can escalate across a number of fronts. Discovery often reinforces the allegations of the plaintiff, while the passage of time allows defendants to argue that they are the victim of a bullying campaign rather than the perpetrators of a scheme to unfairly benefit from the confidential information of a competitor. For observers, these cases provide an interesting look at the measures competitors will take to get — or stay — ahead. Because hotels are welcoming places, just not for their competition.

Please feel free to send comments or questions to me at gkroub@kskiplaw.com or via Twitter: @gkroub. Any topic suggestions or thoughts are most welcome.

Gaston Kroub lives in Brooklyn and is a founding partner of Kroub, Silbersher & Kolmykov PLLC, an intellectual property litigation boutique, and Markman Advisors LLC, a leading consultancy on patent issues for the investment community. Gaston’s practice focuses on intellectual property litigation and related counseling, with a strong focus on patent matters. You can reach him at gkroub@kskiplaw.com or follow him on Twitter: @gkroub.

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