Hilton Hotels is seeking a negotiated settlement in its corporate espionage case with Starwood rather than seeing the legal spat battle between two of the industry’s fiercest competitors aired in public, thereby avoiding further humiliation of its botched entry into the lifestyle hotel sector.

Starwood alleges that two of its former executives, Ross Klein and Amar Lalvani, aided and abetted by Hilton, stole large amounts of proprietary and highly confidential Starwood information which were used to spearhead Hilton’s launch of its Denizen brand, and substantially reduce its costs and risks of doing so. Material included a step-by-step guide on how to create a lifestyle brand from scratch.

After the accusation broke, Hilton placed Klein, Lalvani and their entire luxury and lifestyle team on paid administrative leave of absence and suspended all further development of the Denizen Hotels brand.

The lawsuit alleges theft of trade secrets, computer fraud and unfair competition.

Starwood said in its complaint that it became aware of the alleged theft of its documents after Hilton voluntarily returned eight boxes of electronic and paper files to Starwood earlier this year, with a note saying it didn't believe the materials were sensitive or confidential.

But Starwood said it in its complaint that the matter amounted to "the clearest imaginable case of corporate espionage, theft of trade secrets, unfair competition and computer fraud."

Hilton hasn't opened any Denizen Hotels, but it was actively pursuing contracts and development deals and planned to open the first in 2010. It unveiled the Denizen concept in March in Berlin, where Hilton said active development talks were under way for hotels in cities including Abu Dhabi, Buenos Aires, Jerusalem, London, Miami, Mumbai and New York.