Brand Rights and Hotel Management Agreements

Abstract

In this article, the authors consider the managerial implications of a recent lawsuit, P. T. Karang Mas Sejahtera v. The Ritz-Carlton Hotel Company, LLC, in which a jury found for the plaintiff, the owner of the Ritz-Carlton Bali Resort and Spa, against the defendant, The Ritz-Carlton Hotel Company, LLC. Ritz-Carlton’s parent company, Marriott International, had previously formed a partnership with Bulgari S.p.A., the Italian luxury jewelry and accessories firm, to create Bulgari Hotels and Resorts, a new ultraexclusive line of luxury hotels. The first two Bulgari properties opened in Milan and Bali. Soon after the Bali project was announced, P. T. Karang Mas Sejahtera (KMS) sued Ritz-Carlton for breach of agreement. The authors show that this and other recent court decisions situate hotel management agreements squarely under agency law. Within the framework of agency law, an agent owes specific fiduciary duties to a principal that supersede contractual terms and a principal has a nearly absolute right to terminate such a agreement. In the Bali case, the violated duties included a duty not to compete with or assist the competitors of a property being managed under agreements within that property’s competitive market set. The authors argue that, as a consequence of these legal decisions, issues pertaining to brand rights and management agreements have been clarified. In this article, the authors outline these brand rights issues, review these precedent-setting legal cases, explain why Ritz-Carlton lost the suit to KMS, and draw several lessons pertaining to hotel management.