In this issue:

26810

Minimum Wage: Some Hotels Already Feel the Sting

Targeting the Trolls: Patent Reform Would Help Protect Hotel Operators

Opening Doors to Chinese Tourists: IHG & Tourism Industry Play A Key Role in UK Visa Reform

Congress 2014 Surveying the Legislative Landscape pg. 2

Congress 2014: Surveying the Legislative Landscape

WINTER 2014

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C lashes of will, brinksmanship and stalemate brought the U.S. Congress its lowest-ever approval

ratings in 2013. In the spring, anxiety over the impact of automatic spending cuts prompted by budget sequestration captured the attention of the country. The second half of the year saw the standoff between the Executive and Legislative branches over an appropriations bill for the 2014 fiscal year, leading to a 16-day federal government shutdown (see the sidebar on Page 4). Debate among members of both political parties over the Affordable Care Act continued throughout the year, right up to and after that initiative’s rocky rollout in the fourth quarter.

While the 2014 legislative session is off to a calmer start, a number of key issues that could impact IHG and the travel and tourism industry are still on the table, and the year will also bring an important mid-term election.

The IHG Public Affairs Team is fully engaged in this complex and complicated political environment, staying on top of policy issues before Congress that could affect hotels’ bottom lines and keeping our employees, owners and general managers aware and informed.

To that end, the following is an overview of some of the primary legislative challenges on the horizon.

PublicAffairs at IHG®

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What To Expect This Year Minimum wage increase Momentum may be building for an increase in the federal minimum wage, fueled by President Barack Obama’s backing of the move in his State of the Union address and increases that have already been approved — or are being considered — in several states and municipalities. (See the related article on Page 6).

Immigration reform Earlier this year, supporters of an immigration law overhaul were cautiously optimistic about the prospects of passing such legislation in 2014.

The House Republican leadership seemed more willing to move on the issue and released, to mixed reviews by both parties, its “Standards for Immigration Reform,” which called for many of the same changes as the bipartisan Senate bill passed last June. These included new enforcement, border security and visa reforms, as well as a pathway to legalization for the 11 million individuals who are now in the U.S. illegally and a pathway to citizenship for children brought here illegally. The plan stopped short of providing an immediate pathway to citizenship as called for in the Senate bill, however.

Movement has since stalled, and the Public Affairs Team feels any legislative approach

to be made by the House at this point would be piecemeal versus comprehensive, creating a challenge for alignment with the Senate bill.

IHG, together with the hospitality industry, continues to support a position that balances security with inbound tourism, creating secure yet welcoming borders. The travel and tourism industry creates employment opportunities, and as industry leaders, we support efforts to help people improve their economic state. So, Public Affairs will continue working towards an immigration reform package that includes provisions promoting inbound tourism, as well as supporting specific pieces of legislation that accomplish this.

Congress 2014 Surveying the Legislative Landscape

continued...

One of these is the JOLT (Jobs Originating Through Launching Tourism) Act, a standalone House bill whose language was included in the Senate immigration reform bill. The JOLT Act would create jobs by increasing travel and reforming outdated visa laws, while maintaining national security.

Rollout of the Affordable Care Act (ACA) As implementation of the healthcare reform initiative continues to forge ahead, those opposed to the law are moving away from calling for its repeal and de-funding and focusing instead on specific issues within the law.

One of these issues that directly impacts the hotel industry is the definition of a full-time employee. The ACA defines “full-time employment” as working, on average, 30 hours or more per week. The so-called

“employer mandate” calls for employers with more than 50 full-time employees to offer them health insurance or pay a penalty of $2,000 for each employee. As a result, some employers are electing to cut the hours of their part-time employees to fewer than 30 to avoid having to provide healthcare insurance. The potential impact would be a reduction in take-home pay for an estimated two million-plus employees, mostly hourly workers in the retail and service industries.

Several pieces of legislation have been introduced in the House of Representatives that would change the definition to 40 hours per week and so eliminate the unintended incentive to reduce part-time employees’ hours. One of these, the “Save American Workers Act of 2013,” was passed by the Ways and Means Committee in early February and is headed for a vote in the House. IHG Public Affairs has activated a grassroots effort in support of this legislation for the House vote, and if it passes, the team will extend efforts for the subsequent Senate action.

Patent reform Separate bills have been passed in the House and introduced in the Senate to

PublicAffairs at IHG®4

Throughout 2013, IHG Public Affairs worked directly with policymakers and encouraged our employees and owners to take action on a range of critical issues. Two government-driven events in particular had a significant impact on our industry:

Government ShutdownWhen more than 800,000 federal employees were sent home from work during the 16-day federal government shutdown in October, the ripple effect was felt across numerous business sectors, particularly lodging and tourism. Standard and Poor’s economists estimated the shutdown cost the American economy $24 billion, or about $1.5

billion a day; the American Hotel & Lodging Association (AH&LA) estimated the cost to the nation’s hotels at nearly $58 million in lost economic activity per week —more than $8 million each day.

In addition, the U.S. Travel Association estimated that lost travel-related activity cost the American economy $152 million per day and affected as many as 450,000 American workers in the travel industry. Over the course of the 16 days, the government shutdown hurt businesses, employees and their families.

Air Traffic Controller FurloughsWhen the automatic spending cuts to certain categories of U.S. federal spending took effect

in March of 2013, the budget sequestration led to furloughs of air traffic controllers, which in turn caused a week of significant travel delay before the industry took action. IHG worked closely with our trade association partners, US Travel and the AH&LA, to bring about passage of the Reducing Flight Delays Act of 2013. This bill put air traffic controllers back to work, just as millions of Americans were booking their summer travel. By collaborating as an industry, we effectively saved the summer travel season.

A Quick Look Back at 2013

continued from page 3...

address the issue of “patent trolls” or patent assertion entities—third parties who purchase patents for technologies they do not actively produce or market with the intent to bring patent infringement lawsuits against end-users of that technology, aiming at a quick settlement. Hotel operators and other small business owners are a growing target group for these predatory entities. (See the related article on Page 8).

Tax reform Lowering tax rates for businesses, and particularly lowering the corporate tax rate, continues to be important to both IHG and our owners. However, the Public Affairs Team believes prospects for comprehensive reform in an election year are slim. In addition, one of the primary

proponents of reform, Sen. Max Baucus (D-MT)—former Chairman of the Joint Committee on Taxation—has left the Senate to become United States Ambassador to China. The Public Affairs Team will continue to track this issue and take advantage of opportunities to educate or influence until the time is more ripe for passage of tax reform legislation.

Increase in federal per diem rates The travel industry successfully lobbied against cuts by the General Services Administration (GSA) to per diem rates in 2012. Last year the GSA announced that rates would increase in 2014 by an average of 7.8 percent, as a result of rising ADR in most cities. For the Continental

United States, the standard federal per diem rate for fiscal year 2014 is $129 ($83 for lodging and $46 for meals and incidental expenses). Approximately 400 Non-Standard Areas, however, have higher per diem rates than the standard rate. IHG continues to work with the GSA’s Governmentwide Travel Advisory Committee to identify ways for the government to maximize its travel spend while resisting efforts to cut the federal travel budget.

As this year’s legislative agenda unfolds, IHG Public Affairs will continue working to build relationships with members of the House and Senate, both by engaging with them directly and by enabling our hotels to connect with their representatives.

E ach spring, representatives of the hotel industry from all over

America converge on Washington, D.C., with a unified purpose—to give direct feedback to their legislative representatives about operating their businesses.

The annual AH&LA Legislative Action Summit is one of the hotel industry’s most effective vehicles for voicing our strength and economic contributions to key government policymakers. This year’s event, which takes place April 1-2, will address the key issues described here that are set to impact the travel and tourism industry.

The IHG Public Affairs Team is again organizing a delegation of owners and company executives to attend the Summit, participate in a special briefing and call on designated members of the Senate and the House to put forth our agenda and seek their support for our industry positions.

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AH&LA Legislative Action Summit Being Heard on Capitol Hill

The Senate

has discussed possible floor

consideration of legislation to increase

the federal minimum wage from $7.25 per hour to

as high as $10.10 per hour.

6 PublicAffairs at IHG®

I n his State of the Union address in January, President Obama stated his intention to raise the minimum wage

for federal contract workers and generally endorsed a federal mandate to dramatically increase the minimum wage on a broader basis.

In some jurisdictions around the country, an increased minimum wage is already an expensive reality. A December article in the Wall St. Journal notes that officials in the Seattle/Tacoma SeaTac area that includes the airport and its surroundings elected to raise the minimum wage for many workers to $15 an hour—a 63 percent increase—beginning this past January. The new rate ranks as the highest municipal minimum wage in the United States.

For Han Kim, partner in the 171-room Holiday Inn Express & Suites Seattle SeaTac Airport, the increased minimum wage is putting a cap on hiring full-time employees. Kim’s hotel has a staff of 40, below the minimum threshold that triggers the new $15-per-hour rate.

“We will be outsourcing some jobs in the future to stay below the minimum,” he says.

Similar, though less-dramatic, increases that will elevate the minimum wage incrementally over the next several years have been approved by voters in the San Francisco municipal area, certain counties in Maryland and in Washington, D.C. Statewide increases have been enacted in

Washington state, Oregon, New York and Vermont, indicating the issue is gaining momentum.

The increasing labor costs place a particularly difficult burden on smaller employers, whose margins are the narrowest. Debate on the economic impact of the issue is already well under way, with some economists asserting a higher minimum wage will cause small employers to reduce workers’ hours and pull back on hiring, and others maintaining that the higher wage level supports employee retention levels and stimulates consumer spending.

The American Hotel & Lodging Association (AH&LA), the Asian American Hotel Owners Association (AAHOA) and the International Franchise Association (IFA) all have expressed concern about increases in

the minimum wage from the standpoint of both economic impact and job creation. “Hoteliers are at the forefront of providing jobs to working-class Americans and take particular pride in offering entry-level opportunities to young workers,” AAHOA noted in a statement responding to the President’s State of the Union address comments.

“A drastic increase to the cost of labor will necessarily result in a reduction in the demand for such labor. In some cases, employers may be driven to reduce the size of their workforces, delay hiring new employees, or in the case of companies with high labor costs, be forced to close their businesses.”

As for action at the national level, the Senate has discussed possible floor consideration of legislation to increase the federal minimum wage from $7.25 per hour to as high as $10.10 per hour, though no decision has been made on when this might take place. According to a report released in March 2013 from the Economic Policy Institute, such an increase by 2015 would raise the wages of about 30 million workers, who would receive more than $51 billion over a phase-in period.

IHG Public Affairs expects momentum to build further behind the President’s move and continue to trickle down to the state and local level. As this occurs, the team will keep owners apprised and informed on the issues, asking them to engage their local and national leaders as appropriate.

For Han Kim, partner in the 171-room Holiday Inn Express & Suites Seattle SeaTac Airport, the increased minimum wage is putting a cap on hiring full-time employees. Kim’s hotel has a staff of 40, below the minimum threshold that triggers the new $15-per-hour rate. “We will be outsourcing some jobs in the future to stay below the minimum,” he says.

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Raising the Minimum Wage Some Hotels Already Feeling the Sting

I n the children’s story of the Three Billy Goats Gruff, three unassuming young goats are confronted by an evil troll

hiding under a bridge who threatens to eat them.

Think that kind of thing only happens in fairy tales? Think again.

A new kind of troll has emerged in the business world—entities that acquire technology patents (though they are not engaged in the business of the technology covered by the patent) and then file lawsuits against supposed violators to obtain quick settlements. In some cases the patent trolls bypass vendors of the technology and instead go after more vulnerable end-users, for example, small businesses such as hotels providing their customers with Wi-Fi access or other communications technology. In fact, some IHG hotels have been among those victimized.

Here is how this “shakedown” works: Patent trolls file lawsuits against hotels, claiming that wireless Internet routers and access point devices—purchased to provide hotel guests with Wi-Fi—infringe upon patents held by the patent troll companies. Faced with the possibility that a lawsuit could cost tens or even hundreds of thousands of dollars to fight in court, the hotels settle out-of-court with the suing patent trolls for an amount less than it would cost to defend the lawsuit.

According to the National Economic Council, an estimated 4,000 patent lawsuits were filed last year, an astonishing 62 percent of which were from patent trolls. To curtail the activity of the patent trolls and protect the companies on whom they are preying, the U.S. House of Representatives in December overwhelmingly passed the Innovation Act. Key provisions of this legislation include:

• Requiring parties filing patent-infringement lawsuits to disclose who owns the patent, how the patent is being violated and who would benefit from any settlement or award.

• Delaying litigation until courts declare whether the patent in question is valid, to keep legal and discovery costs down for companies defending patent-infringement lawsuits.

• Making it easier for successful defendants to recover legal costs needed to fight unsuccessful patent lawsuits.

• Preventing patent trolls from pressuring small businesses, including hotels, into quick settlements by allowing technology vendors to fight patent lawsuits on their customers’ behalf.

The Senate introduced companion legislation in December and has held a hearing on the bill. Opposition in the Senate falls into two camps. Some cite the passage in 2011 of the America Invents Act, which reformed the patent system and partially addressed the patent troll issue; these opponents assert Congress should allow

time to assess the impact of this law before enacting a new one. Others disagree, feeling the Innovation Act does not go far enough in fully tackling the problem of patent trolls and addressing the proliferation of overly broad patents. A second group has expressed concern that the Senate bill may not adequately protect patent-holders, including the small inventor working in his garage.

President Obama continues to support further patent reform and called for new legislation in his State of the Union address. In addition, the White House in February announced a set of executive actions aimed at combatting patent trolls. These included: directing the Patent and Trademark Office (PTO) to work with the private sector to make it easier to determine whether a patent application is truly unique; calling on technology companies to help train PTO examiners, and increasing pro bono services for small inventors who can’t afford legal representation.

Though IHG cannot give legal advice to its franchisees, the company continues to work to protect our owners and keep them informed. The Public Affairs team is tracking the issue and has called on owners and operators to contact their Senators, on behalf of the entire IHG family and the hospitality industry, to urge support for patent reform legislation.

Targeting the TrollsPatent Reform Would Help Protect Hotel Operators

PublicAffairs at IHG®8

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• Victims of patent trolls paid $29 billion in 2011, a 400 percent increase from 2005, according to the National Economic Council.

• Patent trolls filed 2,921 lawsuits in 2012, according to RPX Corporation, which provides companies solutions to troll threats.

• RPX further found that 55 percent of defendants in lawsuits involving patent trolls make $10 million or less in revenue; 66 percent make less than $100 million.

• Patent trolls cost the U.S. economy $80 billion each year in lost revenues and productivity, according to a Boston University Law School study.

• The same study found that average settlement costs for patent troll lawsuits were $1.33 million for small and medium companies and $7.27 million for large companies. Average litigation costs, the study determined, were $1.75 million for small and medium companies and $8.8 million for large companies.

Patent Trolls By The Numbers

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Opening the Doors

to Chinese Tourists

IHG & Hospitality Industry Play A Key Role

in UK Visa Reform

PublicAffairs at IHG®

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T he headlines last fall in Great Britain’s leading national newspapers heralded an important

victory for tourism: George Osborne, Chancellor of the Exchequer, had announced that the visa process for Chinese business travelers and tourists to the UK was to be streamlined.

The move marked the successful culmination of a two-and-a-half-year lobbying campaign by IHG dedicated to easing the visa application process for Chinese citizens wishing to visit Great Britain. Working through the UK China Visa Alliance (UKCVA), a nonprofit organization of leading companies in tourism and retail, IHG joined forces with a host of other well-respected travel and retail entities, including the British Hospitality Association, British Airways and Selfridges & Co.

Rapid, significant recent growth in the China outbound market drove the private sector mobilization, according to Lauren Knott, Director, Global Public Affairs, based at IHG’s head office in the UK. “The stakes are enormous: approximately 150 million Chinese tourists are predicted to travel in 2015,” she says. “The UK stands to miss out on capturing our fair share of the business these travelers will generate, due to the country’s visa application process, which makes it easier to travel to multiple European countries than to come to the UK.”

UKCVA member companies and organizations took part in a long-term, targeted public affairs effort to bring about the visa reform. Leaders of the participating entities, including Richard Solomons, IHG Chief Executive, and Stephen McCall, IHG Chief Operating Officer UK & Ireland and Head of Europe Operations Performance & Support, spoke at key events, made presentations to government departments and gave media interviews to promote the cause. Richard even sent a letter to the Prime Minister to highlight the issue.

“The campaign involved a considerable schedule of meetings, letters and media work. We received a strong boost when the national newspapers got behind our effort,” Lauren says. “It was also powerful that the UKCVA comprises companies from the retail as well as tourism sectors, as shopping is a major attraction for Chinese tourists. This certainly strengthened our cause.”

An article in the UK newspaper The Guardian noted that, “Ministers were understood to be alarmed when one study found that Chinese tourists were buying vastly higher numbers of expensive designer handbags in Paris than in London.”

Specifics of the revised visa system include:

• Introduction of a new pilot program that will allow selected Chinese travel agents to apply for UK visas simply by submitting the European Union’s Schengen visa form, which allows tourists to visit 22 of the 28 EU member states as well as Iceland, Liechtenstein, Norway and Switzerland. Previously, visitors were required to make two separate applications. This change was a specific focus of the UKCVA campaign.

• Implementation of a new 24-hour “super-priority” visa service for Chinese visitors that will become available in summer 2014.

• Possible expansion of the successful VIP mobile visa service the UK currently operates in Beijing and Shanghai to the whole country. This service enables visa teams to go to applicants to collect their completed forms and biometric data, such as fingerprints, with the whole process taking less than five minutes.

In making the announcement about the revised visa system, British government spokespersons emphasized that the enhanced service would “support economic growth while maintaining the security of our borders.”

“The success of this campaign is an excellent example of what is possible when IHG chooses to get involved and put our weight behind helping organize the hotel industry on an issue that matters to us,” says Lauren.

“We’ll continue to monitor the implementation of the pilot and call for continued reform.

Public Affairs Go-To-Guide

IHG Public Affairs MissionIHG Public Affairs advocates for public policies that help our hotels and maintains a vigilant watch for those that might hinder them. We track and respond to the issues that most deeply affect our business and continually scan the globe to make sure we are focusing on the most critical issues we can impact.

Public Affairs Portal The IHG Public Affairs portal (politicalactionportal.ihg.com) is your complete resource for information on government and public policy issues impacting IHG, our employees and our owners. The portal includes the latest updates on the company’s Public Affairs initiatives as well as suggested guidelines for taking action through your state and Federal legislators.

Public Affairs Contacts

• Travel & Tourism – investment in inbound tourism (especially to the U.S. and U.K.); visa issues.

• Our People – labor relations; human rights.

• Small Business – access to credit; taxation; franchise law.

• Carbon & Sustainability – protecting our hotels from disadvantageous environmental laws; positioning IHG as the leader in sustainable travel.

• Intellectual Property – trademark protection in China; assessing the impact of new generic Top Level Domains (gTLDs) such as “.hotel.”

• Data Privacy – focusing on data security and use of data for marketing purposes.

• Tax – particularly tax reform in the U.S. and those countries that are members of the Organisation for Economic Co-operation and Development (OECD).

IHG Global Public Affairs PrioritiesFollowing are the areas of focus for IHG’s Public Affairs efforts worldwide:

Americas Adam Handler Director, Corporate Responsibility, Public Affairs +1-770-604-5092 adam.handler@ihg.com

Europe Lauren Knott Director, Global Public Affairs +44-1895-512598 lauren.knott@ihg.com

Greater China Jason Wang Sr. Director, Public Affairs +86 10 6481 8757 jasonjian.wang@ihg.com

Katherine Zhao Manager, Public Affairs +86-21-28933245 katherine.zhao@ihg.com

AMEA Jean Tan Head of Communications +65-6395-6109 jean.tan@ihg.com