Compliance: trade secrets now open door to liability.

• Author: Marshall, Jeffrey
• Position: Sarbanes-Oxley Act of 2002, personal liability

Recent changes in federal law have created new ground rules for corporate trade secrets, meaning that CEOs and CFOS are now open to personal liability, warns attorney R. Mark Halligan, who specializes in trade secrets law. A partner in the Chicago law firm of Welsh & Katz, Halligan terms the new rules a "sea change in the law" and a "wake-up call to Corporate America."

Because of the Sarbanes-Oxley Act, companies may no longer treat trade secrets as an amorphous intellectual property right, Halligan cautions. The Act sets new duties of disclosure and governance, which now require publicly traded companies to identify, protect, set a value on and report trade secrets as a class of assets.

Under the Act, trade secrets must be reflected in quarterly and annual reports--which the CEO and CFO must personally certify--and the company must document and certify both the internal control structure and procedures for financial reporting and controls. Of critical importance to officers, the Act imposes civil and criminal penalties for violations.

Halligan lists a series of prudent practices for complying with Sarbanes-Oxley:

* Identify trade secrets by using both a systematic procedure and a classification scheme (because information assets can range from notes on a blackboard to a secret formula locked in a safe);

* Implement security measures and internal controls to protect trade secrets by:

- limiting access to a...