A 10-Point Plan for Companies (Without Being Overwhelmed)

Definitions of Source Code Escrow, Source Code, and Escrow

Source code escrow is a condition, in the computing world, wherein the source code of a valuable software is being deposited and entrusted with a third part escrow agent. The source code of a software is a programmed coding language especially designed by the programmer and which is further processed by an assembler or a compiler into a binary machine code which easily readable by the computer. An escrow agent, who is usually a lawyer, is a person, representing as third party, who holds the source code for safekeeping while a transaction is taking place or finalized or in cases where there’s need to resolve a disagreement with respect to the design or ownership patent of a software. Normally, the party licensing software (licensee) hires an escrow to protect and maintain their software.

Distinction between Licensee and Licensor

In extreme cases when the company or licensor fails to maintain and update the software as stipulated in the software license agreement or files for bankruptcy, the software source code will be released back to the licensee.

Necessitating Escrow Service

Many companies, who are dependent on a licensed software, do make a point of continually using it and maintaining it even if the licensor is unable to do so. To be able to use the software continuously, the company can obtain a copy of the most updated version of the source code. It is in this situation where a source code escrow is needed.

Escrow and Its Agreements

Source code escrow always takes place in a agreement called software licensing agreement, involving at least three parties: one or several licensors, one or several licensees, and the escrow agent.

Below are the provisions in source code agreements.

That the software source code be equally, as well as independently, maintained with the documentation, software tools or specialized hardware.

The licensor is obliged to put up updated versions, at a specified period, of the software in the knowledge of an escrow agent.

Agreement to release the software source code by the escrow agent to the licensee in cases of bankruptcy of licensor, cancellation of a software development project, unwillingness of licensor to meet the contractual obligations.

An agreement that when the software source code is released back to the licensee, he/she has the right to fix errors in the program or modify by independently developing further the software.

Specify clearly the duties of an escrow agent which involves custody and verification of the stored source code software if it is readable to a computer.

There is also a stipulation called non-compete clause which disallows the licensee from hiring the licensor’s employees after the release of the software.

And lastly, the required fees to the escrow agent.

Escrow Agents

Before, lawyers were usually hired as escrow agents, but, nowadays, archives, museums and software communities are already considered to qualify as escrow agents.