Smart Ideas: Companies Revisited

Definitions of Source Code Escrow, Source Code, and Escrow

Any valuable source code of an important software should always be kept safe and protected by depositing it properly through a third party escrow agent and this state is known as source code escrow. In programming of softwares, normally a coding language is designed by the programmer and this is called the source code, which is further translated by a compiler or assembler into a binary machine code to make the code decipherable by the computer. To protect a valuable source code of a software, this procedure is normally entrusted to a third party called an escrow agent, who is a lawyer and who holds the source code while a transaction is being finalized or that a disagreement is being resolved. 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.

The Necessity of Source Code 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. One way to achieve this is to obtain a copy of the updated version of the source code. It is in this situation where a source code escrow is needed.

Escrow and Its Agreements

To apply a source code escrow, a software licensing agreement is employed and agreed on involving three parties: one or several licensors, one or several licensees, and the escrow agent.

These are the stipulations in source code escrow agreements.

Along with the software source code together with documentation, software tools or specialized hardware be independently maintained.

Requiring the licensor to create updated versions of the software in specific intervals invoking the escrow.

Instruct that the software source code be released to the licensee by the escrow agent on the following conditions: 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.

This stipulation may be included, known as non-compete clause, which forbids the licensee to employ the licensor’s staff as soon as the software is released.

And lastly, the required fees to the escrow agent.

Who Can Qualify as 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.