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. The said escrow is normally requested by a party licensing software (licensee) to ensure protection and maintenance of the software.
Differentiating Licensee to Licensor
In situations where the licensor fails to commit its agreement of maintaining and updating the software or when the licensor files for insolvency, the software source code will be released to the licensee.
The Necessity of Source Code Escrow Service
Companies, who have gained a lot and are dependent on the customized software, will ascertain that there is continuity of use and maintenance of it even if the licensor is unable to do so. Perhaps, one measure to be able to use the software continually is for the company to obtain a copy of the updated version. This situation can be addressed by employing a source code escrow service.
Contract Provisions in Source Code Escrow
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.
Requirement for the licensor to constantly update the software and updating the escrow agent on it.
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.
A stipulation to allow the licensee to fix errors in the software or further develop the software once it is released back to the licensee.
Imply that the duties of escrow agents are custody and verification of the stored source code software such that it is readable to a computer.
The contract may include what is called a non-compete clause, which prohibits the licensee to employ the licensor’s employees once the software is released to the licensee.
And lastly, the required fees to the escrow agent.
Who Can Qualify as Escrow Agents
It used to be lawyers who were hired as escrow agents, but lately museums, archives and software communities have also become agents.