Many companies are now taking advantage of the improved technology to maximize the use of various software solutions. This then means that companies have to license software from various developers. The software tends to be very expensive, and it is important for both the licensor and the licensee to protect their investments. Software vendors use escrow agreements to protect both their interests and those of the licensee. Software escrow involves depositing the source code of the particular application with a third party. The escrow agent is the third party in this case, and he is supposed to impartial so as to ensure the rights of both the licensor and the licensee are guaranteed. Either the buyer or software vendor can introduce the escrow agreement to protect their interests.
Software exists in two formats namely the object code format and the source code format. The licensor only gets the object code format while the developer deposits the source code format with the escrow agent. Deposing the source code with the escrow agent ensure that the software is updated and maintained on a regular basis. Doing this also guarantees that any business using a particular software is cushioned against possible losses that arise from poor software maintenance. In the case of bankruptcy of the developer, the escrow agent makes sure that the software keeps running by providing the source code to the licensee. Under the escrow agreement, the developer, has the responsibility to maintain and offer support to the licensee based on the agreed terms and if this is not fulfilled, the licensee has the right to acquire the source code.
Source code escrow also benefits the software developer by protecting their intellectual property rights. Due to the high number of software theft, developers are not comfortable with sharing their source code with the licensee. Source code escrow is anchored on various terms and condition which bind both parties. Each of the parties in the escrow agreement has obligations to fulfil. If any of the parties fails to observe these agreements, there are certain consequences. These consequences relate to the possible use and transfer of the source code which promotes the rights of both parties.
Besides just storing the source code, escrow agent helps verify the availability of the source code. The escrow services also verify that the software is working as it should which is also very important. When the licensee will be using the software for an activity that is vital to the company or has a direct impact on the revenue, it is important to use source code escrow services. If the cost of acquiring the software is very high, the licensee is also advised to make sure that they use an escrow agent.