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Defining Source Code Escrow, Source Code, and Escrow Agents

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. 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. Escrow agents, who are usually lawyers, function as keepers of the source code and represent the third party while a transaction with respect to the source code of a particular software is being finalized or when there is a disagreement that is being resolved. Normally, the party licensing software (licensee) hires an escrow to protect and maintain their software.

Difference between Licensee and Licensor

In cases where the company (licensor), who franchised the software, files for insolvency or fails to maintain or update the software as agreed upon in a software license agreement, the software source code will be released back to the licensee.

Necessitating Escrow Service

Employment and maintenance of a customized software is critical to many companies, such that they make sure that there is continuity of the software use even if the licensor is unable to continue. To be able to use the software continuously, the company can obtain a copy of the most updated version of the source code. Therefore, a solution to this is to apply for an source code escrow services.

Stipulations in Escrow Service

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.

The following are provided for in source code escrow agreements.

The subject and scope of the escrow, which, respectively, refers to the software source code and the requirements of the licensee, require for independent maintenance of the following: 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.

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.

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.

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 the fee payments to the escrow agent.

Kinds of Escrow Agents

It used to be lawyers who were hired as escrow agents, but lately museums, archives and software communities have also become agents.