Understanding 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. 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. 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.
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
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. This situation can be addressed by employing a source code escrow service.
Contract Provisions in Source Code Escrow
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.
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.
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.
After the release of the software source code, delineating the rights, obtained by the licensee, to modify the software for the purpose of correcting errors or to continue independent development of the software.
Comprehensive duty of escrow agent, such that it not only narrows down to custody of the software but includes verifying of the source code storage media as 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
Normally, a notary lawyer plays the role of escrow agent, but in recent developments even museums, archives, and software communities have been solicited to be one.