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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. A source code is a special, coding language designed by programmers in the process of developing a type of software, wherein the source code is later transformed by a compiler or an assembler into a binary machine code in order to be understood 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.

Distinction between Licensee and 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

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. Perhaps, one measure to be able to use the software continually is for the company to obtain a copy of the updated version. It is in this situation where a source code escrow is needed.

Escrow and Its Agreements

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.

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

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.

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.

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.

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.