Understanding Source Code Escrow, Source Code, and Escrow Agents

In the computing world, all precious source code of an important software passes through what is termed as source code escrow, which simply means that the source code is deposited with the participation of a third party escrow agent. 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. 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.

Distinction 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.

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. One way to achieve this is to obtain a copy of the updated version of the source code. It is in this situation where a source code escrow is needed.

Escrow and Its Agreements

Three parties are included in the application of a source code escrow where an agreement (software licensing agreement) is entered into – one or several licensors, one or several licensees, and the escrow agent.

These are the stipulations in source code escrow 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.

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.

Specify clearly the duties of an escrow agent which involves custody and verification of the stored source code software if it is readable to a computer.

This stipulation may be included, known as non-compete clause, which forbids the licensee to employ the licensor’s staff as soon as the software is released.

And the fee payments to the escrow agent.

Who Can Qualify as Escrow Agents

Before, lawyers were usually hired as escrow agents, but, nowadays, archives, museums and software communities are already considered to qualify as escrow agents.

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