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. 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 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 Need for Escrow
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. One way to achieve this is to obtain a copy of the updated version of the source code. This situation can be addressed by employing a source code escrow service.
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.
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.
The licensor is obliged to put up updated versions, at a specified period, of the software in the knowledge of an escrow agent.
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.
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.
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 lastly, the required fees to the escrow agent.
Before, lawyers were usually hired as escrow agents, but, nowadays, archives, museums and software communities are already considered to qualify as escrow agents.