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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. 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. It is the software developer that usually requests for an escrow to protect and maintain their softwares.

Difference 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.

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. 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.

Along with the software source code together with documentation, software tools or specialized hardware be independently maintained.

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.

A stipulation to allow the licensee to fix errors in the software or further develop the software once it is released back to the licensee.

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.

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 finally, the fees to the escrow agent.

Kinds of 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.