Source code escrow 101

2007-03-08 10:33:40

( Business )



Source code escrow or software escrow is a modern-day business tool that protects both the interests of software developers and end-users. It is an agreement requiring an escrow agent to protect a software product source code for release to licensed users, resellers or investors under very specific conditions. Code escrow services include trade secret protection, technology escrow, software escrow, venture capital collateral protection, auditing arrangements and escrow deposit verification.

Why escrow?
Source code escrow is the brainchild of legal and computer technology experts aimed at providing secure, reliable and sound software and technology services. The source code escrow is meant to protect the sovereignty of the developers code by denying a beneficiary access to program controls. Without the source code, competent computer programmers are capable of developing a competing program or undesirably changing the original program. Source code escrow protects customers and users of software, products and intellectual properties, technology and prudent licenses. Source code escrow can be modified to fit the various situations and specific needs of different clients.

How it works
A software escrow agreement involves a deal between an owner, a beneficiary and an escrow agent. The owner is the licensor, vendor or developer who provides or licenses software to the beneficiary. The beneficiary is the customer, licensee or user of the software product. The owner and beneficiary agree to use the object code of the license software with the beneficiary also receiving user manuals. The beneficiary however, does not acquire the source code which is necessary to maintain, enhance or update the software. This source code and other proprietary information are put into escrow with the escrow agent.

Both licensee and licensor benefit from the use of software escrow services in many ways. In the case of a licensee, his business is dependent on a licensor's software and its need for enhancement, maintenance and updating. If a licensor's business fails, the licensee may also suffer substantial damage but, as a beneficiary to the software escrow, is entitled to receive the deposited source code necessary to maintain, enhance or update the software. On the other hand, with the establishment of an escrow, a licensor is capable of addressing the concerns of licensees without exposing himself to the risks of distributing the source code. With the escrow as an owner, a licensor can also use the escrow as a marketing factor when selling to prospective licensees. The establishment of an escrow eliminates delays and unnecessary bargaining over source code rights, and also paves the way for a licensee's intellectual path.


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