Source Code Escrow - How to Protect Your Custom Software Assets

Source code escrow offers a kind of guarantee to companies who purchase bespoke software solutions from software developers. The functioning of custom software is often mission critical to companies, and if the vendor were unable to continue supporting and maintaining the software, for instance due to bankruptcy, this could present a severe problem to the licensee.

One possible solution would be for the licensee to have access to the up-to-date source code. However most software development companies will not agree to this - the source code is their intellectual property and they will be extremely unwilling to release it to the licensee.

This is where source code escrow comes in. It is an elegant solution to a fundamental conflict of interest: the source code is deposited with a third party escrow agent, and is released to the licensee only if the vendor is unable to continue to provide support and maintenance, under conditions defined in a contractual source code escrow agreement.

The software escrow agent is typically a company specialising in this service, and should be completely independent of both the licensor and licensee.

Typical provisions of a source code escrow agreement will include:

1) A definition of the scope and subject of the escrow (usually this will include the source code of a specific software solution, and anything that would be required to independently maintain the software, including documentation and software tools.)

2) The conditions that must be met for the escrow agent to release the source code to the licensee (ie bankruptcy of the software vendor or cancellation of the development project.)

3) Specifics of what rights the licensee has with regard to the source code after the software is released (ie the right to modify the code to fix bugs.)

4) A specification of services the escrow agent provides beyond simple custody of the software (the agent may, for instance, build the software and check that the binary matches the version supplied to the licensee.)

5) Any fees due to the agent for providing escrow services.

In the event of bankruptcy on the part of the software developer, the developer's creditors may be legally entitled to seize all assets, including source code in escrow, and this could prevent (or delay) the release of the software to the licensee.