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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. In programming of softwares, normally a coding language is designed by the programmer and this is called the source code, which is further translated by a compiler or assembler into a binary machine code to make the code decipherable 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. It is the software developer that usually requests for an escrow to protect and maintain their softwares.

Difference 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 Need for Escrow

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. To be able to use the software continuously, the company can obtain a copy of the most updated version of the source code. Therefore, a solution to this is to apply for an source code escrow services.

Escrow and Its Agreements

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.

The following are provided for in source code escrow agreements.

The subject and scope of the escrow, which, respectively, refers to the software source code and the requirements of the licensee, require for independent maintenance of the following: documentation, software tools or specialized hardware.

Requirement for the licensor to constantly update the software and updating the escrow agent on it.

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.

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.

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.

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 the fee payments to the escrow agent.

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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