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What is software escrow and why is it important?

By AdFeatures  |  Posted: November 05, 2012

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To answer this, you first need to ask “how important is software to my business?” Software Escrow is a service that safeguards the source code of custom designed software, by depositing the code with a third party escrow agent. It can be a hugely valuable service for the large number of companies that use custom designed and bespoke software.

In many cases, such software can be vital to a business’s day-to-day operations, so business owners are understandably eager to ensure their use of the software is not disrupted. One common problem is the software licensor going bankrupt, potentially leading to the business losing all access to essential custom software. Because of this risk, you may be tempted, as owner of a business that uses bespoke software, to try and get hold of a copy of the up-to-date source code. The licensor, however, will often be unwilling to agree to this, as the source code will generally represent one of their most closely guarded trade secrets. As a solution to this conflict of interest, software escrow ensures that the licensee (the business owner) obtains access to the source code only when the maintenance of the software cannot otherwise be assured, as defined in contractually agreed-upon conditions.

The Escrow Agent

All types of escrow involve use of a trusted third party. Software escrow is a specialised area of general escrow. A software escrow agent will draw up the provision for the software user to access the source code, along with sufficient technical documentation to enable them to build a version of the executable software. Thus you will still be able to use the software even if the licensor ceases to operate. A software escrow provider will contribute some specialised skills, including standard legal contracts, secure storage and ongoing administration of the escrow process.

Benefits to the User

If you’re the user of the software and you enter into an escrow agreement, you get guaranteed access to the source code in pre-agreed exceptional circumstances, such as if the vendor is no longer able to fulfil contractual obligations (for example, in case of bankruptcy). This means that your business will be able to continue its operations with a minimum of disruption should anything go wrong, and with no long-term set-backs.

Benefits to the Vendor

Software escrow also has benefits for the designer and vendor of the software. They can rest assured that access to the software source will be regulated and it will not be released in a manner that is not in their interest.

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