A source code escrow agreement is a contract between a client and a software developer, ensuring client protection if software maintenance fails. Besides, the agreement typically requires the software developer to submit the software's source code with a third-party escrow representative.
The escrow representative holds the source code in trust until specific conditions are fulfilled, such as the developer leaving the company or failing to update or support the software as decided upon. Let us go deeper to explore more.
Many businesses across the globe rely on custom software applications that are important to their operations. Developing such software can be a pricey undertaking. Because of these applications' critical importance, many companies now require software developers to store their software source code and related documentation in a source code escrow.
The software source code is often of strategic value to a company, and as with any valuable asset, protecting it is a natural inclination. In such cases, companies can place a source code escrow agreement, a distinct form of insurance.
In addition, a source code escrow, also known as a software escrow, functions in the following manner: the supplier (i.e., the software developer) deposits the source code and accompanying documentation with a trusted third party, known as the source code escrow agent. The code and documentation are then released to the beneficiary (i.e., the client) upon a "release event," such as the software developer's bankruptcy filing, cessation of operations, or failure to meet certain obligations under the license agreement. In essence, the source code escrow functions as an insurance policy for the client.
Once the code is released to the client, they can use it as needed and maintain it without the supplier's involvement if such terms were agreed upon in the license. It enables the business to continue operating without interruption or impact, whether by maintaining the software through bug fixes, ensuring compatibility with system upgrades, or simply providing the client with a cushion until they can find a new supplier.
A typical Source Code Escrow Agreement comprises various important information that must be included for secure and fair transactions. The essential elements are as follows: