Source code escrow: Overview, definition, and example
What is source code escrow?
Source code escrow is a legal arrangement where a software developer or vendor deposits the source code of a software program with a neutral third party (the escrow agent). This arrangement ensures that if the developer or vendor is unable to maintain or support the software in the future (e.g., due to business closure or failure to meet service obligations), the customer can access the source code to continue using, updating, or maintaining the software. Source code escrow protects the buyer by providing a backup plan for critical software and ensuring business continuity if the software provider is no longer able to fulfill their obligations.
In simpler terms, source code escrow is like an insurance policy for software: it ensures that if something happens to the software vendor, the buyer can still access the software's code to keep it running.
Why is source code escrow important?
Source code escrow is important because it provides a safeguard for businesses that rely on third-party software for critical operations. Without it, companies may face the risk of being left without support or access to their software if the developer discontinues it or goes out of business. By placing the source code in escrow, the buyer can ensure they have the tools necessary to maintain, modify, or fix the software even if the original developer is no longer available. This arrangement helps foster trust between software vendors and clients, especially in long-term agreements.
For SMB owners, understanding and utilizing source code escrow is important for protecting your business from unexpected disruptions in essential software tools.
Understanding source code escrow through an example
Imagine your company uses a specialized accounting software developed by a third-party vendor. To safeguard against the possibility that the vendor may go out of business or stop supporting the software, you enter into a source code escrow agreement. If, for any reason, the vendor is no longer able to maintain or update the software, the escrow agent releases the source code to your company, allowing you to continue maintaining and updating the software internally or with a new developer.
In this case, source code escrow ensures that your business can continue operating smoothly without relying solely on the software vendor for future support.
Example of a source code escrow clause
Here’s an example of what a source code escrow clause might look like in a software licensing agreement:
“The Vendor agrees to deposit the complete source code of the Software with an independent escrow agent within [X] days of the execution of this Agreement. In the event that the Vendor is unable to support or maintain the Software, the Escrow Agent shall release the source code to the Licensee, provided that the Licensee has complied with all terms of this Agreement.”
Conclusion
Source code escrow is a valuable tool for businesses that depend on third-party software, as it ensures continued access to essential software in the event that the vendor is no longer able to provide support. For SMB owners, utilizing source code escrow agreements can provide peace of mind, mitigate risks associated with vendor dependency, and protect the long-term viability of critical software solutions. By understanding and incorporating source code escrow into software agreements, businesses can safeguard their operations and ensure that they are prepared for the unexpected.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.