Software escrow is important but what are the pitfalls? In many IT contracts negotiation, the question of rights and license grants to the source code of the particular piece of software arises. From the vendor’s viewpoint, there is a reticence to hand over any source code – in essence, the “family jewels”. This is where source code escrow can work well.

When is Software Escrow a good idea?

Depending on the application in question, this is sometimes a valid concern and at other times not. In fairly generic software applications, it is probably that someone with sufficient skill, in the particular language that the application has been written in, could utilise the source code  to some benefit. In other instances, where, due the nature of the application and the complexity thereof, someone in possession of the source code would not be able to do that much productive with the code without having access to a particular type of experience, knowledge and skills set.

From the licensee’s perspective, they very often do not want to spend time and money investing in an application that, should something happen to the vendor or their relationship with the vendor, the investment into the particular application could be rendered a nullity.

Access to source code

Irrespective of issues of analysing the inherent value of access to source code, it is still a much sought after item in any negotiation. Very often, a type of compromise is reached whereby it is agreed that the source code along with any updates or modifications will be placed in escrow with a reputable escrow agent. At this point, what is often expected by the parties is that the issue of access to the source code is resolved and that the only further potential issue of contention that might arise now is who pays the cost of the escrow.

The Release Events must be clearly agreed

You must carefully consider and agree the trigger events for release of the code placed in escrow in your escrow agreement with the escrow agent. Otherwise, as a licensee wishing to gain access to the code in escrow, you might find yourself in the frustrating position of merely fighting with the escrow agent for access to the source code as opposed to the vendor…the role of gatekeeper being passed along with no key really being granted.

The escrow agent may be liable to the vendor in the event of granting premature or erroneous access to the code held in escrow and is therefore sometimes reluctant (in the case of any ambiguity as to whether or not a trigger event for release has occurred) to release any code.

A good escrow agreement for software escrow is important

The moral of the story? The decision to place code in escrow is just the start of the source code negotiations, not the end. The devil really is in the detail in this case and clear rules for release of the code held in escrow need to be specifically thought about in relation to the specific needs of the licensee and drafted explicitly so that there is no room for doubt in the minds of any of the parties to the escrow agreement as to whether or not the code may be released.