What is a software escrow and why is it needed?

In many of today’s technology license agreements, companies licensing technology are requesting that along with the program(s), a copy of the Technology Vendor’s proprietary source code also be provided. Source code contains the instructions that create the software program, which can then be transformed into an executable, in order for the software to run on your computer.

Source Codes are generally requested by companies for their protection. With access to the source code, customers can maintain and enhance the software in the event that an unanticipated and/or catastrophic occurrence does not permit the Technology Vendor to continue its operations.

Many Technology Vendors’ business plans, however, do not support providing a copy of their source code to their clients. If it was, a great deal of maintenance revenue would be lost, due to third parties maintaining their own software.

More importantly, if their source code is provided upon purchase, Technology Vendors fear that a competent programmer or independent contractor at their customer’s location could modify the existing program and/or develop a competing program.

There is a solution however, and it is called Software Escrow. Establishing a Software Escrow Account satisfies the “source code dilemma”. It provides the Licensee with access to the Technology Vendor’s source code and documentation, in the event that a specific, release/triggering event agreed upon by the Technology Vendor and Licensee occurs. For the Technology Vendor, establishing an escrow account protects their interests and increases the value of their product to their prospective clients.

This works by having the Technology Vendor submit a copy of the source code to an agent of a source code escrow account, who will then in turn, store the source code in a secure location. If a release/triggering event occurs, the agent will then have the right to pass the source code that was deposited into escrow to the Licensee. The account is similar to that of taking out an insurance policy in order to safeguard the rights you have to the product.

Selecting a trusted, neutral third-party to provide Technology Escrow Services is crucial. Both the Technology Vendor and Licensee should select an organization that is professional, neutral and will attend to both parties’ needs.

The company you choose to open your source code escrow account should have an appreciation of the value that both parties place on the source code.

National Software Escrow (NSE) appreciates the fact that when selecting a ‘Service’, you are in fact, selecting a ‘Promise’… a ‘Promise’ that something will be completed in a manner that meets/exceeds your expectations.

NSE promises the following:

  • Experience – Our professionals have been servicing clients since 1986.
  • Unparalleled Service—Immediate, professional attention to your needs
  • The Protection of the Escrowed Materials – With over 35 years of experience, your intellectual property will be safe and secure!
  • Simple, easy to understand Fee Schedule