Software Escrow - What its worth ..

Is it a Worthwhile Investment?

Most source code escrow agency companies advertise via the Internet and in technology trade journals. One commentator estimates that approximately “80% of all Fortune 1,000 firms have at least one software package on deposit with an escrow agent. Under the typical software escrow arrangement, the escrow serves as an independent repository for a vendor’s source code and any related documentation for a time generally equal to the term of the underlying software license. The vendor is generally required to make periodic deposits of updated, enhanced, and modified editions of the source code, or other variants of the licensed software, While providing an archival storage place for source code, the escrow also provides protection for the vendor’s trade secrets. The escrow agent is prohibited from divulging the trade secrets of the source code “until it receives notice of an event requiring release, or until it returns the source code to the vendor upon the termination of the escrow. In order to obtain the source code, a licensee must notify the escrow agent and the vendor that an event requiring the release of the source code has taken place. Such an event might be the inability or refusal of the vendor to maintain or update the software, or the insolvency of the vendor. When an escrow agent receives such notice, “the agent is required to notify the vendor that it will release the source code to the licensee unless the vendor objects in writing within a specified period of time. If the vendor objects, “the escrow agent is directed to hold the source code until ordered to release it by a court or by the vendor. However, if the vendor does not object, “the escrow agent is required to release a copy of the source code to the requesting licensee, retaining a copy for itself. Once the source code is released to a licensee, generally, the escrow agreement provides the licensee with the “rights and obligations respecting the source code similar to those which apply to the object code. These rights include the licensee’s right to “use the source code to maintain licensed programs, subject to the obligations not to disclose the source code to third persons and to return or destroy the source code upon the termination of the license. To avoid possible lengthy and expensive litigation, the escrow agreement should be meticulously drafted to effectively notify the parties when a release event occurs.

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