With the growth of technology, it has become extremely important for companies to take advantage of various software to improve business processes. As a result, companies have been licensing software from different developers. Most application software are very expensive, and both the licensor and the licensee want to protect their technology. Software vendors use escrow agreements to protect both their interests and those of the licensee. Software escrow involves depositing the source code of the particular application with a third party. This third party is known as the escrow agent and should be independent of both the licensor and the licensee. Source code escrow is very important and can be initiated by either buyer or the seller of the software application.
Software is available in two formats, that is, the object code format and source code format. As a licensee, you only get the object code format while the escrow gets the source code for safe keeping. Deposing the source code with the escrow agent ensure that the software is updated and maintained on a regular basis. This is very important for the licensee since the software may be a key part of their business and this cushions then from possible losses. Escrow services are very important because they protect the businesses from the bankruptcy of the developer by ensuring that the source code is available for updates and routine maintenance. The escrow agreement ensure that the licensee has the right to the source code in case the developer fails to fulfill his obligations as per the escrow agreement.
Source code escrow also benefits the software developer by protecting their intellectual property rights. There are so many people out there who are out to copy the ideas of different developers, and this makes it hard for the developer to surrender the source code to the licensee. Both the developer and the licensee are bound by various terms and conditions clearly outlined in the escrow agreement. There are also numerous obligations for both parties. When one of the parties fails to meet their obligations as stated in the agreement, various penalties apply. The source code escrow agreement outlines possible use or transfer of the source code which is key in protecting the rights of both parties.
The other function of the escrow agent is to verify the availability of the source code. It is also the role of the escrow service to ensure that the software is in good shape and that it offers optimal performance to the licensee. When the licensee will be using the software for an activity that is vital to the company or has a direct impact on the revenue, it is important to use source code escrow services. If the cost of acquiring the software is very high, the licensee is also advised to make sure that they use an escrow agent.