TechLaw published an article a while back called “A typical escrow scenario,” and it perfectly described the critical role of software escrow in today’s business world. Here is my take on the gut-wrenching event every business owner and key stakeholder dreads.
Imagine this scenario
Your company invests a hefty sum to license a piece of software. Suddenly, the software provider goes bankrupt, leaving you with a very expensive white elephant of unsupported software. This number often goes into the millions of Rands. Not an enjoyable position to be in, especially when it’s time to explain this predicament to your board members.
Here’s the crux of the issue. With software licensing, what you get is a license to use the object code – a version of the software code that is machine-readable but impossible for even the most tech-savvy human to comprehend.
Humans work with source code, , which is a human-readable form of computer code. If your software developer goes under or becomes unable to support you, you’d require this source code to engage another programmer for bug fixing, introducing new features, or making any changes to the current code.
However, there’s a hitch. You want the source code for potential contingencies, but your developer is unwilling to hand it over as they see it as their top trade secret – and rightly so from their standpoint.
Developers are reluctant to part with the source code – the proprietary blend of elements that makes up their unique product and safeguards their intellectual property from being pilfered with ease.
But you need assurance that your company can continue to operate in the event that the software company folds or stops serving the application.
So, what do you do?
The balanced solution to this conundrum is source code escrow
In a typical arrangement, the developer deposits the source code into an escrow accountaccount maintained by a trusted third party like ESCROWSURE. The escrow agreement stipulates that the source code can only be released to you under certain predefined conditions, such as the developer’s insolvency or failure to meet support commitments.
Although the concept of software escrow might seem straightforward on the surface, it is a relatively intricate process with model agreements available online merely providing a starting point. Remember, each deal is unique and littered with potential pitfalls for the uninformed and inexperienced.
Diving into this territory, you’ll discover that it involves diverse areas of law including bankruptcy and intellectual property law. Execute it incorrectly, and a bankruptcy court may block the release from escrow despite an existing agreement. If you don’t get the intellectual property aspect correct, you may find that you lack the necessary license to use the source code as intended.
Let me share three quick pointers for setting up a software escrow correctly
1. Make it obligatory for the developer to deposit updated source code whenever a new version is released.
2. Don’t neglect this requirement like many do. ESCROWSURE will take responsibility for overseeing these future deposits. The contract requires active management, and our Escrow Admin Portal provides an automated means for ensuring the developer does not simply forget to provide updated deposits.
3. Don’t trust, verify. ESCROWSURE provides a testing service to verify that everything that should be in escrow is indeed there and that the data carrier holds what it’s supposed to. Verification is the cornerstone of any escrow arrangement and a critical investment in your business continuity and disaster recovery protection suite.
