What is a source code escrow agreement?

Software escrow means deposit of the source code of the software into an account held by a third party escrow agent. Escrow is typically requested by a party licensing software (the licensee), to ensure maintenance of the software. The software source code is released to the licensee if the licensor files for bankruptcy or otherwise fails to maintain and update the software as promised in the software license agreement.

What are object code and source code? Object code is the software’s programming code translated into machine-readable form, zeros and ones, which humans cannot understand and when compiled forms source code. The form of the code which humans write and understand is called source code.

A Source Code Escrow Agreement is an agreement between the software owner, the party receiving the license and the escrow agent. As it is a three-way agreement, negotiations can some times be difficult.

Click for an article covering more information on the clauses and these contracts in detail as well as forms to cover these situations.

Case Studies: Understanding Source Code Escrow Agreements

Case Study 1: SierraTech Solutions

SierraTech Solutions enters a software license agreement with BravoSoft Inc. for their proprietary software. Worried about potential disruptions in case of BravoSoft’s bankruptcy, SierraTech requests a source code escrow agreement. This ensures access to the source code if certain conditions are met, allowing SierraTech to maintain and update the software.

Case Study 2: TangoSystems Ltd.

TangoSystems Ltd. licenses its software to Yankee Enterprises. To mitigate risks, Yankee Enterprises requests a source code escrow agreement. After negotiations, an agreement is reached, granting access to the source code in predefined events, while protecting TangoSystems’ intellectual property.

Case Study 3: ZuluTech Inc.

ZuluTech Inc. licenses critical software from VendorVictor. To ensure continuous support, ZuluTech insists on a source code escrow agreement. The agreement provides ZuluTech with access to the source code if VendorVictor fails to fulfill its support obligations, allowing them to maintain and support the software independently.