Why Your Business Should Have A Software Escrow Agreement In Place

Companies spend great amounts of money on having customized software made for their business by developers, and then paying them a license for its use. This unique source code is essential to maintaining their business and that is why the concept of software escrow came to be developed as a legal solution to provide protection for the interests of all involved parties in a business-critical software license, including the software developer, the licensee, and the escrow agent. The reason behind software escrow is to ensure that the source code and other critical components of the software remain available and usable in the event the developer is unable to maintain or support the licensed software.

There are a variety of reasons why having a Software escrow agreement in place might prove necessary, the first of which is risk mitigation. Maintaining software escrow is essential to mitigating the risk of a disruption in operations in the event that the software vendor is acquired by another company, goes out of business, or is simply unable to provide the necessary support that the licensee has purchased and the developer has agreed to. By providing access to the source code and other key components of the software, the licensee can continue to utilize and perform maintenance on the software without interruption.

The developer often considers the software’s source code to be their intellectual property. By having the source code placed in escrow, the developer is able to protect their intellectual property rights whilst also continuing to provide access to the software under certain pre-negotiated circumstances with the licensee.

Industries like financial services and healthcare maintain strict regulations requiring companies to allow access to critical software components in the case of an emergency. Having software escrow in place helps to ensure that such companies remain compliant with the regulations.

Access to the source code and other critical components of the software is a requirement of the majority of software license agreements the vendor is required to provide. By having the source code placed in escrow, the vendor is able to fulfil these contractual obligations whilst providing peace of mind to the licensee.

Software escrow is a great tool that provides a mechanism to protect the interests of all the parties involved in software development projects and is extremely important for maintaining the continuity of software use and maintenance critical to the licence-holding business’ success.

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