With the growth of technology, it has become extremely important for companies to take advantage of various software to improve business processes. This has necessitated companies to license different software to meet their technological needs. Because of the prohibitive cost of developing application software, licensors and licensees want to ensure that they protect their investments. For this reason, software vendors use escrow services to protect their interests as well as those of the licensee. With source code escrow, the developer is able to store the source code with a third party. The escrow agent is the third party in this case, and he is supposed to impartial so as to ensure the rights of both the licensor and the licensee are guaranteed. Source code escrow is very important and can be initiated by either buyer or the seller of the software application.
When software is developed, it is available in either the object code format or the source code format. The licensor only gets the object code format while the developer deposits the source code format with the escrow agent. This ensures the continuity of the software maintenance over time. 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. Under the escrow agreement, the developer, has the responsibility to maintain and offer support to the licensee based on the agreed terms and if this is not fulfilled, the licensee has the right to acquire the source code.
Source code escrow also benefits the software developer by protecting their intellectual property rights. The software industry has so many people who lack the creativity to create something new which discourages the developers from sharing their source code with the licensee. Both the developer and the licensee are bound by various terms and conditions clearly outlined in the escrow agreement. Each of the parties in the escrow agreement has obligations to fulfil. If any of the parties fails to observe these agreements, there are certain consequences. The source code escrow agreement outlines possible use or transfer of the source code which is key in protecting the rights of both parties.
Apart from storing the source code, the escrow agent has to authenticate the source code. There is also the need to ensure that the software is working as it should and thus the escrow agent has to verify this. It is always advisable for a licensee to use escrow services if the software supports a vital function of the organization or has a direct impact on the revenue. Also, when the price of the software is very high, it is only best to protect the investment with the use of an escrow service.