Software escrow
Produced in partnership with Fieldfisher

The following TMT practice note produced in partnership with Fieldfisher provides comprehensive and up to date legal information covering:

  • Software escrow
  • Introduction
  • Source code escrow
  • The escrow agreement
  • SaaS escrow agreements
  • Escrow agents
  • Insolvency
  • Conclusion

Software escrow

Introduction

Escrow is the process of two or more parties placing property or instruments in the hands of a trusted third party (an ‘escrow agent’). The escrow materials are released to one of the parties following an agreed release event, such as satisfaction of that party’s obligations, or failure of another party’s obligations.

Escrow has become a widely available method of protecting software licensors and licensees. Licensors will not want to hand over commercially sensitive materials about the design of their software. Yet without that material a licensee may not be able to support the software if the licensor fails to do so. Placing those materials in escrow, to be released to the licensee following specified supplier failures, may be acceptable to the licensor and protect the licensee’s business.

This practice note examines the use of source code escrow and in particular focuses on when source code escrow is used and the key provisions of escrow agreements.

Source code escrow

Software consists of two distinct parts: source code and object code.

Source code is the code written by software developers in a programming language comprehensible to programmers. Well written source code will be annotated to explain what particular sections of the software achieve and thus aid anyone developing and maintaining the programme.

Source code itself cannot be efficiently read by a computer and is usually converted (‘compiled’) into machine readable

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