Study: My Understanding of Software

Why Escrow Services are a Necessity

Many companies are now taking advantage of the improved technology to maximize the use of various software solutions. This then means that companies have to license software from various developers. The software tends to be very expensive, and it is important for both the licensor and the licensee to protect their investments. Software vendors use escrow agreements to protect both their interests and those of the licensee. With source code escrow, the developer is able to store the source code with a third party. This third party is known as the escrow agent and should be independent of both the licensor and the licensee. 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. As a licensee, you only get the object code format while the escrow gets the source code for safe keeping. The benefit of doing this is that the licensee is guaranteed the continuity of the software maintenance. Doing this also guarantees that any business using a particular software is cushioned against possible losses that arise from poor software maintenance. 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.

On the other hand, source code escrow is also beneficial to the software developer since it protects their intellectual property rights. Due to the high number of software theft, developers are not comfortable with sharing their source code with the licensee. The software escrow agreement has various terms and conditions that bind both the developer and the licensee. Both the licensor and the licensee have various obligations which they are required to fulfill. When one of the parties fails to meet their obligations as stated in the agreement, various penalties apply. The use and transfer of the source code is clearly discussed under the escrow agreement.

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. While it is advisable to always use escrow services, those licensees who use the software to support a vital function of the company have more to lose and they should make sure they protect their investments. Some software is also very expensive which makes it prudent for the licensee to use an escrow service to protect their interests.