Secondary Blocks

Source Code Escrow

This guide explains the different parts that make up source code escrow block.


Source Code escrow

A source code escrow block in a tech contract is intended to provide a level of protection for the licensee (the party that is licensing the software) in case specific predetermined events occur that might impact the continued maintenance, availability, or functionality of the licensed software.

In a typical software licensing agreement, the licensee only receives the object code (the version of the software that can be directly used by a computer but is generally unreadable by humans), not the source code (the human-readable version of the software, which can be understood and modified by developers).

Here is where the escrow agreement comes in. The software developer (licensor) agrees to deposit a copy of the source code with a neutral third party (the escrow agent). The escrow agent is only authorized to release the source code to the licensee under the conditions specified in the contract, commonly known as “release events”.

Such release events could include:

  • The software developer going bankrupt or out of business.
  • The software developer being unable or unwilling to provide necessary maintenance or updates.
  • The software developer otherwise breaching the terms of the software license agreement.

The inclusion of a source code escrow block in a tech contract therefore offers a safeguard for the licensee. It ensures they can continue to use and maintain the software they depend on, even if the software developer is unable to uphold their obligations for any reason.

Without such a block, the licensee could find themselves unable to fix bugs, update the software to be compatible with new systems, or otherwise adapt the software to their changing needs. A source code escrow arrangement can help to mitigate these risks.


Escrow agent

This part designates the neutral third party who will hold the source code. The selection of the escrow agent is crucial as they need to be trustworthy, reliable, and capable of securely storing and managing the source code. The escrow agent also needs to have a clear understanding of the terms of the agreement, especially the specific events that would trigger the release of the source code.

Conclusion of the agreement

This part specifies that the Provider must enter into an escrow agreement if requested by the Customer. This means that the Developer must deposit the software’s source code into escrow, providing an extra layer of protection for the Customer.

Fees and costs

This part outlines who is responsible for the payment of the fees and costs associated with the escrow service. It is vital to have this clear to avoid disputes later. It could be either party, or both, depending on the agreement.

Terms and conditions

This is the heart of the source code escrow block where the critical conditions of the escrow arrangement are laid out. Some key aspects include:

  • Obligation to deposit source code:  This part specifies that the Provider must deposit the source code promptly after the escrow agreement is executed. It ensures that the escrow arrangement is set up in a timely manner.

  • Modifications:  This part requires the Provider to update the source code in escrow whenever modifications are made. It ensures the Customer has access to the most recent, usable version of the source code.

  • Release events:  This part details the specific conditions under which the source code can be released from escrow, providing a clear framework for when the Customer can gain access to the source code.

  • IPR and release:  This part clarifies that releasing the source code to the Customer does not equate to transferring intellectual property rights. The Provider maintains their intellectual property rights even in the event of a source code release.
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