The source code of a software program is the detailed specification or “blueprint” of its creation, operation and functionality and although it is not required for the normal commercial use of the program by an end-user, it is needed for the purposes of modification, enhancement, “debugging”, support or indeed, rectification of defects.
The source code therefore highly confidential and the owner of the copyright of the software will not wish to disclose the same to any end-user or distributor even though such parties have entered into an agreement or licence with the Software Owner for use or distribution of the software.
The source code is therefore highly confidential and the owner of the copyright of the software (the Software Owner) will not wish to disclose the same to any end-user or distributor even though such parties have entered into an agreement or licence with the Software Owner for use of the software.
However, as escrow is now more commonly requested by licensees and indeed can be a positive marketing advantage for a software owner, the Software Owner can voluntarily enter into a multi-licensee escrow agreement for the benefit of all licensees of its software who wish to register and pay a small fee for the benefit of the protection that the source code will be made available to them in the event that the Software Owner goes out of business or is in material breach of its obligations to support or maintain the software to a proper operational standard.
As escrow services have matured over the years, there are many independent third-party organisations which offer specific escrow arrangements. In the case of multi-licensee arrangements set up voluntarily by the Software Owner as in this particular Contract, the Escrow Agent is appointed by the Software Owner. The Escrow Agent is contracted to hold the source code until such time as the registered licensees’ licences have expired or have terminated or until the occurrence of certain specific events, usually the liquidation or material breach of the Software Owner, whereupon the Escrow Agent is authorised, upon certain conditions specified in the Escrow Agreement, to release the source code to the registered licensees.
The purpose therefore of an Escrow Agreement is to provide for the terms of deposit of the source code and the conditions of its release to end-user licensees or its return to the Software Owner.
If drafted for the benefit of the Software Owner, which is the case in this Contract, the obligation to deposit may only relate to the source code and not for example, also to software listings, object code and all drawings and specifications which together describe every aspect of the software and every step in its creation. The obligation which is the least onerous for the Software Owner is to deposit the source code at the outset and not be required to continually update the source code as the software is debugged and enhanced throughout the duration of the agreements or licences with end-user licensees. If such is the clause then clause 3 can be amended accordingly.
In addition, from the Software Owner’s viewpoint, this Contract does not require the Escrow Agent to verify or check that the source code which it is actually holding is indeed that which the end-user licensees uses (as is the case in Contract 15). The verification process is very important to the end-user to ensure that, in the event that the escrowed material is released (i.e. on the owner’s liquidation or default or other Release Event ), it will prove to be not only the correct software but also the version used by the end-user licensee (see Explanatory Note to Contract 15).