A Source Code Escrow Agreement (“Escrow Agreement”) governs rights of parties that deposit source code of specific software with a third-party escrow agent. Source code escrow is generally required by a party licensing the software (“Licensor”) in order to protect the source code from being released to a party receiving the software (“Licensee”).
A source code escrow agent takes custody of the source code from the Licensor and releases it to the Licensee only if the conditions specified in the Escrow Agreement are met.
A comprehensive Escrow Agreement will ensure that the Licensor is protected in the following ways:
- Licensor retains the copyright protection to the source code even after it is released to the Licensee;
- The agreement limits the circumstances in which the source code is released to the Licensee. For example, the source code will be released when a Licensor files for bankruptcy protection or fails to update the software as necessary;
- The agreement requires that a demand for the source code be made to and approved by the Licensor before it is released;
- The agreement contains a confidentiality clause or an accompanying confidentiality agreement that requires the Licensee to keep the source code confidential, and
- The agreement places restrictions on how the source code can be used by the Licensee after it is released.