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Tuesday, September 8, 2009

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What is Software Escrow?

When you contract with someone to write software for you, one decision, implied or explicit, is whether the source code belongs exclusively to the developer, or whether you get a copy. If you do, you have the safety of being able to have someone else make changes or fix bugs in the future, but the developer is giving up some of his or her potential control of that software. If the developer retains the source code and you don't have access to it, then you are dependent on the developer for all future updates. Typically developers will charge more if you get the source code.

That's where software or source code escrow comes into play.

As part of arranging for your software to be written, you and the developer can agree that a copy of the source code will be given to a neutral third party - an escrow agent. The agreement would then specify under which conditions that agent would be allowed to release the source code to you. For example one of the conditions might be the developer's bankruptcy or going out of business for other reasons. By using software escrow, the developer is protected as long as it makes sense for them to retain control, and you are protected should the developer disappear. (Naturally other conditions might trigger the release, but the developer's going out of business is a clear example.)

Software escrow is not fool proof. For example, what happens if the escrow agent goes away? And escrow typically adds some cost to your transaction.

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