Source Code Escrow Agreement 101 - Understanding the Basics
Every software has a unique code created by the programmers of the software. Source Code Escrow or Software Escrow relates to depositing that unique programming source code of certain software in the hands of a third party that acts as an agent.
An escrow agreement is necessary when the programmer is the owner of the code. In these cases the programmer usually does not provide the licensee a copy of the source code. This situation can be very risky for the licensee because the programmer may abuse his possession of the source code. Moreover, the licensee may find himself in a situation that the programmer is out of business.
The source code escrow agreement should include the following terms and conditions:
1. Deposit of source code - the agreement should stipulate when will the programmer deposit the source code with the agent. The agreement should also state that modification of the source code will also be deposited with the agent.
2. Storage - the agreement should stipulate the method according to wich the agent will store the source code.
3. Escrow Fees and Charges - the agreement should stipulate the payable amounts to the agent, as well as the identity of the paying party and the terms of each payment.
4. Term and termination - the agreement should stipulate the period during which the Agreement shall remain in force until the Escrow Materials are released to the Licensee. In addition, the agreement should stipulate the conditions to terminate the appointment of the agent.
5. Release of source code to the programmer - the agreement should stipulate the conditions for destroying the source code or releasing it to the programmer. For example, if the client consents to such release; if the client is in material breach of the agreement; or if the client becomes subject to insolvency administration.
6. Release of source code to the client - the agreement should stipulate the conditions for destroying the source code or releasing it to the programmer. For example, if the programmer consents to such release; if the programmer is in material breach of the agreement; or if the programmer becomes subject to insolvency administration.
7. Use of the code by the client - the agreement should stipulate that whether the client will be entitled to use, modify and copy the source code in the event that the source code is lawfully released to him.
8. Liability of the agent - the agreement should stipulate whether the agent will be under any liability to the programmer or to the client in respect of any loss or damage caused.
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