Software Escrow – Creating Safe Applications

Building a software application can be easy as writing some codes which just involves some programming skills. However, if you want to dive to the corporate software industry, you must understand how to safeguard the intellectual properties (IP’s) of your applications.

In addition, you need to know everything about software escrow. An escrow firm keeps the sources of your software in the event that something happens to your firm or your developers. The service prevents your client from having direct access to your code and therefore they can’t re-sell or misuse it without your consent.

Escrow agents assist software company on their needs and the success is always tremendous. Whilst being a software developer can land you in an IP triangle, escrow experts ensures your business continuity when you seek their services.

As a programmer, you have learnt for many years, researched and even invested your money in hardware and software resources. You don’t want you to get involved in a legal battle and this is the primary objective of an escrow firms.

Benefits of a software escrow

Safeguarding your precious source code assets

Tons of source code including algorithms and complicated functions can take many years to code. When a client consults your firm for a custom software, exposing the logic of how your application works in plain text will affect your intellectual properties.

In some cases, a malicious client may resell your software application to other companies and compete against you in the future. The work of the escrow firm is to safeguard your valued source code so that it does not get scattered across multiple customers.

Ensuring business continuity

We have all heard cases of some big companies going bankrupt either due to poor management or unfair competition.  In other cases, the main business of a company can become less viable forcing you to pack and leave the industry.

But the question arises on what will happen to the maintenance of the software that you sold to a company that relies on it for their day to day operations.

A software escrow firm ensures business continuity in such a case. If you go bankrupt or your developers perish probably in an accident, the escrow firm can pass your sources to your client as agreed in an escrow contract.

Since most of the custom software applications have a well documented source code, the client can find another software firm to continue with their development. Addressing the concerns of the client is very important in business and this is where escrow agents come in.

Maintaining the software for a long time

Software escrow is not just about keeping your source code safe. It also helps you to have a formally written contract with your clients and this leads to smoother and successful negations.

This means you can maintain the software for a very long time and make more profits during the lifetime of the application. Without an escrow service, your client can terminate the contract at any time because they can hire another firm or probably employ an in house developer.

With a formal agreement, your license must stick with your services or terminate your services officially as agreed in the contract. This means that your efforts as a developer/software firm are rewarded. This ensures that you don’t waste years building custom software that will only get deprecated after a few days of usage. Remember such interruptions can damage your business.

Parties involved in a software escrow agreement

Every contract must have some parties and this is a not different in the software escrow agreement. The parties involved here include:

  • Licensor: This is the developer or the firm that is creating software application for another business. Think of the licensor as a programmer or an IT company.
  • Licensee: This is the client who requires the services of a software company. The word licensee arrives from the sense that the client is licensed to use a certain software application by another company if they are able to meet their terms of  contract.
  • Escrow firm: Finally, the escrow agent bridges the gap between the licensor and the licensee. The agent is the most important party in the software agreement. The company must have a proven track record, trustworthy and be in good financial standing. Of course you don’t want them to get bankrupt before you even start getting loyalty fees from your client for that cool app that you created. Their data centers should also be safe and their business should have sound legal and technical expertise including well staffed offices.

What does the software IP agreement cover?

  • Scope of the agreement. This covers everything about the needs of the licensee. The scope simply defines the modules, libraries and technical requirements of the software and the hardware components.
  • Conditions that must be met by all parties. Software escrow agents do not just release the source code to the licensee at their discretion. They follow some specific conditions that must be met before doing this. Also, the licensor roles and duties are listed on the conditions. For instance, the firm must maintain the latest source code with the agent at all times.
  • Possible use of the source code by licensee once the source code is released to them. The software IP agreement must precisely define whether and how the licensee can re-use the source code once it has been released to them. For instance, it might allow/prohibit any modifications that may interfere with the software logic or just allow changes because their business needs may be  dynamic in nature.
  • The agreement should also cover the source code, details of the programmers as well as the client’s data in case of Software as Service (SAAS) applications.

Scenarios that call for a software escrow agreement

The escrow service is recommended to all software companies targeting the corporate world. However, the cases below call for an urgent need for the same:

  • When the client software is pivotal to the operation of the business. E.g. in manufacturing industry.
  • When the application can have a direct effect on the income of the organisation. A good example is in the supermarkets point of sale module. Slow or non-functional software can affect the income of the organisation since most customers hate waiting when checking out.
  • When the software is so much customized that replacing it would require a lot of time. Tailor made software must be escrowed at all times because they take many years to design and code and if  the developers fail,the licensee could be disadvantaged.
  • When the software price is extremely high. Large corporate maintain very expensive software code bases and they can’t afford to lose them when a development company closes or goes bankrupt.

Available options

  • Single user software agreement: Usually involves one licensor and a licensee and is popular with custom software.
  • Multi-user software agreement. This is applicable in an application tailored to work for different firms that have identical needs. In case there is a problem with the licensor, the source code is released to all licensees.
  • Tailored software agreement. Depends on the features of the software including re-sellers and other parties that are involved in the life-cycle of the development. This kind of agreement is fully customizable according to the needs of all parties.

 Conclusion

In a nutshell, it is extremely hard to thrive in the software industry without relying on the services of an escrow agent. This is both true for the software provider and the licensee.

To be safe in all circumstances especially in the event of developer demise, the software escrow is very important since it allows business continuity while avoiding legal breaches.

So, if you are thinking of selling any software application, get the help of a professional escrow service . You will need to deliver your source code to them and other materials for safe custody as your software evolves.

In case a release condition occurs, your valuable IP will be treated as per the written agreement.

Links:

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