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Why Escrow Services are a Necessity

With the growth of technology, it has become extremely important for companies to take advantage of various software to improve business processes. As a result, companies have been licensing software from different developers. Because of the prohibitive cost of developing application software, licensors and licensees want to ensure that they protect their investments. Software vendors use escrow agreements to protect both their interests and those of the licensee. Software escrow involves depositing the source code of the particular application with a third party. The escrow agent is the third party in this case, and he is supposed to impartial so as to ensure the rights of both the licensor and the licensee are guaranteed. Source code escrow is very important and can be initiated by either buyer or the seller of the software application.

Software is available in two formats, that is, the object code format and source code format. As a licensee, you only get the object code format while the escrow gets the source code for safe keeping. This ensures the continuity of the software maintenance over time. This allows the business to cushion itself against losses that may arise from poorly maintained software. Source code escrow services protect the business using the application for any event including the bankruptcy of the developer which may terminate some services. Under the escrow agreement, the developer, has the responsibility to maintain and offer support to the licensee based on the agreed terms and if this is not fulfilled, the licensee has the right to acquire the source code.

Besides protecting the rights of the licensee, the escrow agreement is key to protecting the intellectual property of the developer. Due to the high number of software theft, developers are not comfortable with sharing their source code with the licensee. Both the developer and the licensee are bound by various terms and conditions clearly outlined in the escrow agreement. Both the licensor and the licensee have various obligations which they are required to fulfill. If any of the parties fails to observe these agreements, there are certain consequences. The use and transfer of the source code is clearly discussed under the escrow agreement.

Apart from storing the source code, the escrow agent has to authenticate the source code. There is also the need to ensure that the software is working as it should and thus the escrow agent has to verify this. While it is advisable to always use escrow services, those licensees who use the software to support a vital function of the company have more to lose and they should make sure they protect their investments. Some software is also very expensive which makes it prudent for the licensee to use an escrow service to protect their interests.