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Why Escrow Services are a Necessity

Many companies are now taking advantage of the improved technology to maximize the use of various software solutions. This then means that companies have to license software from various developers. Because of the prohibitive cost of developing application software, licensors and licensees want to ensure that they protect their investments. For this reason, software vendors use escrow services to protect their interests as well as those of the licensee. With source code escrow, the developer is able to store the source code with a third party. This third party is known as the escrow agent and should be independent of both the licensor and the licensee. Either the buyer or software vendor can introduce the escrow agreement to protect their interests.

Software exists in two formats namely the object code format and the source code format. While the licensee gets the object code format, the escrow service providers remain with the source code format. This ensures the continuity of the software maintenance over time. Doing this also guarantees that any business using a particular software is cushioned against possible losses that arise from poor software maintenance. Escrow services are very important because they protect the businesses from the bankruptcy of the developer by ensuring that the source code is available for updates and routine maintenance. 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. There are so many people out there who are out to copy the ideas of different developers, and this makes it hard for the developer to surrender the source code to the licensee. The software escrow agreement has various terms and conditions that bind both the developer and the licensee. There are also numerous obligations for both parties. If any of the parties fails to observe these agreements, there are certain consequences. The source code escrow agreement outlines possible use or transfer of the source code which is key in protecting the rights of both parties.

The other function of the escrow agent is to verify the availability of the source code. The escrow services also verify that the software is working as it should which is also very important. It is always advisable for a licensee to use escrow services if the software supports a vital function of the organization or has a direct impact on the revenue. Also, when the price of the software is very high, it is only best to protect the investment with the use of an escrow service.