What is software escrow?
Software escrow, also called source code escrow, is a guarantee for the benefit of companies that use and depend on software. In the event that the software company that provides the software went out of business or filed bankruptcy, the source code for that software would be available and given to the company that uses and depends on the software.
Source code, which is the instructional code used to compile the software, is necessary for any changes that might need to be made to the software, such as new functions or optimizations. Any updates that are needed are usually provided by the software company, but if that company becomes indisposed and cannot update the software, the companies that use the software could, under a software escrow agreement, take the source code and either update the code in-house or contract out a different software company to take over updates for the software.
When the software is licensed to a company, the source code is placed in the hands of an escrow agent, who, in the event of a bankruptcy, would transfer the source code to the licensee company. Placing the source code in the hands of an escrow agent instead of directly into the hands of the licensee is a safer alternative for the software company, who views the source code as a trade secret to be guarded.