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Source code escrows usually aren’t worth the bother

Shawn C. Helms and Alfred Cheng, two associates in Jones Day’s Dallas office, write in CIO Magazine about something I’ve been saying for years: [1] Source code escrow clauses are almost never worth negotiating in a software license agreement, because it’s seldom ever cost-effective for a customer to get source code out of escrow and use it.  The authors articulate several specific reasons, some of which I’ve paraphrased below:

  • The software vendor is likely to go to court to fight a release of source code from escrow. The resulting delay alone might destroy much of the business value of the escrow to the customer.
  • The customer’s IT staff likely doesn’t have time to do anything significant with the escrowed source code (including the non-trivial task of coming up to speed in how it works). And there’s probably no budget to hire the additional bodies that would be needed.
  • The odds are that the escrowed materials will be incomplete, sometimes materially so, because the vendor likely considers it a low priority and the customer doesn’t police the vendor’s contractual compliance.

A source-code escrow can sometimes be highly appropriate. If a customer’s business relies on custom-built software that’s unavailable anywhere else, then an escrow might be crucial — but in that situation, the customer has to monitor the vendor’s compliance and be ready to do the needful with the code.

If the software is a commercial package, however, the customer often won’t even bother trying to use escrowed source code: Instead, it will simply rip out the offending software and switch to a competitor’s offering.  (In situations like this, competitors are often happy to give away displacement licenses for free in order to get the future maintenance revenue stream, and so that their sales reps can tell prospective customers that they displaced the fired vendor.)

[1] See D.C. Toedt, Encryption: An Inexpensive Alternative to Escrow? 11 The Computer Lawyer 19 (Nov. 1994).

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