What Does “Source Code Escrow” Mean in a Contract?
An arrangement where software source code is held by a third party and released to licensees if specified trigger events occur.
Detailed Explanation
Source code escrow protects software licensees from vendor failure. If the vendor goes bankrupt, discontinues the product, or breaches the agreement, the escrow agent releases source code so the licensee can maintain the software.
Escrow requires upfront setup and ongoing fees. Trigger events must be carefully defined—vague triggers lead to disputes about release. Also consider whether you have capability to use source code if released.
Example in a Contract
“Licensor shall deposit current source code and documentation with [Escrow Agent] within 30 days of each major release. Escrow shall be released to Licensee upon (i) Licensor bankruptcy, (ii) Licensor discontinuation of the product, or (iii) material breach by Licensor that remains uncured for 60 days.”
Why It Matters
Source code escrow provides insurance against vendor dependency. But it's only valuable if you can actually use the code—consider whether you have technical capability or would need to hire developers.
Related Terms
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