What is escrow? 

Escrow involves the holding of an article by a trusted third party ("an escrow agent") on behalf of two or more parties on the understanding that should a specific event occur (or fail to occur) the article will be released to one or more of the parties.

Originally used in property transaction in the USA, its application has spread to source code escrow and purchases over the Internet, where a third party trusted by both parties to the transaction, takes receipt of the goods and consideration, from the seller and buyer respectively and then releases goods to the buyer and payment to the seller respectively. In this way the parties ensure that they will receive performance, because it is put in the hands of the trusted third party.

Definition

ĕscrow´ (-ō´) n.

written legal engagement to do something, kept in third person’s custody until some condition has been fulfilled. [OED]

Why source code escrow? 

• When you licence software, you are generally only provided with the compiled "black box" version, which you are not entitled to tamper with. You are also generally prohibited from reverse engineering or decompiling the program

• When you have software developed for you, the developer may include certain proprietary middleware and other applications in the bespoke application developed for you, in which it will retain ownership and you will not be given access to the code.

• Due to the strategic nature of many applications, and the possibility that the relationship with the Licensor/ Developer may sour or they may go out of business, many users require that the source code of the relevant programs are put in escrow

How do I provide for it? 

• Escrow involves the holding of an article by a trusted third party ("an escrow agent") on behalf of two or more parties on the understanding that should a specific event occur (or fail to occur) the article will be released to one or more of the parties

• It is important that the right to access and the obligation to deposit the source code is provided for in your software licence/maintenance/development agreement.

• You and the vendor/developer will then enter into a software escrow agreement with Chattan Escrow.

• It is important to note that there are certain important provisions of South African insolvency laws which need to borne in mind when structuring your escrow arrangement. Please contact Chattan Escrow (Pty) Ltd if you require further advice in this regard.

How much protection do I gain? 

This is a much debated question. In some cases, the client will not have the expertise to modify the source code for its requirements. Thus in a worst case scenario, the source code is useless to you - but you are in no worse a situation than you would have been if you didn't have it, whilst there is always the possibility that you will be able to use the code. In addition, the mere threat of calling for the release of the source code, may spur the vendor into compliance. It is essential that sufficient permissions and rights to modify the source code are incorporated in your base documents to ensure that you can use the code for the purposes you require it for. This includes, amongst others, the right to appoint third party programmers and even a waiver of any "anti-poaching" provisions relating to staff of the vendor. 

How does it work? 

The base agreement and the agreement with the Escrow Agent will provide for certain "trigger events" which will entitle the client to call for the release of the source code. In terms of our approach, we require written agreement from both parties, or failing which a court order, authorising us to release the source code to one or other of the parties. This removes any discretion from ourselves and prevents us from favouring one party above the other, or being called upon to resolve a dispute. It also prevents one party from removing the source code from escrow without the knowledge/consent of the other.

How much does it cost? 

Chattan Escrow is in the privileged position of being able to structure escrow packages that make sense to its clients. Whilst we have standard pricing for a wide range of services, we are happy to discuss your particular needs to derive the best approach for our particular clients. A schedule of our rates can be acquired by mailing info@chattanescrow.co.za, or call John McPherson to arrange for a free consultation.

How do I ensure that the code submitted is the code for the software I have licensed?

Typically this would involve some form of verification. Whilst Chattan Escrow does not offer verification services as a matter of course, these can be provided should the beneficiary require same. For more information on this topic, please see our article “Source Code Verification – Trick or Treat?”