Source Code Escrow

Where software is provided on a licence basis the licensor will agree to provide maintenance or updates of the software to the licensee. In some circumstances the licensor will fail to provide these services and in such cases the licensee will face serious problems because in most software contracts the licensee will only have been provided with the object code and not the source code.

One common way round this problem is to put the source code in escrow. Under the terms of the escrow agreement the source code will be held by a third party (the escrow agent) who will release the source code (escrow material) when certain triggers occur. For example not providing the agreed maintenance services, see Cardbase Technologies Ltd v Valucard Nigeria [2002] EWHC 991 (Ch).

Where a licensor has gone into administration of liquidation the administrator or liquidator may be able to challenge release under an escrow agreement as a ‘preference’ (section 239 Insolvency Act 1986) or even as an unprofitable contract (section 178 Insolvency Act 1986).

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