Safekeeping for Software
By Daniel Del Re


(Business 2.0) - Three years ago Trans World Entertainment, which owns the Coconuts and Wherehouse music chains, bought 12,000 listening kiosks for its stores. Wary that the rights to the kiosks' software belonged to a tiny startup called Fullplay Media Systems, Trans World asked Fullplay to entrust its source code to a neutral third party called an escrow agent. It was a prescient move: After the kiosks went live, Fullplay filed for bankruptcy, but Trans World was able to get the code and keep its kiosks running.

When software companies succumb to bankruptcies, acquisitions, or economic slumps, their clients are often left with no one to maintain their applications. That's why more and more software buyers are asking vendors to deposit CDs containing their source code in the secure, climate-controlled vaults of escrow providers such as Iron Mountain, the Boston records storage company, or Utah-based EscrowTech. Analysts have yet to estimate the size of the software escrow market, but providers say business has boomed during the past couple of years. Brian Burr, an escrow attorney with Orrick Herrington & Sutcliffe, estimates that 75 percent of business software agreements now require escrow, while Iron Mountain's master escrow contracts--most of them software deals--have grown 44 percent in two years. "Escrow has evolved from a niche service into a mainstream tool," says Iron Mountain VP John Boruvka. Boeing now requires subcontractors working on its $21 billion Future Combat Systems project for the Army to put code in escrow, and the practice is moving beyond IT as a way to protect patents: Biotech firms have even deposited genetic sequences with Iron Mountain. The trend is likely to gain still more traction in the future, since escrow costs as little as a few thousand dollars annually. And the peace of mind? Priceless.

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.