Keeping your source code safe
What happens if the software company you rely upon goes under? Keeping your code in escrow should provide peace of mind.
(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.
Safekeeping for source code
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.
Peace of mind
"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.