Johannesburg, 14 Sep 2005
India, one of the most exciting centres for IT outsourcing and development of this decade, has realised the advantages of software escrow with the establishment of an Indo-US joint venture that will be the first company in that country to provide professional software and technology escrow services.
The joint venture is between Chennai-based Global Business Solutions, a consulting firm, and EscrowTech International Inc.
Software escrow is a facility which protects a software licensee by ensuring that the licensee will have access to the source code (and possibly other materials) in the event that the licensor goes out of business, discontinues support of the licensed software, breaches maintenance obligations or some other release condition.
According to Andrew Stekhoven, a director of Escrow Europe (South Africa) and the pioneer of active software escrow service in SA, the establishment of EscrowTech India highlights the increasing importance of escrow in today`s IT-reliant business environment.
He said software escrow is already a well-established industry in North America and Europe, where companies have for years realised its risk-reducing and corporate governance benefits.
"The rest of the world, SA included, has been slower to realise the business principles behind software escrow but this is changing. India is a prime example. A hub of IT excellence serving global market, it has come to recognise that if it wants to retain this position it will have to adopt the policies its customers regard as important, and software escrow is one of those at the top of the list," Stekhoven said.
At the heart of any software escrow agreement is `access to source code`. Simply put, when a company licenses software, it more often than not gets a licence to use the machine-readable `object code` but not access to the `source code`, which programmers read and work in. The difference between the two codes is vast: only machines read object code, any changes that need to be made to a system must be done using the source code, which is the only computer code humans can read. If the developer goes bankrupt or refuses to support the software, the only way the licensee company can hire its own programmer to fix any glitches and make any changes or enhancements needed, is if it has access to the source code.
But developers don`t easily part with their source codes because they perceive it akin to giving Robin Hood the keys to the Tower of London. There is, however, a way across this impasse - source code or software escrow. Under an escrow agreement, the supplier and end-user of the software product agree that the source codes of the vital software product and related documentation are deposited with a neutral third-party - the escrow agent - who is authorised to release the materials to the end-user under conditions as agreed by the supplier and the end-user in a written agreement.
Such conditions may relate to operational risk, technical malfunction or even failure of the supplier who tailored and contextualised the software to the end-user`s business requirements.
The key objectives of escrow are therefore:
* Continuity of use of the software by the end-user under circumstances where that would be impossible without escrow.
* Safeguarding the underlying business process.
* Protection of end-users investment in the software, related hardware and staff training.
* Limiting the end-user`s total dependency on supplier for support and maintenance of the software.
A `passive` approach to escrow or intellectual property custodianship involves passive custodians (such as banks, notaries, legal firms) that may physically `hold` a copy of the software, source code and documentation et al but these custodians do not warrant that it is the `correct` or `up-to-date` versions.
Unfortunately, nine out of every 10 traditional unverified source code deposits held in escrow by `passive` custodians such as banks, attorneys, etc, are useless. They are therefore unable to meet the requirements of the IT component of the company`s business continuity plan should the original software supplier no longer be in a position to continue to support the system it provided.
However, with `active` escrow, the escrow agent verifies the property held at least once a year to warrant that the deposit contains what the supplier has committed to lodge so as to provide proper reassurance that it is up-to-date and usable. For example, Escrow Europe offers three levels of technical verification and reporting depending on how mission-critical the client considers the business application to be.
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