How do you handle customer requirements of “depositing” product source codes?

escrowIn todays exacting times, large corporations like to secure their business continuity on IT products and services sourced from smaller companies, by seeking access to the basic product source code. While the smaller IT companies spend man years developing cutting edge technology solutions, this sharing of the source code could kill their future and business.

The way out is an “Software Escrow Account” a win-win solution for both !!!

With due protection and security built into the storage / access and building adequate clauses on infringement and penalties at the customer end, this is a well established and acceptable process, helping  maximise the business potential for both.

The changing paradigms of the software and IT industry as well as increasing customer expectations have raised the stress on start up software and IT companies. On the one hand software start ups face threat of losing their valuable software to the infringers and on the other hand their clients demanding source code of the software for enabling better management of customizations are on the rise. Now here lies an underlying problem, the moment these software companies reveal their source code to their clients, the software would become vulnerable to infringement as there will be a high probability that a new product could easily be developed/ reverse engineered. On the flip side if they don’t reveal the source code, the client would not be satisfied and eventually these companies would lose their client base in an increasing competitive market.

Legally speaking, the standard approach in such situations would be to enter into Non disclosure agreements and non compete agreements which can only offer limited protection. These measures are merely paper measures which assert already existing rights of the software developer and actually fail to protect the copyright in the existing software product as the source code which when revealed by these software companies to the clients is hard to detect if it gets infringed.

The alternative therefore is to take affirmative measures which would prevent such an infringement. Escrow agreement and using the technology protection measures to give only limited access to the source code are win-win solutions for both client and the software developer whereby:

  • The client would have the desired access to the source code subject to terms of contract.
  • The Software developer has rights under the contract which would in-turn ensure that the client could not reverse engineer the product.

Successfully implementing these legal solutions can help software industry to maximize its potential and minimize the risks by using legal tools that have been tried and tested in finance and banking industry.

Guest Post contributed by Taron Mohan (Next Gen Solutions) and Aasish Somasi (Anand & Anand)