Embracing escrow

This article first appeared in issue 239 of .net magazine – the world's best-selling magazine for web designers and developers.

For small and busy web design and development agencies, the legal protection of ideas, designs, creativity and code is unlikely to be at the forefront of most directors’ minds. But intellectual property is a web professional’s most treasured business asset. Research firm Forrester estimates that proprietary information and trade secrets represent two thirds of an organisation’s value. Should the worst happen, you need to know your company’s most precious intellectual property is safe.

Escrow provides a secure, independent repository for everything from software code to manufacturing designs. Source code escrow originally came into play to protect the licensees who were receiving the object code from a compiled language such as C++ or Java. While object code is not a problem that developers working with alternative languages and frameworks face, there are situations where an escrow agreement would be appropriate.

Imagine a design agency working with a developer to create some custom code for a client’s website. If the developer suddenly disappears – either because they’ve gone out of business or been taken over by another company – where can the agency turn for software amendments or updates to the original code? For the developer, an escrow agreement protects code from theft or being sold or given away by a partnering agency. The potential impact, including process disruption, data loss and compromised security, could have far-reaching implications for a business’s finances, operations and reputation.

While the web community thrives on trust and the sharing of information, the protection and integrity of that information remains crucial.

Test the software code

When it comes to software code, the argument over who owns the rights to that code can become a legal minefield. Far better to have your business-critical software placed in independent escrow with a binding contract that outlines mutually agreed terms and conditions of access and ownership. One form, three signatures: vendor, supplier and escrow agent. The supplier hands over the code to the escrow agent and it’s job done. Well, not quite.

While an escrow agreement protects assets and mitigates against risk, should the supplier go out of business, the software must be tested by the escrow agent. This is an important step. Without thorough testing, the software code held in escrow could be faulty – rendering it useless.

An escrow agent can perform several levels of testing to ensure that the software will function correctly in the licensee’s own environment. If the software is unavailable in the event of a website failure, investment will be needed for new updates, hardware and retraining.

Many companies simply sign the form and store the information submitted without question. But failure to analyse and verify the information can completely negate the peace of mind and business security offered by escrow.

Schedule regular updates

However, if the escrow code is not updated regularly, eventually it will become outdated and unusable. Although the source code in escrow should always be kept up to date with the software that the licensee is using, it’s impossible to always know when production software has been updated. A compromise needs to be reached with a requirement in the escrow agreement for software updates to be made at regular intervals.

All parties involved in an escrow need to put effort in and regularly test key parts of the relationship, to make sure it remains strong and robust – not just sign and file away the agreement. By taking this approach, long after contracts have been signed, escrow can make the difference between a long and prosperous business relationship and a short-term fling that ends in a messy break-up.

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