Source code escrow

Definition

A third party holding the code for customers, on release terms bankruptcy law narrows.

Why It Matters

Enterprise contracts often require one, and a small software company that signed the clause and never set the arrangement up has a breach sitting in its largest accounts. The clause almost always names a bankruptcy filing as the release event, and that is the one trigger that does not work: the bankruptcy code voids a contract term conditioned on the filing itself, on insolvency, or on a trustee taking over. What does work is the customer's own election once the trustee rejects the contract, which preserves its rights under the license and any supplementary agreement, including a right to obtain the code from another entity. That last phrase is what reaches the escrow agent. Two limits survive. The release turns on rejection and an election, not on the agent's reading of a clause, and the definition of intellectual property it runs on leaves trademarks out, so a customer gets the code and no right to keep selling under the name. Ask which contracts require it, whether the deposit is current, and when it was last verified.