What is Intellectual Property Escrow?

Software is written in what is referred to as “Source Code” (the blueprint for a program), and then converted into “Object Code” for distribution. Similarly hardware is designed with schematics and technical documents that explain how the hardware works on a very low level.

In the traditional “Closed Source” method of developing software, the source code is kept as a secret, much the way a TV doesn’t come with a full set of schematics. This means that the end user is reliant on the developer of the code (or designs) for ongoing support, updates, bug fix, etc. If the developer goes bankrupt, or closes, then the end user would be forced to purchase a new application, and incur the costs associated with replacing the application.

This creates a problem of balance; The end user wishes to protect their investment against the developer going out of business, while the developer wants to protect their investment against the competition and loss of licensing revenue. Intellectual Property Escrow can be used to help strike this balance. Acting as an unbiased third party, an Intellectual Property Escrow provider can act as in intermediary between the end user’s desire for protection, and the developer’s desire for secrecy.

IP Escrow places the proprietary code into a deposit account, and creates a contract between the developer and end user. This contract spells out terms of release; generally bankruptcy or complete business failure, but sometimes including failure to provide updates or service, or purchase of the developer by a competitor. If one of the release triggers occurs then the escrow company releases the code to the end user.

What are some of the issues with traditional Intellectual Property Escrow?

While the release events outlined above may seem simple enough, they are generally laced with terms that make achieving the release harder, and limit the use of the code if it is released. In most cases the release terms require that the developer actually approve the release, which often requires arbitration or legal action to accomplish. If release is even achieved, a very strict licensing clause generally limits the use of the code, and may even be prohibitive enough to make the release meaningless.

In traditional Source Code Escrow both the developer and the end user sign contracts. This allows the escrow provider to charge both parties, and limits the number of end users that can take advantage of the escrow. Most escrow providers can provide an account that provides a beneficiary list, but the developer is charged for each client added, and must remember to add new clients.

What is Open Source Escrow, and how does it address these issues?

Open Source Escrow is a new concept for Intellectual Property Escrow that limits release triggers, changes the way that escrow agreements are written, and changes the license that is applied to the code that gets released.

The release triggers in Open Source Escrow are limited to closure or bankruptcy of the developer. While this trigger can be defined a little differently in each instance, the overall concept is that Open Source Escrow is designed to protect the end user from a developer that goes out of business or abandons the application

The escrow agreement in Open Source Escrow only includes the developer and covers everyone that uses the application. In Open Source Escrow only the developer signs the contract, and there is no beneficiary list. Since the code is released as open source there is no limit to who can receive the code if the developer goes out of business.

The biggest difference between traditional source code escrow, and open source escrow is the license that is applied to the released code. Instead of leaving the closed source license in place, and adding a contractual restriction on use, the license is replaced with an open source license. This means that there are no restrictions on how the code can be used by anyone that receives the code out of escrow.

Since these changes limit the entire escrow process, they also have the effect of lowering the cost of Open Source Escrow.