Foley Equipped
Insights

What is a source code escrow, and should I ever agree to one?

A source code escrow is an arrangement where the source code of a software application is held by a third-party escrow agent. The primary purpose of a source code escrow is to protect the interests of the customer (licensee) in the event that certain conditions occur, such as the developer going out of business or failing to support or maintain the software. For instance, if the software is operationally critical to the licensee, this provides some assurance that they may be able to continue to use the software if the licensor stops supporting it.

If you are a licensee of software, below are some scenarios where it may make sense to request a source code escrow from your licensor:

  • Mission Critical Software: If your business depends on a specific software application for essential functions, and the vendor is small or has a limited track record, a source code escrow provides a safety net in case the vendor stops supporting or maintaining the software.
  • Long-Term Contracts: If you are entering into a long-term agreement for software licensing or custom software development, it may be a good idea to ensure that you are protected in case the vendor cannot fulfill their obligations in the future (due to financial or other reason).
  • Custom or Proprietary Software: If the software is highly customized or tailored to your specific business needs, the absence of ongoing support from the vendor could significantly disrupt operations.
  • Requiring a “Safety Net”: In some industries, such as healthcare, finance, or government, software reliability and uptime are critical. A source code escrow provides an extra layer of security that ensures continued access to the software’s code in case of vendor failure.

If you are a licensor, whether or not to accept a source code escrow often depends on the reasonableness of your customers’ requests and leverage. If you do accept a source code escrow, you want to ensure that it is limited in scope and duration and has limited release conditions. For example, if you are a provider, you should push to limit release conditions only to business-ending conditions such as bankruptcy. 

Subscribe to our newsletter
Subscribe

© 2025 Foley & Lardner LLP
Attorney Advertisement
Images of people may not be Foley personnel.

This blog is made available by Foley & Lardner LLP (“Foley” or “the Firm”) for informational purposes only. It is not meant to convey the Firm’s legal position on behalf of any client, nor is it intended to convey specific legal advice. Any opinions expressed in this article do not necessarily reflect the views of Foley & Lardner LLP, its partners, or its clients. Accordingly, do not act upon this information without seeking counsel from a licensed attorney. This blog is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Communicating with Foley through this website by email, blog post, or otherwise, does not create an attorney-client relationship for any legal matter. Therefore, any communication or material you transmit to Foley through this blog, whether by email, blog post or any other manner, will not be treated as confidential or proprietary. The information on this blog is published “AS IS” and is not guaranteed to be complete, accurate, and or up-to-date. Foley makes no representations or warranties of any kind, express or implied, as to the operation or content of the site. Foley expressly disclaims all other guarantees, warranties, conditions and representations of any kind, either express or implied, whether arising under any statute, law, commercial use or otherwise, including implied warranties of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Foley or any of its partners, officers, employees, agents or affiliates be liable, directly or indirectly, under any theory of law (contract, tort, negligence or otherwise), to you or anyone else, for any claims, losses or damages, direct, indirect special, incidental, punitive or consequential, resulting from or occasioned by the creation, use of or reliance on this site (including information and other content) or any third party websites or the information, resources or material accessed through any such websites. In some jurisdictions, the contents of this blog may be considered Attorney Advertising. If applicable, please note that prior results do not guarantee a similar outcome.