Out-Law / Your Daily Need-To-Know

Recession forces software escrow releases to jump by 150%

05 Jan 2010, 4:20 pm

A software escrow provider has reported a 150% increase in source code releases in 2009, compared with 2008. NCC Group said businesses’ relationships with software suppliers have been strained by recessionary pressures.

Software escrow is the holding by a third party of the crucial, and secret, source code that underpins a piece of software. That is 'released' to a customer if the supplier goes bust or fails to meet pre-agreed support or development obligations.

The release of the source code allows the customer to carry on using the software with support from third party developers when the supplier has gone out of business or failed to meet its contractual obligations.

NCC Group has said that the number of 'releases' of source code in 2009 is up 150% from the number in 2008. It said the increase was a result of the recession that has swept the UK and much of the world.

"As with so many supplier-customer agreements in 2009, a number of software providers have struggled to stave off insolvency and have seen client relationships tested as a result," said Jon Leigh, operational director for escrow for NCC. "The devastating effects of the downturn are well documented, and for businesses suffering during the recession, losing essential software could be the final nail in the coffin. The potential for software companies to become bankrupt is very real."

NCC would not disclose the actual number of releases involved, but Leigh told OUT-LAW Radio in 2008 that it released in "no more than about 50 a year" of the 8,000 escrow agreements it manages. If the figure for 2008 was 50 then last year NCC would have made around 125 releases.

Leigh told OUT-LAW Radio that there are four release events in a standard NCC contract. "One of which is going out of business, one of which is ceasing to trade which is pretty much the same thing but they decided to do so," he said. "Another one is failure to maintain, which means they have failed to carry out contractual maintenance obligations."

"The fourth one is assignment. [This is when] the software provider actually assigns the IPR [intellectual property rights] in the software to another company. That other company also needs to take over the obligations the escrow agreement and if they fail to do so within a certain timeframe that also constitutes a release event."