| Don't
Be Afraid of Custom Software Development, Protect
Your Technology Assets! By Jim Ford, CEO,
Guard-IT Corporation
For Small Business Texas, February 2, 2000
How many business
owners invest in customized or proprietary
software or other information technology (IT),
purely at the mercy of its Developer? Nearly
every one. How many business owners have had to
reinvent the wheel because the Developer went out
of business, discontinued the product or its
service agreement?
Too many.
Unfortunately, this is a common situation.
Developers are, by
and large, honest and hardworking business
people. However, the turnover and volatility
inherent in the software development industry
results in a bottom-line increase in costs –
not to mention the sheer panic and frustration
– for business owners without recourse when
a custom software package and/or its Developer
goes south (or to Bankruptcy Court, or wherever).
Traditional
methods, like insurance or liquidated damage
provisions in the software license agreement,
don’t cut it. Insurance (i.e., cash payment
upon declaration of a loss) is completely
insufficient – the check will not and cannot
replace the computer system by which the
Licensee’s business lives and breathes!
Liquidated damages (still another inadequate cash
payment) are virtually impossible to predict and
are subject to complete dismissal by a court or
jury, should the scuffle between the Licensee and
Developer go to court.
However, business
owners need not despair and much less
“wing-it” when contracting for custom
software development. They can simply ask the
Developer to provide the only real solution:
third-party escrow of the software’s source
code and its support materials and documentation.
For under $2,000.00 including first-year
maintenance, an escrow agreement can be prepared
in a day or so, and eliminate the prospect of six
weeks’ of sleepless nights during a
development project.
Escrow binds the
Developer and Licensee(s) under a legal contract
that basically says, if the Developer goes south
(or to Bankruptcy Court, or wherever), the
Licensee may obtain an exact duplicate of the
source code, documentation etc. from the
third-party escrow company. The Licensee may then
use internal or external programmers to support
or repair the software.
Compared to the
replacement costs, downtime, reinstallation and
retraining required to build a new system from
scratch, software escrow becomes a
“no-brainer”, and a proactive win-win
for all of the Parties. Not only is the
Licensee’s benefit clear, but the Developer
also gains intellectual property (IP) rights
protection by the escrow, as the third-party
agent can independently authenticate its
ownership. What a deal!
As a closing tip,
Licensees and Developers should not place their
escrow with their own general counsel (or a
brother-in-law with a fire safe). Should a
dispute arise, it’s unlikely that either
Party’s attorney will be viewed as an
unbiased “keeper of the goods”. The
Parties should seek and hire an independent
company that specializes in escrow agreements.
Then, they can
both get some sleep.
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Copyright
1999-2012 Guard-IT Corp. All rights reserved.
Page updated 01.02.2012.
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