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1 Rutgers Bankr. L.J. 1 (2002-2003)

handle is hein.journals/rutgblaj1 and id is 1 raw text is: THE SOURCE CODE ESCROW: A WORTHWHILE OR WORTHLESS INVESTMENT? by Walter D. Denson* INTRODUCTION Gameco Manufacturing Inc. (Gameco), a fast-growing home video game manufacturing company, has begun to expand its operations and requires a new computer system to keep pace with its expansive data processing needs. Gil Bates is the director of Gameco's technology department. While attending a trade show in Chicago, Bates witnessed the demonstration of a new software technology developed by Softco Solutions (Softco). Though Softco has only been in business for two years, it is beginning to build a very strong reputation in the technology community for its efficient and innovative software products. Bates thinks this would be ideal for Gameco as it would meet all of its data processing needs, as well as increase efficiency and cut cost. Negotiations between Gameco and Softco take place, and subsequently the two companies enter into a licensing agreement. Typical of most software licensing agreements, Softco delivers only the software's object code and withholds the source code, the blueprint of the software. Softco is extremely reluctant to divulge the source code, as most software vendors are, for fear that its trade secrets will be misappropriated by the licensee or a third party. Such misappropriation will allow these other parties to copy the program and thereby benefit from the vendor's innovations without having to incur any of the development costs of the vendor. Without access to the source code, however, Gameco is dependent upon Softco to correct any bugs or defects in the software, as well as perform any necessary maintenance. Consequently, Gameco, realizing the vulnerability of this position, requires Softco to enter into a 'maintenance agreement1 wherein Softco agrees to update, debug, and maintain the software for the term of the contract. Gameco is very enthusiastic. The demos were very impressive, and all of the bugs have apparently been eliminated. The software is rolled out company-wide, and over 10,000 employees have been trained on the system. Although the total cost of the software package is over $2 million, Gameco is ecstatic when thinking about the competitive advantage it will gain in the market as a result of the time and money it will save through the use of the new technology. * Second year student at Rutgers School of Law -Newark. Bachelor of Arts degree in economics from Syracuse University. 1 Typically, the costs of most maintenance agreements are annual, and are based upon a percentage of the license fees (varying from 10% to 50%). It would be prudent for a licensee to negotiate for the maintenance agreement to last for the expected life of the software. See Peter Vogel, System Acquisition: Protecting the User, 547 PLI/PAT 1083, 1085 (1998).

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