On the heels of the Securities and Exchange Commission's Division of Market Regulation rule change concerning records preservation, Kidder Peabody recently became one of the first major Wall Street firms to adopt the use of optical-disc technology for record retention. The SEC's amendment allows broker/dealers to use optical-disc technology for storing business and legal records. Microfilm and microfiche have been the preferred mode since 1970; until then, the only acceptable medium was paper. Magnetic media has never been used because alterations cannot be detected.
The SEC outlined ten requirements to ensure that brokers/dealers maintain the integrity of stored data when converting to optical technology, while, at the same time, ensuring compliance with existing record-preservation standards. In general, these requirements cover broker/dealer internal responsibilities (facilities, audit systems, optical-disc storage, duplicate copies, and the like). Central to the SEC's requirements, however, is the notion of "technology escrow" whereby broker/dealers must place in escrow a copy of the physical and logical file formats of the optical discs and indexes, the field format of all different information types, the source code, and all appropriate documentation.
Although specifically targeted to the financial industry, the concept of source-code escrow has important ramifications for both software developers and licensees. Independent software developers quite naturally need to protect their intellectual property, hence they typically license only the object code, not the source code. Software licensees, however, need protection in case the developer disappears or otherwise defaults on agreed upon support requirements. By placing copies of the source code and relevant documentation in the hands of a neutral third-party, the licensee is guaranteed access to information needed to run the business, while software developers are protected from unnecessary technology transfers.
There are no standard circumstances that govern source-code escrow agreements. Relationships range from developers to end users, to more sophisticated alliances involving VARs, OEMs, venture capitalists, software publishers, software partners, and (in this instance) brokers/
dealers. The SEC optical-storage requirements are typical of software-escrow situations. Information is stored on optical discs, each comparable to a 12-inch LP record, which hold about 7 billion bytes, or 3.5 million pages of compressed data. The discs are housed in an automated disc library ("jukebox") for immediate inspection or reference.
Aside from the obvious marketing advantages of anticipating and preparing for the client's requirement for source-code escrow, technology-asset protection directly benefits the developer in other ways too. Specifically, escrow firms offer intellectual-property protection in four areas: