The dramas keep coming for Telecom with the collapse of a small software provider who owns the source code on which the XT network is built.  The public details are thin on the ground but there are allegations that the provider failed to comply with an escrow arrangement by not depositing the most current version of the code and, in any event, the receiver is refusing to release it.

Telecom’s case is not a one-off.  The GFC has resulted in the collapse of a lot of small software and tech companies.  This in turn has created a heightened customer awareness of insolvency risks, and the need for protection over critical third party software and solutions (including those provided via the web and cloud).

Generally, NZ software companies have preferred the ignore/avoid technique when dealing with source code issues.  However, in the current financial environment this attitude is likely to result in a loss of business, particularly when doing dealing with large companies in the States.  We have found it increasingly common for US corporates to make aggressive demands of NZ companies for access to source code, and this is not limited to escrow.  For example, we have seen US corporates demand source code “ownership” in their industry vertical or IP buyout rights as a starting point.  These demands are not just from customers – US partners or distributors are increasingly concerned about access to source code following the GFC.

Unfortunately for NZ’s software companies, the issue of access to source code is not going to disappear any time soon.  If you are planning to break into the US market, you may miss out on business opportunities unless you are ready to offer a credible solution that provides sufficient comfort to your customers or partners while protecting your IP.