Your business can’t run without software.
What would you do if you woke up one Monday morning to learn your vendor had gone out of business? Suddenly, you’ve lost access to the mission-critical source code you need to get through the day. Someone else’s misfourtune is costing you money and frustration as you scramble to piece together a serviceable solution. Worst of all, you’re losing client trust as you dig for inaccessible data and navigate strained relationships.
If you had an escrow agreement, that Monday morning would be business as usual. What is an escrow agreement for software, and does your business need one?
In essence, software escrow agreements protect licensees and software vendors. You’ll work with a neutral, independent third-party escrow agent to store critical code and materials. This can efficiently mitigate risk for both parties.
An escrow agreement for software, source code, SaaS applications, or IP can protect your business. Continue reading to learn how.
What Is an Escrow Agreement For Software?
There are three main parties involved in a software or code escrow agreement:
- The licensor, vendor, or owner of the software or code
- The licensee, beneficiary, customer, or user of the software or code
- The neutral, third-party, independent escrow agent
Both the licensor and licensee have a vested interest in the code or software. For a licensor, the software is their product and may include their proprietary source code or IP. They deserve to know who has access to their code and materials and under what circumstances.
The licensee needs the software to complete mission-critical tasks. Losing access to the software or the ability to update it could result in loss of data or business.
What Goes Into Source Code Escrow Agreements?
Putting something “in escrow” means keeping it in a secure location. We refer to the software, code, and other information in escrow as the “deposit materials.” A reputable escrow agency will keep these materials in at least one secure off-site location. The best agencies offer multi-site storage and archival conditions.
The neutral third party, the escrow agent, serves as a legal intermediary between both parties. Their role is to help determine which deposit materials will go into the escrow agreement. In nearly all cases, the source code is the primary material in question. You might also choose to include build instructions, utilities, or other proprietary materials.
Your ideal escrow agent will offer flexible custom agreements tailored to your needs. They may even be able to help you develop an agreement for SaaS licenses.
Understanding Deposit Materials and Release Conditions
Next, the escrow agent will help you determine the specific release conditions for your agreement. The release conditions are the triggers that determine when the agent may release the deposit materials to the licensee.
Release conditions in software escrow agreements may include:
- The licensor going out of business
- The licensor filing for bankruptcy
- The licensor is in breach of maintenance obligations outlined in the agreement
Both the licensor and licensee should have a say in the specific release conditions outlined in the final agreement. When the conditions are met, the licensee may file a request for release. The licensor has the opportunity to object. At that time, arbitration can occur with no interruption in service.
The Benefits of Software Escrow Agreements
The most significant benefit of entering into a software escrow agreement is peace of mind. As a licensee, you will not lose access to the mission-critical software that keeps your business running. As a result, you will save stress, time, and money and maintain your client or customer’s trust. All data will remain safe and accessible.
For a licensor, the greatest benefit is building and strengthening relationships. The willingness to enter an escrow agreement demonstrates confidence in your business and product. Likewise, licensors gain peace of mind. They will know exactly who has access to their source code and when.
Choosing a Software Escrow Agent
When choosing a software escrow agent, look for the following:
- Reputation: The best software escrow companies attract and maintain high-profile clientele. EscrowTech works with half of all Fortune 500 companies.
- Longevity: A great software escrow agency will have years (if not decades) of experience. Likewise, they should possess a willingness to innovate as times and needs change.
- Data storage facilities: EscrowTech offers two-site data storage in a granite mountain with 24-hour armed security.
- Technical expertise of the staff: When drawing your agreement, the staff should understand the materials. They need enough background to make sound recommendations.
- Legal expertise of the staff: An escrow agreement is a legal document. The staff at your escrow agency should have the legal expertise to craft a legally sound agreement.
- Flexibility of agreements: One-size-fits-all agreements aren’t appropriate in our rapidly changing technological landscape. Flexibility is a must.
- Ease of material management: EscrowTech offers secure online material management to make updating your deposit materials easy.
Likewise, many escrow agents may be able to offer unique escrow agreements. These may include technology escrow agreements for non-code technology.
Protect Your Mission-Critical Data With an Escrow Agreement
An escrow agreement for software exists to protect both licensors and licensees. It can help vendors establish confidence and trust while protecting their assets. Likewise, it allows businesses to maintain uninterrupted use of their most mission-critical software and code. A dependable, independent, third-party escrow agent can help you craft an agreement that protects everyone’s interests.
An innovative software escrow company can even help you generate an agreement for SaaS and other less tangible technology. Learn more about our software escrow services and discover peace of mind with our industry-leading security.
