Understanding Software Escrows

3d rendering man making a code on a computer

What’s At Stake

Like artistic works and inventions, software is a product of the mind.  In other words, it’s intellectual property.

That makes it uniquely subject to a number of risks. For example, it’s easy to steal.  In fact, the theft of U.S. intellectual property has been called “the greatest transfer of wealth in human history.”

It’s subject to other dangers, too, and those dangers do not just affect the software vendor.

Software must be reliable, not only when considering bugs and downtime, but good software requires a stable and reliable software vendor.  Prospective customers – especially business customers – heavily rely on software to do their daily business and if the software vendor fails to support their software or simply disappears the customer can find themselves in a world of problems.

Maintaining Business Continuity With Mission-critical SaaS Applications

SaaS applications are universal features of the modern business world. Unfortunately, they don’t always come with the guarantees that they should.

No matter what kinds of software your clients license or use, they run the risk of massive failures if they don’t offset their dependency on vendors with viable backup plans. From data center disasters to software providers going under, your clients’ reliance on third-party tools endangers their day-to-day operations and ongoing profitability.

 

The Risk Defined: What Happens When Software Disappears?

Continuity is vital to doing business. Your clients’ customers won’t simply give them a pass because their software wasn’t working on a particular day or because they got hacked. Although most companies are diligent about securing their own internal systems, they expose themselves to the mercy of fate when it comes to their software vendors.

The dangers of ineffective continuity planning are all too real. Some sources estimate the amount of revenue lost annually to IT downtime to be in the $26 billion range.

The history of IT continuity planning is also riddled with examples of huge companies dropping the ball. For instance, Hurricane Sandy shut down the New York Stock Exchange in 2012, and as recently as 2008,  Google Apps suffered major outages. The IT world has certainly come a long way since those dark days, but such events still underscore the need for corporate continuity planning that ensures companies can keep functioning after they lose vital services and SaaS components.

There are several basic forms of software escrow agreement depending on what you and your business needs:

    1. The most basic and fundamental software escrow agreement is the standard three party agreement.  This type of agreement is entered into by a software escrow agent (EscrowTech), a software vendor and a licensee.  A standard three party agreement is perfect for a situation where a single licensee is requesting a software escrow however the software vendor does not want to set up an escrow for their other customers.
    2. The next type of escrow is a multiple party agreement.  This allows for a software vendor to set up an escrow and register one more licensees to their escrow.  This allows for a software vendor to keep a single escrow account for all of their licensees.  This greatly reduces the amount of time it takes to manage an escrow and significantly reduces the escrow’s cost.
    3. The next type of escrow is for multiple licensees spread across multiple software products.  Instead of managing multiple escrows this type of escrow allows you to have one central agreement to manage everything.  Like before this greatly lowers the amount of time spent managing an escrow and their associated costs.
    4. Some licensees need something more flexible.  In this situation a licensee creates an escrow account that allows for multiple software vendors to register.  Each software vendor is given a separate space in an escrow vault and can submit escrow materials for the licensee.  This is a great way for a licensee to organize all of its escrow accounts.
    5. The next type of escrow is a minimum service escrow.  This type of escrow allows for a software vendor to create a multiple party escrow without paying a licensee fee for each licensee.  The trade off is that the licensee does not receive notification from EscrowTech and can be removed or added to the escrow by the software vendor without notification.  Depending on your situation and the level of protection your licensees need, this type of escrow might meet your needs.

iStock_000030895028_SmallCloud computing has popularized the approach to software solutions known as “Software as a Service” (SaaS). It enables many businesses to use software located in a vendor’s cloud instead of their own infrastructure.  Because of this many businesses find themselves relying on cloud computing and data storage for their day-to-day operations. Yet cloud computing is still a fairly new industry with many rules yet to be written. As an industry, it moves rapidly, with acquisitions, changes in support structure, and interruptions in service still being fairly regular occurrences. How does a SaaS escrow play a part in protecting your Software as a Service rights?

Working at officeLet’s say you’re a licensee who has faith in the software developer with whom you work. You’ve heard good reviews from other business owners about their professionalism and courtesy. As a precaution based on your lawyer’s advice, you’ve taken out an escrow agreement for the software on which your business relies, protecting yourself, the developer, and your business relationship with them against unforeseen circumstances.

Over time, your trusted software developer goes out of business, or is acquired by another company, or has to cut back during hard times. Whichever way, the support and maintenance required to keep your software operations efficient just isn’t there anymore. It’s time to trigger a release on that escrow agreement.

BenefitsIn order to determine the value of its assets, a company must keep detailed records identifying all property owned. Physical property naturally lends itself to this tracking because there is something tangible to make an account for. Intellectual property, though intangible, can be one of the most valuable assets a business owns. An IP audit trail is a way to provide a tracing record of this valuable property and provides several advantages, including:

AUDIT“Conception of the invention,” is a bit of a funny phrase. Yet under patent laws, it can make or break someone’s life. In disputes between companies and inventors over an invention and its patent, whoever can prove “conception of the invention” can often win.

This means having documents, drawings, and disclosures about the intellectual property (IP) or invention’s history. This isn’t just about keeping an invention safe; it’s also about creating a trail.

An “actual reduction to practice of the invention” is another phrase, and that one feels even more impermeable. This means the embodiment of an invention’s concept: a prototype or working sample. In the case of software, earlier versions can also be included.

iStock_000073365803_SmallThere are several steps to keep in mind when agreeing upon a software escrow:

  1. The most important thing to decide for your company is which software applications should be escrowed in the first place. If software is mission-critical or difficult to replace, it should be escrowed.
  1. Ensure that the release terms in your escrow agreement are clear. Make sure both broad situations and detailed possibilities are both covered.
  1. Make sure your own company’s escrow policies are being followed. Often, companies set rules for themselves that apply to specific situations like escrow. However life happens and things get forgotten.

smallSourceCodeAll around the globe, companies license custom software that is critical to their business. Developing your own proprietary software can cost millions. For most industries, licensing pre-existing software for daily operations is both less expensive and less of a hassle to maintain. Yet how do you ensure that the company you’re licensing from doesn’t go out of business or otherwise breach a licensing contract? You can’t, and that’s why companies like EscrowTech exist.

Software and its source code can be stored, verified, and updated with us. This protects the vendor as they only have to distribute their source code to one trusted company instead of multiple customers who are demanding a source code license.

Just as important it protects the licensee. In the event a software vendor goes out of business, breaches a contract, or can’t maintain client-side operations, a release event is triggered. This releases the source code to the licensee so that they can continue the daily operations of their business unabated.

Searching for answers. Top view of man holding note pad with question mark on it while standing on the wooden floorEscrowTech maintains its primary offices at the Technology Law Center south of Salt Lake City, Utah. This is also where your deposited materials are stored – inside a dedicated, secure vault. The multiple levels of security that keep this site safe include video monitoring networks, card-key systems, constant surveillance, and a fire suppression system. This maintains security and safety for your escrowed materials, but the purpose of escrow isn’t only to plan for what you expect. It’s also to protect you and your company from the unexpected.

That’s why we maintain off site storage in a second location. We call this our Perpetual Storage Vault, and it’s located in Little Cottonwood Canyon. Literally located inside the Rocky Mountains, the location uses both the natural protection of tons of granite and the technological protection of advanced security to keep additional copies of your materials safe and accessible. It’s built to withstand even the worst natural and man-made disasters.

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