For both parties, software escrows mitigate the inherit risk in software licenses by storing source code and other critical materials with an independent, neutral, third-party escrow agent. This independent and neutral storage is the key in mitigating risk to all parties involved.

The process is simple:

1) Execute an escrow agreement with a reputable software escrow agent

When deciding which software escrow vendor to use, the following factors are important: how long it has been in business, where it keeps your materials, what its legal expertise is, what is its technical expertise is, and how easily can you manage the escrow.

2) Delivery of source code and other materials to the escrow agent

Source code, documentation and any other important materials should be easily deliverable to the software escrow agent. The escrow agent should offer submission methods such as escrow synchronization, automated submission scripts via sftp, manual online submission and manual offline submission.\

3) Source code is securely held awaiting release conditions to occur

“Release conditions” define if and when the software escrow agent should release the escrow materials to the licensee. This ensures that the escrow materials are only released to the licensee after the occurrence of an in mutually-agreed-upon event.

4) The escrow is updated as the software product evolves

As new versions of the software are developed corresponding updates to the escrow should occur. Modern escrow agents can automate this process which helps keep the escrow always up to date.

5) A release condition occurs and the escrow materials are released

If a software license terminates without a release condition occurring then the materials can either be returned to the software vendor or destroyed depending on the software vendor’s wishes.

•  Smoother negotiations
•  Establishes confidence by addressing the concerns of the prospective licensees (those concerns may be unspoken)
•  Safe storage of source code and other materials with one company instead of scattered across multiple customers

•  The ability and legal right to maintain, update and enhance mission critical software
•  Reduced chance of significant interruption of, or damage to, its business
•  Eliminate concerns regarding the software vendor’s capabilities
•  Business continuity

Security is of the utmost importance when sensitive and valuable materials are involved. A software escrow company should store the escrow materials in top of the line, long-term “offline” vaults or in “online” vaults that are regularly checked via penetration testing and other security best practices.

At EscrowTech, we offer both “offline” and “online” vault solutions depending on the customer’s unique needs.

When escrow materials are submitted to an escrow company different levels of technical verification can occur. When choosing an escrow company, its technical expertise is a key factor in determining how well, if at all, it will be able to perform these services.

EscrowTech employs its own developers which allows it to adapt to its customers’ needs and unique situations.

It is a common mistake to view a software escrow as merely an arrangement for the physical storage and transfer of escrow materials to a licensee in the event of a release condition.

Although storage is a critical purpose of the escrow, there is a second purpose that is just as important to the licensee. A proper escrow will provide the legal structure necessary to ensure a release of the material and use the escrow materials after they are released to the licensee.

Furthermore, every software project is different, which often requires custom agreements. Make sure your escrow provider has the expertise to work with your attorney to properly structure a software escrow agreement to fit any unique need that may arise.

EscrowTech’s in-house counsel has many years of experience in software licensing and information technology law. EscrowTech provides the forms, but is willing to work with you and your attorneys to structure the final agreement as needed.

EscrowTech employs its own developers which allows it to adapt to its customers’ needs and unique situations.

Managing a software escrow doesn’t have to be a difficult or a time consuming process. When vetting a software escrow company, ask how you can submit materials, update account information, view account documents and pay bills online.

Modern software escrow companies will have a fully developed online account management application that is accessed through a login on their website. These solutions help software vendors easily fulfill their obligations and avoid out-of-date escrow materials.

EscrowTech’s online application “RealTime Escrow” allows you to easily manage your escrow from the convenience of your browser.

Technology escrows are designed to provide the same level of protection as software escrows; however, they contain a wider range of materials and apply to a wider range of licenses and technology deals.

Technology escrows can hold any piece of technology including, but not limited to, encryption keys, product designs, documents, prototypes, samples, chemical formulas and any other embodiment of technology that can be stored physically, electronically or in the cloud.

This flexibility allows savvy customers to use escrows to address a wide range of needs.

At EscrowTech, we treat a technology escrow similar to a software escrow.

SaaS applications are a different breed of software and can often require a more robust solution to obtain the desired protection. This is due to the fact that SaaS subscribers do not have direct access to a running copy of the software and more importantly their own data.

If the SaaS vendor goes out of business, the SaaS subscriber is immediately in a crisis situation. Even if the SaaS vendor remains in business, all it takes is the flip of a metaphorical switch and the SaaS subscriber is without use of the software and without access to its data.

To protect against this, a SaaS escrow can be set up to store not only the source code, but executable code, production virtual machines, data and any other key components of the SaaS solution. These items should be updated on a frequent basis – especially data.

These items must be sufficient to enable the subscriber to get the SaaS solution up and running again. The materials can be stored in a cold, warm or hot state of readiness. They may be on storage media or may be on a configured server ready or near ready to go live. The state of readiness will determine how quickly the SaaS solution can be restored for the customer. The customer needs to offset the higher cost of a hot environment against the need for a speedy restoration.

As more software shifts away from the traditional on-premises licensing model, SaaS and other Cloud escrows will become increasingly important.

Domain Name Escrows are a service that help reduce risk when purchasing a domain or using a domain as collateral. This is accomplished by an escrow agent holding the domain’s credentials until a release condition occurs.

These types of release conditions can include a successful payment, end of a loan or any other condition that both parties agree to.

•  Build instructions – This type of documentation should include the steps taken when building the source code into an executable. Those steps should be written with the idea in mind that although the reader should be experienced in the relevant programming language and development environment, he or she has no tribal knowledge and has never worked on this software in the past. In the event your software is built using an interpreted language this type of documentation can be omitted; however, other documentation should be included.
•  Configuration instructions – This type of documentation should include clear configuration steps of the server running the application and any configurations the software itself needs. For example, server configuration files, usernames, passwords, application startup options, database configurations and anything else useful.
•  Any other critical documentation – The whole idea behind documentation is to make the next person’s life easier if and when they need to set up the software. If there is a piece of documentation that is critical to the software include it in the escrow.

If the software vendor is holding the licensee’s customer data, this should also be included in the escrow materials.

The power of virtualization makes escrowing entire production or build environments possible. This greatly reduces the amount of time a licensee might have to spend when a release occurs.

One often overlooked escrow item is a list of developers and their contact information. Escrows are often released due to the software vendor going bankrupt which normally means their developers are also out of work. This is a great opportunity for a licensee to hire developers familiar with the software they now intend to maintain.

Escrow materials can be submitted to the escrow agent off-line by mailing, using a courier service, or hand delivering the materials. This is an older process that the majority of customers do not use today; however, escrow agents should offer this option as every situation is unique.

Online escrows vaults use servers to store escrow materials for long periods of time. These servers are normally located in the cloud or are hosted internally by the escrow company.

Keeping materials online generates a different array of risks; however, most of these risks can be mitigated by proper use of best security practices such as:

• Using the latest encryption technologies
• Regularly scheduled penetration testing
• Audits of access logs

•  Deposit Materials – The actual source code, documents and any other important material.
•  Release Conditions – What must occur for the deposit materials to be released. See helpful contract language.

• Beneficiary Registration Form – This form is used to add a beneficiary to the escrow account. In addition, if needed, this form allows each beneficiary to have unique release conditions different from other beneficiaries.
• Deposit Materials – The actual source code, documents and any other important material.
• Release Conditions – What must occur for the deposit materials to be released. See helpful contract language.

•  Beneficiary Registration Form – This form is used to add a beneficiary to the escrow account. In addition, if needed, this form allows a beneficiary to have unique release conditions different from other beneficiaries.
•  Deposit Materials – The actual source code, documents and any other important material.
•  Release Conditions – What must occur for the deposit materials to be released. See helpful contract language.

In drafting an escrow agreement, the release conditions (sometimes called trigger events) are just as important as the escrow materials. The occurrence of a release condition entitles the licensee to receive the escrow materials. There may be one or more release conditions.

Here are just a few simple examples of release conditions used in escrow agreements:

•  Licensor discontinues business because of insolvency or bankruptcy, and no successor assumes licensor’s software maintenance obligations under the license agreement.
•  Licensor (or its successor) defaults in its obligation to provide maintenance services as required by the license agreement and fails to cure such default within two weeks after receiving written notice of the default from beneficiary. The notice must describe the default and the action that beneficiary believes is necessary to cure the default. If more than two weeks is reasonably required to complete the cure, licensor (or its successor) shall have such additional time (not to exceed two months) as is reasonably needed, provided that licensor (or its successor) is diligent in completing the cure.
•  Licensor ceases to maintain the software for beneficiary while under a maintenance obligation to beneficiary, and no successor to licensor continues to maintain the software for beneficiary.
•  Licensor discontinues its business relating to the software and no successor to such business assumes and carries out licensor’s contractual obligations to maintain the software for beneficiary.
•  Licensor becomes insolvent or admits either insolvency or a general inability to pay its debts as they become due.
•  Licensor files a petition for protection under the US Bankruptcy Code or an involuntary petition in bankruptcy is filed against licensor and is not dismissed within 60 days thereafter.
•  Licensor refuses or fails to renew its maintenance and support obligations under the license agreement after beneficiary has requested such renewal in a writing delivered to licensor.
•  Licensor becomes the subject of a Chapter 7 bankruptcy proceeding under the US Bankruptcy Code, and such proceeding is not dismissed within 90 days after its initiation.
•  Licensor is acquired by or merges with a competitor of beneficiary.