Software Escrow is a three-party agreement between a software developer, the end user and a software escrow agent like EscrowTech.
Finding the right escrow
The last thing anyone wants is to delay a critical software deal. If you’re negotiating and a vendor or beneficiary brings up software escrow, will you know how to proceed?
In this guide, leading software escrow provider EscrowTech will explain everything you need to know about software escrows. Our experts will cover what they are and how they can help. Plus, we’ll cover the steps to determine if one is needed and how to easily set one up.
The goal of a software escrow agreement is to protect all parties involved in a software license. There are two primary parties involved in such an agreement: vendors and licensees.
The vendor agrees to submit deposit materials, particularly their source code, into a secure escrow account. This is information that the licensee may need to maintain operations in the event of a bankruptcy or breach. The licensee only gains access to these materials if a pre-determined adverse event takes place.
There are benefits for both parties involved. Upon entering into an agreement, the vendor will know who has access to their intellectual property.
Meanwhile, the licensee will maintain access to mission-critical data or source code. The licensee gains access if a mutually agreed-upon release event should occur. Ultimately, this access has the power to ensure business continuity. This is crucial in the event that the vendor fails to meet its obligations or maintain the software.
Every software or source code escrow agreement involves a third party. Software escrow companies, also called escrow agents, possess specialized backgrounds in technology and law. They serve as neutral third parties in the arrangement.
The role of the escrow agent is to securely store source code, data, and documentation. They will store all relevant materials until a mutually agreed-upon event occurs. At that time, the escrow agent can ensure access to the developer if needed.
Software escrow is the most common type of escrow and is designed to store:
These escrows can be used with:
While software escrows normally store on-site applications, the best software escrow services can also store SaaS-based applications.
For both parties, software escrows mitigate the inherent risk in software licenses. They accomplish this by storing source code and other critical materials with an independent, neutral, third-party escrow agent. This independent and neutral storage is the key to mitigating risk to all parties involved.
There are five basic steps involved in setting up a software or source code escrow account.
When deciding which software escrow provider to use, be sure to ask the following questions:
Ideally, you will work with an experienced escrow agency with a history of longevity. They should offer secure storage of deposit materials, ideally in multiple off-site locations. Agents should possess thorough legal and technical expertise, plus expertise working within your specific industry.
Ideally, they should offer a secure online solution that makes updating and monitoring your escrow account simple and intuitive. Look for a stable pricing structure with guarantees in place. Ask about customizable solutions that address the unique needs of your solution or industry.
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:
“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 following a mutually-agreed-upon event.
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 up to date.
Many stakeholders never reach this step. In some cases, a software license terminates without meeting a release condition. When that occurs, materials can either be returned to the software vendor or destroyed
A software escrow agreement is not always necessary when entering into a relationship with a vendor or licensee.
For example, an escrow is probably needed if the licensee worries that the software vendor:
In making this assessment, the size and fame of the software vendor should not be the only considerations. Bankruptcies are not limited to small, unknown companies and individuals.
Large companies also use bankruptcy laws to reject contracts. Furthermore, any vendor might decide to drop support and maintenance of software products.
The licensee should envision itself in the position of suddenly being without maintenance or support when the following occurs:
Would having source code and other materials be beneficial in any of these situations? If so, an escrow might be right for your situation.