Source Code Escrow, Technology Escrow Conditions within a Multi-Beneficiary Escrow Agreement

As documented in a previous blog entry, there are multiple types of source code escrow arrangements and source code escrow options that are offered today.  Most trusted neutral source code escrow providers can provide you with a template source code escrow agreement that will satisfy your needs and requirements.

A popular source code escrow arrangement for Technology Vendors is a “Multi-Beneficiary” Escrow Arrangement.  In theory, this is a 2-party source code escrow agreement that once established, permits the Technology Vendor to enroll multiple Licensees (“Beneficiaries”) to one, universal Escrow Agreement. Benefits associated with this type of source code escrow agreement are:

  1.  Technology Vendors can easily enroll a Licensee as an ‘escrow beneficiary’ rather than establishing a unique source code escrow agreement for each and every Licensee that licenses their product(s).
  2.  The source code escrow cost associated with enrolling a Licensee to an established Escrow Agreement is more cost-effective compared to establishing a unique source code escrow agreement for each and every Licensee.

There are, however, perceived “pitfalls” associated with establishing a “Multi-Beneficiary” escrow agreement.  One must remember the reason for establishing a source code escrow agreement.  It provides the Licensee with access to the Technology Vendor’s Intellectual Property (e.g. source code) and documentation, in the event that a specific release/triggering event agreed upon by the Technology Vendor and Licensee occurs.  So, what are possible release/triggering events?  The answer to this question depends on the events that a Licensee/Beneficiary is concerned about.  And guess what? . . . No two Licensees think alike!

So, the perceived pitfall is . . . “what happens when a Technology Vendor wants to enroll multiple Licensees to their Master Escrow Agreement; however each Licensee that warrants enrollment desires release/triggering events that not only differ from each other, but also to those events that are identified in the Technology Vendor’s source code escrow agreement?”

In order to answer this question, one must first understand the process required of the Technology Vendor to enroll a Licensee to a “Multi-Beneficiary” escrow agreement.

Most neutral third-party providers of source code escrow arrangements will provide template “registration forms” to the Technology Vendor once the “Multi-Beneficiary” source code escrow agreement is established.  To enroll a Licensee, the Technology Vendor is simply required to submit a registration form to the escrow agent.

Addressing unique situations for certain ‘escrow beneficiaries’ on a case-by-case basis (including unique release conditions) can often be addressed by editing a Licensee’s registration form, documenting the required changes that are to be associated for that specific escrow beneficiary.

Most source code escrow agreements offered by source code escrow providers will permit the Technology Vendor to address unique situations on a case-by-case basis, thus, keeping the Technology Vendor’s “Multi-Beneficiary” Agreement intact for the majority of Licensees that do not require such changes.  Thus, unique situations for certain ‘escrow beneficiaries’ can be addressed without requiring the parties to invest considerable time and money establishing a unique escrow agreement.

Many Technology Vendors, who have Multi-Beneficiary Agreements, modify their clients’ enrollment forms to address situations such as the following:

  1. Change in legal venue
  2. Additions/Deletions/Modifications of Release Conditions
  3. Language for resolving dispute

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