Breaking Down Your Source Code Escrow Clause
A typical license agreement may have a “source code escrow clause” within it stipulating that both parties (vendor and licensee) will establish an escrow agreement with a trusted, neutral third-party provider of Technology Escrow Services within thirty (30) days of the effective date of the license agreement.
In a simple scenario, this is accomplished. The parties do infact establish their escrow agreement within thirty (30) days and the agreed-upon intellectual property is submitted to the Technology Escrow Agent.
Source Code Escrow – Now what?
In some instances, this is where the story ends. That is, the vendor and licensee establish/reinforce their relationship over many years installing/implementing various releases, improvements, revisions, and enhancements generally made available by the vendor.
The problem lies in the fact that although various releases, improvements, revisions and enhancements are installed and implemented in a licensee’s production environment, the escrow deposit remains “stale and undernourished”.
A Technology Escrow Arrangement should be considered a “living, breathing instrument” that is fed frequently. Remember that the purpose of having a “source code escrow clause” is so that the licensee can maintain and enhance the software in the event that an unanticipated and/or catastrophic occurrence does not permit the vendor to continue its operations.
In order to maintain an effective escrow arrangement, escrow deposits should be refreshed frequently so that the materials in escrow correspond with the Programs actually distributed to the licensee.
Most trust, neutral third-party providers of Code Escrow Services can provide you with a template Agreement, thus saving you time and money associated with hiring an attorney to draft one for you. Within the template Agreement, terms and conditions will be documented defining specifics of the vendor’s escrow deposit, as well as the frequency of additional deposits to be made.
A sample Escrow Agreement states:
“Upon execution of this Agreement, the Technology Vendor agrees to deposit as required by this Agreement and the Escrow Agent agrees to accept the Deposit Material for the licensed Program(s). In addition, from time to time hereafter, the Technology Vendor will deposit with the Escrow Agent all necessary and appropriate improvements, revisions, enhancements, or updates for the Deposit Materials so that, at all times, the Deposit Materials will correspond with the Programs actually distributed to the Licensee”.
In addition to providing you with a template Agreement, most trusted, neutral third-party providers of Technology Escrow Services will permit both parties to review/edit their templates free-of-charge. With that in mind, the vendor and licensee should negotiate and define the frequency of nourishing the escrow deposit.
The good news is that most third-party providers of Technology Escrow Services will issue to both the vendor and licensee a receipt for the initial deposit and for each subsequent deposit. Such receipt verifies a delivery to the Escrow Agent but not a verification of the contents of any deposit.
The term “no news is good news” DOES NOT apply to escrow deposits. If you have not received notification from your Escrow Agent in a period of time, it may be due to the fact that your escrow deposit has not been fed in a while.
Having a “source code escrow clause” in a License Agreement should trigger the establishment of a Technology Escrow Agreement. This Agreement should be considered a “living, breathing instrument” that is fed and nourished frequently with consistent escrow deposits.
National Software Escrow, Inc.
8225 Brecksville Road, Building Three, Suite #105 Brecksville, OH 44141
PHONE: (440) 546-9750 FAX: (440) 546-0207
Email: [email protected]