Reasons for Technology Escrow Agreements
– A Vendor’s Perspective

The majority of Software Source Code Technology Escrow Agreements are established in order to resolve the ‘source code dilemma’.  Establishing an Escrow Agreement provides the Licensee with access to the Technology Vendor’s source code and documentation, in the event that a specific, release/triggering event agreed upon by the Technology Vendor and Licensee occurs.  This works by having the Technology Vendor submit a copy of the source code to an agent of a source code escrow account, who will then in turn, store the source code IP in a secure location. If a release/triggering event occurs, the agent will then have the right to pass the source code IP, that was deposited into escrow, to the Licensee.

A common misconception regarding the establishment of  Software Source Code Technology Escrow Arrangements are designed specifically for Licensees . . . this is simply not true!  Below please find the Top Reasons why Technology Vendors should want to establish Technology Escrow Agreements.

Reason #1Another vendor’s product, whose functionality eerily similar to yours, has just entered the market place.

Explanation:  If your source code is provided to your Licensee upon purchase, a competent programmer or independent contractor working at your Licensee’s location, could modify the existing program and/or develop a competing program. By placing your source code in escrow, you minimize the chances of having your organization’s intellectual property stolen.

Reason #2 – Your organization’s desire to protect Maintenance Revenue

Explanation: If source code is provided upon purchase, a great deal of maintenance revenue would be lost, due to third parties maintaining their own software.  And besides, do you really want your customers messing around with your code?

Reason #3 – Your organization’s desire protect Upgrade Revenue

Explanation: See #2 above [source code, software source code, source code IP]

Reason #4 – Your organization’s assets become subject to a bankruptcy proceeding.

Explanation:  As mentioned in a previous blog entry, most template Escrow Agreements will document specific release/triggering events that will govern the Source Code Escrow Arrangement, the steps required of the Licensee to request to have the source code IP released, as well as a process permitting the Technology Vendor to either confirm/dispute the Licensee’s request.

If the Technology Vendor is unavailable to confirm/dispute the Licensee’s Notice of Default in the event of bankruptcy, etc., most trust third-party providers of Technology Escrow Agreements will be required to send a copy of the Licensee’s Notice of Default to the Trustee in Bankruptcy of the Technology Escrow Vendor, by certified or registered mail, return receipt requested.  The Escrow Agent will then abide and enforce any order, instruction, or request made by the Trustee in Bankruptcy of the Technology Vendor.

Reason #5 – Increase the value of your Product!

Explanation:  Placing your organization’s intellectual property in escrow with a trusted, neutral, third-party provider of Technology Escrow Services demonstrates that you have your customers’ long-term interests in mind.  Your organization recognizes that it has maintenance and upgrade obligations to your customers.  You also recognize that your customers must have access to the intellectual property, in the event that your organization is unable to satisfy the obligations set forth in the License Agreement.

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