Triggering events ~ Technology Vendor’s Intellectual Property to be released from escrow

Establishing a Technology Escrow Agreement 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.

What if an agreed-upon release/triggering event has occurred?  What is the Licensee to do?  The answer to this question depends on the terms and conditions defined within the Escrow Agreement.  The Escrow Agreement or source code escrow agreement established by a Technology Vendor and a Licensee should not only document what are the specific release/triggering events, but also, the steps required of the Licensee to request the Technology Vendor’s Intellectual Property to be released from escrow.

Most template Escrow Agreements offered by trusted, neutral third-party providers of Technology Escrow Services (source code escrow providers) will document the steps required of the Licensee.

Sample language within an Escrow Agreement regarding a Submission of a Notice of Default follows:

On the happening of one or more Events of Default, the BENEFICIARY shall give written Notice of Default as provided by this Agreement to both the Escrow Agent and the Technology Vendor of that Default.  The Notice of Default shall be labeled a “Notice of Default,” shall identify the License Agreement and this Escrow Agreement, shall specify the nature of Default, shall identify the Deposit Materials with reasonable specificity, and shall demand the delivery of a complete copy of the Deposit Materials to the Beneficiary.

Upon receipt of the Notice of Default and payment corresponding to the Release Request Fee as detailed in Exhibit B, attached hereto and incorporated by reference as “PRICE SCHEDULE,” the Escrow Agent shall likewise send a copy of the Notice of Default to the Technology Vendor by certified or registered mail, return receipt requested. If the Technology Vendor desires to dispute the Notice of Default, the Technology Vendor shall, within ten days after receipt thereof, deliver to the Escrow Agent an affidavit or other sworn statement stating that in the Technology Vendor’s view, no Default has occurred.

If the Escrow Agent does not receive an affidavit or other sworn written statement from the Technology Vendor stating that the Technology Vendor does not believe there has been a Default, within the time permitted, the Escrow Agent is authorized and directed by Technology Vendor to deliver the Deposit Materials to the Beneficiary. The Escrow Agent shall deliver the Deposit Materials to the Beneficiary in the same medium as delivered to the Escrow Agent by the Technology Vendor and by the same delivery method (Physical Delivery or Electronic Delivery) as delivered to the Escrow Agent by the Technology Vendor.  The Escrow Agent’s responsibility for the Deposit Materials ceases upon release of the Deposit Materials to the Beneficiary, and the Escrow Agent is not responsible for any inability by the Beneficiary to successfully utilize the Deposit Materials after release.

Addressing Disputes

Most template Escrow Agreements offered by neutral third-party providers of Technology Escrow Services will address steps for resolving disputes (e.g. the Technology Vendor disputes the Licensee’s Notice of Default).

In the event that the Technology Vendor provides to the Escrow Agent an affidavit or sworn statement in response to the Notice of Default disputing the existence of any Default, Escrow Agreements will normally stipulate that the Escrow Agent will not release the “Deposit Materials” until it receives joint instructions from the Technology Vendor and Licensee, a final non-appealable court order, or binding arbitration award requiring or authorizing such release.

What about the Bankruptcy of the Technology Vendor?

But what if the Technology Vendor is not available to confirm/dispute the Licensee’s Notice of Default in the event of bankruptcy, bankruptcy proceeding or in the event that the assets of the Technology Vendor become subject to a bankruptcy proceeding?

Most trusted third-party providers of Technology Escrow Services should have language within their template Agreements (source code escrow clause) to address this scenario.  Upon receipt of a Licensee’s Notice of Default due to an event like this, the Escrow Agent will be required to send a copy of the Licensee’s Notice of Default to the Trustee in Bankruptcy of the Technology 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 regarding to the “Deposit Materials”.

Summary

Most template Escrow Agreements offered by trusted, neutral third-party providers of Technology Escrow Services will document the steps required of the Licensee to submit a Notice of Default to the Escrow Agent.  Permitting an opportunity for the Technology Vendor to either confirm/dispute a Licensee’s Notice of Default should be considered, along with steps to settle any disputes that may result.

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