A suitable case for escrow

Whilst we all have a software licence agreement for the software we use we need some form of software insurance in case things go wrong or certain events take place.

In a typical Software Escrow Agreement the owner (‘the Licensor’) of the software provides a copy of the database content, website, instructions/ support manuals, other Intellectual Property, source code (instructions/ statements written in eye-readable form in programmer’s language and capable of being compiled into object code and an object code being a computer code that a computer can understand) to an escrow agent (a trusted third party). The source code is the formula of any software programme.

The Escrow Agreement sets outs certain events under which the above can be released to a licensed user of the software (‘the Licensee’). For example if the Licensor goes into bankruptcy or liquidation, a merger or acquisition takes place, or fails to properly maintain the software or perform under the Licence Agreement.

In today’s day and age and due to the technological advancements in the IT industry more and more businesses are reliant upon third parties to supply bespoke software for their needs and to provide a 24/7 maintenance service for the same. Such an agreement is therefore essential in order to protect the Licensee from the risk that the Licensor fails to provide the level of service agreed between them or if the Licensor becomes bankrupt or the business is put into receivership. In such an aggressive environment this can provide the Licensor with a competitive advantage in marketing his product.

Why should a typical Licensor consider placing source code in Escrow?

Placing source code in Escrow will help market the software and a Licensors’ services better. The Licensee will gain confidence in the business and will feel safe in the knowledge that if one of the events discussed above occurs then he will be safe. The Licensee will be able to take the source code to any other software designer/ programmers and with this code they will be able to add and amend, fix, any issues and essentially have the Licensee up and running in little time, therefore ensuring continuity of business.

Having said that software developers take pride in their ingenious work and invest a great deal of time, effort and resources in designing something bespoke for a client and in attempting to gain a competitive edge over others in their field/ industry. It is therefore understandable that they will be reluctant to release the source code to a Licensee.

A compromise to this is the Software Escrow Agreement.

We can draft a Software Escrow Agreement for you and advise on the contents of such agreements. We can arrange to store the material in escrow.

If you are involved in the development/ licensing or simply use of software or other bespoke technology then you would need the protection afforded by having such an agreement in place. All Licensees’ should evaluate how critical the software, programme etc is to their business to put into context the importance of this agreement.

If you’d like to know more about this article please send an email to Michael Coyle quoting the article title and any questions you might have, alternatively call the office number on 02380 235 979 or send an enquiry through our contact form.

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