The importance of an Escrow Agreement
‘Escrow’ is a legal term which means ‘money, goods or a written document, held by a trusted third party, pending the fulfilment of some condition’. This condition will usually be set by a contract or other binding agreement.
Escrow acts as an insurance in case things go wrong or certain events take place that means that the contract will not be fulfilled.
So how does it work? 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 (‘IP’), 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, ‘Third Party’). The source code is the formula of any software programme.
The 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.
An escrow agreement is essential to protect the Licensee from risk.