Escrow and Escrow Agreements Explained

As commercial lawyers we are contacted about many different areas of law that our Clients need support or guidance on. One of those areas is escrow.

Essentially, escrow is a legal arrangement regarding some form of central control for assets such as specific data, a database or source code and software. Also, it can be a form of digital currency which is stored centrally with an Escrow Agent such as Lawdit. ‘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’.

The reason for the use of these services is for such situations where an ‘asset’ is relied upon by a business and/or needs protecting. It may be that the asset is used on a license basis, so the control or ownership does not lie with this business. The business will use escrow to ensure they still have the means of obtaining the vital information but do not control this directly. Commonly a developer will use escrow to give some form of assurance to a client that if, for example, it does not maintain the software, developer goes bankrupt or doesn’t maintain secrecy then the agreement is void and the software cannot simply disappear and leave the client in trouble.

The key term for why a firm of solicitors such as Lawdit may be required is that a bespoke escrow agreement will have to be drafted or scrutinised. There is also the capability to then house the escrow under the legal jurisdiction of the firm to protect its content by storing the material. 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. The source code is the formula of any software programme.
It may also be possible to use escrow in code for storing money or even cryptocurrency such as Bitcoin and Litecoin. This would work in the same way as mentioned above because an agreement would still need to be drafted or considered on behalf of a client and the use of an escrow agent to store this is also very common.

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.

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.
Lawdit can draft a Software Escrow Agreement for you and advise on the contents of such agreements. We can also 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.

Do not hesitate to contact the office if you have further questions or wish to discuss the process and costings for Lawdit to work with you on any escrow related matter.

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