What is Escrow?
The term escrow is most commonly applied to situations where an independent third party holds money or property on behalf of transacting parties.
It can be as simple as the following situation:
Business A and B enter into an agreement, the agreement states that C will hold £10,000 of business A’s money and only pay that money over to business B, once business B has carried out an act or fulfilled an obligation defined in the agreement between the parties (A&B).
Examples may include:
- A deposit being paid to the DPI (deposit protection scheme) before a tenant moves into a property, this deposit is held independently from the landlord and is payable to the tenant at the end of the tenancy providing the tenant.
- Purchases of a second hand vehicle, in this situation the money being held is released at the end of a warranty period.
Escrow arrangements are generally used for the transfer of high value property such as businesses and intellectual property. Escrow is also available for software, websites and databases, in short it is a process whereby parties in a contract have a form of insurance or guarantee when entering into a particular business transaction.
Software escrow is ever increasingly the most popular form of protection for crucial business applications and software. Many business’s today rely on vital software they do not have ready access to or do not own, they are also reliant upon a third party to provide the service and technology to support them in the event of any issues and or changes required by them. It is commonplace for a business to pay a licence or maintenance and support fees to the third party supplier. In short most businesses are putting themselves at risk by relying on technology they do not own if they do not have a software escrow agreement in place.
What is a Software Escrow Agreement? (SEA)
An SEA is entered into by three parties, the supplier/software developer an independent third party and the end user/business.
- A SEA is an agreement that essentially ensures continued availability and use of crucial business systems that your business relies upon.
- Software escrow entails the transfer of application source code from a supplier to an independent third party i.e. an escrow agent.
- It reduces the risk that is obvious when a business relies on a third party to provide essential technology for their business.
- If a licensor (supplier) fails to maintain and update the software detailed in a software licence agreement, the software is released to the licensee (business).
- A SEA can be tailored to meet your individual business needs and operational requirements.
- An SEA protects the interests and reinforces the relationship between both the parties.
- The software supplier protects his intellectual property and demonstrates his willingness to guarantee the service they supply to the end user/business.
- The end user/business receives added security, continued use and long term availability with regards to the software integral to their business.