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Do I need a software escrow agreement?

Do you need a software escrow agreement? In this chapter we aim to provide you with sufficient information that will help you decide if a software escrow agreement will benefit you, whether you’re a software developer/ vendor (licensors), or a corporate end-user (licensees).

Comprehensive software escrow services protect the interests of technology developers, as well as the businesses that purchase their products or subscribe to their services. Let’s take a closer look.

 

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Not to mention, offering an escrow agreement to your clients can give you that extra bit of leverage in agreement negotiations. Software escrow is often referred to as “the great sales enabler” for that exact reason. It creates a sense of partnership and trust while eliminating a very common hurdle to sealing deals with your clients.

If your development agency is in it’s startup phase, software escrow services can help establish credibility among your clients and prospects, while positioning yourself on par with bigger, more established competitors.

However, it doesn’t matter whether you’re new to the market or a seasoned veteran, escrowing software sets you apart from your competitors. In today’s saturated market, developers can use all the edge they can get.

In return, software escrow protects your intellectual property rights and helps you avoid courts and litigation. Having to worry about litigation is not only a major nuisance, but it also costs a lot of money, a lot more than a cost-efficient software escrow solution would cost you.

 

A source code escrow agreement is beneficial to both the supplier and the beneficiary, but these two parties can at times appear to have opposing needs. That’s why it’s important to make sure that your licensing agreement is balanced.

Fortunately, that’s exactly what source code escrow services are for. At CodeKeeper, we have both the technical and legal expertise to ensure that your licensing agreement is secured.

We protect the interests of both the software vendor and the licensee.

Based on our experiences, here are our top tips on how to negotiate a balanced source code escrow agreement.

 

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1. Going into negotiations, be aware of the benefits to you.

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2. Clearly define the release conditions

 

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3. Negotiate which materials need to go into the escrow

 

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Who pays for software escrow services?

The question of who should pay the escrow fees—the licensor or the licensee—has no right or wrong answer, and there is no established standard practice.

On the one hand, there are certainly instances when the beneficiary pays the escrow agent directly. For the most part, however, it’s actually the licensor who is responsible for payment of escrow fees. This is something that is often considered an expected cost of running a licensing business.

But even though the licensor may pay the fees, the licensee ultimately reimburses the licensor, more often than not. In fact, they may even pay a greater fee to the licensor at the outset to cover both escrow fees and the licensor's administrative expenses.

The main reason that we see the beneficiary covering the cost of the escrow in some way, shape, or form is that the escrow is set up in their best interest. If a licensor were to go out of business for any reason, they wouldn’t be as concerned over what happens to the system that they’ve licensed out to clients. 

So even if the beneficiary doesn’t directly cover the cost of the escrow by paying the escrow agent, they will still be paying that fee through their licensor’s service charge.

Tip: To read more about who should pay for source code escrow (and how much), check out this article.

 

Although software escrows have been used since the 1970s, they are becoming increasingly more common and necessary as a practice for modern enterprises. As a result, there are a number of software escrow solutions on the market today, and some of them have been around for decades.

However, not all software escrow providers offer the same services, the same level of quality and security, and the same ease of use. And then there’s pricing, of course, which is an important aspect in and of itself.

So whether you’re a licensor or licensee on the hunt for your next software escrow, it’s important that you examine all of these factors to be able to choose a solution that meets your needs while providing top-notch security and flexibility.

Codekeeper, in particular, was born out of a need for source code escrow that is simple to set up and use, fully automated and integrated into developer workflows, and last but not least, transparent and fair with pricing.

In this article, we will consider the current situation in the software escrow market both in terms of use and pricing. We will also look into how Codekeeper’s modern automation technology allows us to offer a superior service at a much lower price when compared to other providers on the market.

 

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What are some examples of release conditions?

So we’ve caught up on Software Escrow and all the ins and outs. But what are some release conditions that can be incorporated in a Software Escrow agreement?

Parties to the agreement are free to negotiate any release terms that can be validated independently by the escrow agent. Most commonly, however, these terms revolve around the licensor's financial or operational standing. A release may be triggered if, for example, the licensor enters voluntary or involuntary bankruptcy, or if the licensor fails to operate in the ordinary course of business (OCB). 

Two other very common “custom” release terms that are requested by beneficiaries are that the material in escrow be released in case the vendor is acquired by another company, or if the provider fails to fix an error in the system within a given time frame.

 

Are you aware that you need to implement software escrow in your licensing agreements, but don’t know the best way to start? Then this is exactly the article for you.

Below you will find information on what a software escrow is, why you need them in your licensing agreements, and what the best way to use them is.

 

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