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SaaS (Software as a Service) escrow is a process of placing software source code into an escrow account for safekeeping. The purpose of SaaS escrow is to provide assurance to SaaS users that their important data and software will be secure even if the SaaS provider goes out of business, fails to maintain the software, or experiences other difficulties.

SaaS escrow is becoming increasingly popular as more and more businesses rely on SaaS to store and manage their critical data. Many organizations are concerned about the risks associated with entrusting their data to third-party SaaS providers, and SaaS escrow can help to mitigate these risks.

Software escrow agents are impartial third parties who retain and manage copies of software programs and their source codes on behalf of both software developers and users. This practice is known as software escrow. Software escrow serves as a safeguard and source of comfort for both parties in the event of unforeseen occurrences like the software developer's bankruptcy or suspension of activities.

In this modern age, most industries can be vulnerable to ever-lurking hackers looking to make a quick buck. Though there are a few especially targeted industries that threat actors might be interested in due to highly valuable data that translates to potential profitability. In the world of data security, trends show that these 5 industries are at the top of the cybercriminal hitlist.

When it comes to legal agreements, make sure you know what you're signing for.

Your enterprise relies on mission-critical software and applications that you cannot afford to lose access to as it would result in severe losses in revenue. 

You’ve done your research and have decided that it would be in your company’s best interest to enter into a source code escrow agreement. Now the next question you need to ask yourself is: what type of software escrow agreement is best for your business's individual needs?

Although the concept of software escrow agreements is widely recognized, the terminology used in these agreements can still leave one scratching your head.

Let’s have a look at the different types of agreements:

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.

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.