Software Escrow

 

 

So, who chooses the escrow agent? Usually it is the licensor who both chooses and pays for the services of the escrow agent, although the licensee could choose if they so wished. However, the chances are high that the software developer will have more than one licensee, and so may need to write up other agreements with other licensees, so using the same agent for these makes a lot of sense.

When considering software escrow, it is useful to be familiar with the word escrow first of all, and then apply this knowledge to software. So what is escrow, and what does it mean to have something in escrow?

Basically, escrow is protection for two parties, who deposit something with a third party, known as the escrow agent. This can be money, documents, intellectual property, or other goods of value, and these are held by the third party escrow agent until certain conditions have been met. These items are said to be in escrow. Real estate property is often held in escrow, with the title papers being held by the escrow agent until all the conditions of the transfer of ownership are met.

So, now we can answer the question, what is software escrow?  Software is said to be in escrow when the source code of the software is being held by a third party, or escrow agent. The source code is held by the agent, usually at the request of a licensee of the software, or in other words, the company who is using the software. Should the company who developed the software file for bankruptcy, or not deliver on the maintenance and updates of the software that have been promised by the developers, then the escrow agent can release the software source code to the licensee for them to work with. To put this in other words, software escrow is basically a form of protection for the licensee of software, by ensuring that they can have access to the source code, if things do not turn out as promised.

It is a sad state of affairs, but these days there is a great deal of talk about scams for this, that and the other, sometimes involving huge sums of money. By using an escrow agreement, this gives a purchaser some form of protection, and is now more of an accepted practice when software and source code is involved. The cost of developing some software reaches some incredible figures these days, as computers and software can do so much more every year. By using an escrow agent, you do have some protection, and some peace of mind.

So, who chooses the escrow agent? Usually it is the licensor who both chooses and pays for the services of the escrow agent, although the licensee could choose if they so wished. However, the chances are high that the software developer will have more than one licensee, and so may need to write up other agreements with other licensees, so using the same agent for these makes a lot of sense.

The use of software escrow and escrow services is also to protect the software developer against fraud. It takes huge amounts of money to develop some software programs, and many months or years too in some cases. The software escrow agent can set up an agreement with the licensee and the licensor, so that both parties understand what is expected of them. Should the terms not be fulfilled, then the escrow agent can take the appropriate action already decided in the escrow agreement.

In fact there are some escrow management services that, for some of their agreements, put some of the purchase money into an escrow account where it stays until all three parties are satisfied that everything has been concluded satisfactorily, except that final payment. The escrow agent will then release the funds kept in the software escrow account to the seller of the software, and the deal is completed. software escrow