Automated Software Escrow

An escrow agreement is a contract among a depositor, a beneficiary, and an escrow agent. Typically, the escrow agent is asked to hold and dispose of certain deposit materials as part of a larger transaction between the depositor and beneficiary. Often, the escrow agreement will have release conditions that are contingent upon certain performance deliverables by the depositor and other obligations of the beneficiary.

A software escrow agreement is an escrow agreement that supports a software license agreement. In many cases, the escrow agent is asked to hold and dispose of software source code, build instructions and other proprietary information required by the beneficiary to support the licenses software if the depositor fails to meet their obligations of the license agreement.

SaaS escrow agreements are similar to software escrow agreements in that they often require the deposit of source code and other important information necessary to support an application in the long term but these agreements typically also require storage of the beneficiary’s data on an ongoing basis as well as some provision for a fail safe or hot site for the SaaS application as a disaster recovery provision in the event of depositor failure.

Any time a company is reliant upon proprietary technology for business critical functions, an escrow agreement should be considered to provide an action plan for continued functionality in the event of vendor failure. Virtually any technology, process, recipe, secret, or other element can be proven, documented, and stored for contingent release.

The depositor and beneficiary are often at odds on this issue. Commonly depositors view a request or requirement for an escrow agreement as an insult or some form of distrust. Also, the escrow means extra work and risk for the depositor so they are often reluctant to agree to and fulfill the escrow. The beneficiary is simply trying to protect their business and their investment. As such, the escrow agreement should be negotiated in tandem with the larger agreement (i.e. Software license, SaaS agreement & etc.) and signed at the same time as the larger agreement. Once the larger agreement is signed, the beneficiary loses all leverage with regards to requiring the depositor to fulfill their escrow requirements. The signed escrow agreement is the first step on the continuum of escrow protection, but it Is critical because without the agreement in place the balance of the protections cannot be accessed.