10 Best Practices for Beneficiaries: Maximizing Protection in Software / SaaS Escrow Agreements.

This white paper outlines the ten best practices for beneficiaries when setting up software and Software as a Service (SaaS) escrow agreements. In the fast-paced world of technology, safeguarding digital assets is crucial. Escrow agreements act as a safety net, ensuring access to essential software and SaaS applications even in unforeseen circumstances. This document discusses the importance of automated escrow depositing to keep materials updated and emphasizes the necessity of rigorous testing to guarantee successful application recovery.

One: Understand the Escrow Agreement Basics

Beneficiaries should thoroughly understand the terms and conditions of the escrow agreement. It is essential to comprehend what materials are being deposited, the conditions under which the escrow will be released, and the responsibilities of all parties involved.

Two: Choose a Reputable Escrow Agent

Selecting a trustworthy escrow agent is paramount. A reputable agent ensures a secure and transparent escrow process. Beneficiaries should research potential agents thoroughly, considering their track record, industry reputation and protections. At a minimum, professional software escrow agents should have the following:

  • SOC2 Compliance
  • Errors & Omissions Insurance
  • Automated Escrow Depositing
  • Flexible / Customizable Escrow Agreements
  • Highly Trained Account Executives

Three: Define Escrow Deposit Materials Clearly

Clearly define the materials to be deposited in the escrow account as well as specify the frequency for updating so that the latest materials are always in escrow. This includes source code, documentation, and any other critical assets necessary for application maintenance and development. 

Four: Insist Upon Automated Escrow Depositing

Automated escrow depositing is vital for ensuring that the deposited materials are always up-to-date. Regular, automated deposits guarantee that beneficiaries receive the latest versions of the software or SaaS application. This automation minimizes the risk of accessing outdated or obsolete code. This approach also removes nearly 100% of the administrative burden from the software depositor once set up is complete. 

Five: Customize the Escrow Agreement 

Customization of the escrow agreement template is a critical step in obtaining the full protection that can be secured with an escrow agreement. Experienced escrow agents can provide detailed examples of escrow language to incorporate more protections. Key escrow terms to consider include:

  • Definition of escrow deposit materials
  • Require frequent or automated updates 
  • Require testing to prove the escrow deposit materials are complete and functional
  • Customize the release conditions to address all concerns
  • Include performance driving language and penalties for nonperformance
  • Consider requiring disclosure of “key personnel” upon release
  • Require a source code license for use post release

Six: Include Comprehensive Documentation

Require that detailed and comprehensive documentation accompany the deposit materials and subsequent updates. This documentation should include installation guides, system requirements, dependencies, and any other relevant information that aids in understanding and using the deposited materials effectively. These materials are critical when building the application from escrowed materials. 

Seven: Carefully Consider Timeframes

Most escrow agreement templates default to 30 days for a release of the deposit materials. This timeframe can be condensed significantly. Time is of the essence when business critical software or SaaS applications are down. Consider limiting release periods to 5 business days or even an immediate release if the software developer is amenable. 

Eight: Establish Clear Testing Protocols

Thoroughly test the escrow deposit to ensure that the application can be successfully built and deployed using the provided escrow materials. This testing should include building the application from the escrowed source code, integrating dependencies, and verifying its functionality.

Nine: Involve Legal and Technical Experts

Engage legal experts well-versed in technology contracts and intellectual property rights to draft and review the escrow agreement. PRAXIS can provide escrow agreement drafting assistance as well as provide sample language for specific needs.  While this is not legal advice it does help illustrate how an escrow agreement template can be customized to more adequately address specific concerns. PRAXIS can also provide a list of suggested deposit materials as a starting place. Each beneficiary should carefully consider what technologies and documentation should be required from the software vendor. 

Ten: Regularly Conduct Escrow Drills

Regularly conduct escrow drills to simulate real-world scenarios. These drills help beneficiaries practice the process of accessing and deploying the escrowed materials, ensuring that they are well-prepared in case of an actual need to invoke the escrow agreement. This exercise is especially useful following a technical verification of the escrow deposit materials.

By adhering to these ten best practices, beneficiaries can establish robust software and SaaS escrow agreements that provide them with a safety net in times of uncertainty. Automated escrow depositing ensures that the deposited materials remain current, while rigorous testing and periodic escrow drills guarantee a smooth recovery process. Collaboration between legal, technical experts, and a reliable escrow agent is essential to create a comprehensive and effective escrow arrangement, ensuring the uninterrupted operation of critical software and SaaS applications.

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