Choosing the Right Escrow Deposit Storage Strategy: Managing Risks and Protecting Your IP

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Technology escrow agreements safeguard critical intellectual property (IP) by ensuring that escrowed materials are only distributed under predetermined conditions outlined in comprehensive agreements. At PRAXIS Technology Escrow, each agreement includes at least one Deposit Account—digital or physical—where all escrow materials are securely stored.

Each Deposit Account is uniquely tailored, with its own list of beneficiaries who can access the materials only if they file for and achieve a release. However, the way these accounts are structured—Consolidated Storage versus Separated Storage—has significant implications for managing risk and protecting your IP.

This guide explores the pros and cons of each storage strategy, helping you choose the best approach to meet your business and licensing needs.

Consolidated Storage

With Consolidated Storage, all deposit materials for multiple products are stored in a single Deposit Account under one escrow agreement. This streamlined approach simplifies deposits and minimizes administrative fees, making it an attractive option for companies seeking to reduce costs.

Benefits

  • Ease of Use: All deposits are managed through a single account, simplifying the process.
  • Cost Efficiency: Consolidated Storage reduces the need for additional Deposit Accounts, keeping annual fees lower.

Risks

While convenient, Consolidated Storage carries inherent risks:

  1. Unintended Access: If a beneficiary successfully files for a release, they will receive all materials stored in that Deposit Account, including those for products they do not license. This can lead to:

    • Accidental distribution of unlicensed materials.
    • Potential disputes over IP ownership or rights.
  2. Visibility Issues: PRAXIS’ Automated Escrow™ platform generates quarterly Account Summaries for each Deposit Account. If beneficiaries see additional products included in their escrow account, confusion or dissatisfaction may arise.

  3. Reduced Flexibility: Consolidated Storage complicates scenarios like divesting product lines or discontinuing specific products.

Mitigating Risks

Depositors choosing Consolidated Storage can mitigate risks by:

  • Encrypting Materials: Use strong encryption and password-protect files to control access.
  • Legal Safeguards: Rely on protections in escrow and licensing agreements to clarify usage rights.

Separated Storage

Separated Storage involves creating individual Deposit Accounts for each product—or groups of products commonly licensed together—under a single escrow agreement. This approach ensures that deposit materials are kept distinct, offering greater control and flexibility.

Benefits

  • Improved Risk Management: Beneficiaries only receive materials related to the specific products they license, reducing the risk of unlicensed distribution.
  • Flexibility for Business Changes: Separated Storage supports scenarios such as:
    • Divesting or selling a product line.
    • “Sunsetting” older products while maintaining escrow protection.
    • Managing licensing for clients with differing access requirements.
  • Clearer Communication: Account Summaries are product-specific, eliminating potential surprises for beneficiaries.

Additional Costs

Separated Storage requires additional Deposit Accounts, which incur extra fees. Each additional account includes:

  • Digital Storage:
    • Dedicated sFTP credentials.
    • Optional archive connectivity (e.g., GitHub or Bitbucket).
    • Unlimited updates.
  • Physical Storage:
    • Two cubic feet of media vault storage.
    • Unlimited updates.

These fees are modest compared to the enhanced IP protection and flexibility provided by Separated Storage.

Which Strategy Is Right for You?

When deciding between Consolidated and Separated Storage, consider:

  1. Your Licensing Model:

    • Multiple Products: Separated Storage ensures beneficiaries only access the materials they are entitled to.
    • Single Product or Unified Licensing: Consolidated Storage may suffice if risks are mitigated appropriately.
  2. Business Complexity:

    • If your company frequently updates its product portfolio, engages in M&A activities, or sunsets products, Separated Storage provides greater adaptability.
  3. Risk Tolerance:

    • Consolidated Storage is lower-cost but requires robust risk management measures like encryption and legal safeguards.
  4. Beneficiary Expectations:

    • Avoid confusion or disputes by aligning your storage strategy with licensing terms.

Summary

Selecting the right escrow deposit storage strategy is a critical step in managing your intellectual property and mitigating risks.

  • Consolidated Storage offers simplicity and cost savings but carries risks of unintended access and reduced flexibility.
  • Separated Storage provides enhanced security, flexibility, and risk management, making it ideal for companies with multiple products or complex licensing arrangements.

At PRAXIS Technology Escrow, we provide customizable solutions to fit your unique needs, including additional Deposit Accounts for greater flexibility. With PRAXIS’ Automated Escrow™ platform and robust storage options, your IP is always protected, ensuring peace of mind for you and your beneficiaries.

Contact us today to discuss the best storage strategy for your escrow agreement.