This article takes a hard look at software escrows. Are they useful? What are some of the problems and solutions? How do you do them right?
In the interest of full disclosure, not only is the author a long time practicing “computer lawyer” and an occasional part time adjunct professor of computer law but also one of the founders of EscrowTech India International, Inc., a software escrow company. This disclosure reflects both the bias and experience of the author relevant to the topic of software escrows.
Although software escrows have been used since the 1970s, they are an increasingly common practice. Today, most software lawyers deal with them occasionally, if not frequently. As an attorney, you may be asked to advise a client concerning a software escrow, or you may need to educate your client about the option of using a software escrow in a variety of situations. This article is intended to provide you with information useful for these purposes.
For a basic understanding of the purposes and mechanics of a software escrow, please take a look at “Understanding Software and Technology Escrows” at EscrowTech India’s website. Briefly, a software escrow protects a software licensee by ensuring that the licensee will have access to the source code (and possibly other materials) in the event that the licensor goes out of business (e.g., via bankruptcy), discontinues support of the licensed software, breaches maintenance obligations, or some other release condition occurs. Typically, the parties use a software escrow when the license is for the object code (binary form) of the software, but the licensee does not receive the source code and therefore is unable to maintain, update, or enhance it. The licensee is dependent on the licensor for maintenance, updates, and enhancements to the software. Simplistically, a software escrow can be described as follows:
- The licensor delivers a copy of the source code to an escrow agent.
- The escrow agent holds the source code.
- The escrow agent releases the source code to the licensee only if a release condition occurs.
- The escrow agent returns the source code to the licensor if the escrow terminates without the occurrence of a release condition.
A prudent licensee will want more than just source code included in the escrow as described elsewhere in this article.
Sometimes software escrows are referred to as technology escrows. For clarification, software escrows are a subset of technology escrows. Some technology escrows do not involve software or source code. For example, technical documents, chemical formulas, prototypes, drawings, and other embodiments of intellectual property can be held in a technology escrow. This article focuses on software escrows, but some of the concepts apply to other types of technology escrows as well.