Software Escrow Agreements

A software escrow agreement is a contractual arrangement involving three parties: the software supplier (developer), the software customer (licensee), and an independent escrow agent (a neutral third party). Its purpose is to protect the customer's investment in critical software by securely holding the software's source code and related materials with the escrow agent. This ensures that if certain predefined conditions occur—such as the supplier going bankrupt, ceasing support, or failing to maintain the software—the escrowed materials can be released to the customer. This release enables the customer to maintain, update, or continue using the software independently, either internally or through another vendor, thus avoiding disruption to their business operations.

Key features of software escrow agreements include:

• Tri-party arrangement: Between supplier, customer, and escrow agent.
• Deposit of source code and materials: The supplier periodically deposits the source code and related documentation with the escrow agent.
• Release conditions: Clearly defined triggers (e.g., bankruptcy, failure to support) under which the escrowed materials are released to the customer.
• Protection of intellectual property: The supplier’s IP rights are maintained unless release conditions are met.
• Verification: The escrow deposit can be tested or verified to ensure it is complete and usable.
• SaaS Escrow: A variation designed for cloud-hosted software, including source code, deployment scripts, databases, and access credentials, ensuring continuity of cloud services.

There are also different types of escrow agreements, such as bipartite agreements (between supplier and customer only, without an escrow agent) and tripartite agreements (involving all three parties), which vary in terms of control and management of the escrow process.

In summary, software escrow agreements are a risk management tool that balances the software supplier’s need to protect their intellectual property with the customer’s need for assurance that critical software will remain available and maintainable under adverse circumstances.