Have you used software/source code escrow?

Question

Have you used software/source code escrow before? What was your experience? Were you the developer or the client? Do you have any suggestions on choosing a provider?

Answer 1

I have never entered into an agreement like this, but here's a lawyer's two-cents.

Generally, the licensor should choose and pay for the provider holding on to the code so that the owner of the software has the choice of which third party will be responsible for storing and handling the source code. Of course, if you plan on using escrow more than once, having the same agent each time makes the record keeping and contract negotiation much simpler.

When picking a provider, make sure they have good insurance coverage and sufficient assets just in case if the provider is negligent, is sued, or in the event of loss of the code.

When you choose the provider make sure that they will release code to the licensee upon:

• Licensor's bankruptcy
• The licensor breaching the escrow agreement
• The licensor failing to provide maintenance
• The licensor forming a new licensing entity (through merger or acquisition generally)

Answer 2

I have worked with a partner who used Iron Mountain as their source escrow provider. Jordan makes some good points, if you are providing for multiple Licensees it is a good idea to use the same provider.

Based on my experience, having the intellectual property in escrow greatly increases client confidence and trust and that can make or break a sales win. They are buying piece of mind because no matter what happens to you or your company down the road your product will always be available to them, the beneficiaries, in the event that something does happen.

Depending on your product and your pricing structure you may want to consider transferring the recurring escrow fees to your client or make it an optional service fee. This fee could also include the time and effort spent by you or your staff to deposit the code on a regularly scheduled basis if it is not done in an automated fashion. Whatever the case, make sure it makes sense for your bottom line in the long run.