Software escrow agreements are a frequently used security measure in the context of license and software-as-a-service (SaaS) contracts. Software escrow serves as a safeguard for customers of software providers, but poses practical and legal challenges.
Key Message: For users of software solutions (customers of software companies), software escrow is a risk mitigation tool, but they are faced with the uncertainty of whether the released source code can be used effectively in practice. Software companies must clearly regulate their intellectual property rights in the escrow agreement, otherwise they face a legal risk regarding ownership.
In detail:
Software escrow from the perspective of the software company
Building trust and brand perception: Software companies use escrow agreements to strengthen the trust of their customers and signal their reliability. This can improve brand perception and build customer trust.
Protection of Intellectual Property: Although software escrow helps to protect the intellectual property of the software provider by releasing the source code only under specific conditions, it is important to check very carefully in the respective contract when and how ownership of the intellectual property rights is transferred. The software company has a great interest in ensuring that only ownership of the copy of the work and not the full intellectual property rights are transferred to the escrow agent.
Software escrow from the customer's perspective
Securing the investment with restrictions: For customers, software escrow offers a level of security for their investment in the software and a safeguard for the future functionality of the software solution. However, the mere availability of the source code does not automatically solve all problems. Many customers do not have the necessary resources or expertise to use the source code effectively, especially in the case of complex or specialized software.
Need for a broader strategy Users of software solutions need to consider software escrow as part of a broader strategy that includes planning for technical support and maintenance. The integration of training and partnerships with third-party providers can help close the gap between the availability of source code and its practical applicability.
Software escrow - relevant points for both sides
Clear definition of release cases: It is important for both sides to precisely define the cases of releasing the source code. The most important case is usually the bankruptcy of the software provider. It is important to ensure that it is precisely defined which point in time in the bankruptcy proceedings triggers the surrender and whether bankruptcy law provisions of the relevant countries must be observed.
Other cases can be agreed as desired. It makes sense for both sides if the definition is as clear as possible so that there is no uncertainty at the crucial moment.
Costs: Customers and providers want to bear as few costs as possible, that is clear. It is therefore important to clarify in good time which escrow agent is suitable and what pricing models they have. As a rule, there is an initial fee and subsequent ongoing fees (annual or monthly).
One solution that often proves useful is for the software company to bear the initial costs of the deposit and the customer to bear the ongoing costs. The ongoing costs usually depend on the frequency with which the source code is updated. Since the customer wants to determine this, it makes sense for the customer to bear the corresponding costs.
