Protecting IP with Software Escrow – Why, When and How?

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During the setup of a software, it is critical to understand whether associating a software escrow is needed or not. For the uninitiated, Software Escrow is a service that acts as a security blanket to all the parties concerned, by storing all confidential information with a neutral party, also known as an escrow agent, while a common conclusion is being drawn upon.

Software escrow is sometimes easier to understand when the concept is applied to a real-world scenario. For example, the former Sprague Electric Company contacted their software provider when their application stopped working, only to discover that the provider had since ceased trading. The underlying source code, which Sprague could have used themselves to fix the problem, could not be located with either the provider or the provider’s parent company. In fact, the code was actually being held with the service bureau, who was unable to release the data. If the code had instead been held by a third party software escrow agent, the agent would have been able to release the data upon provider closure.

Why are these Services needed?

Now that you have understood what exactly a software escrow service is, you might wonder why there is so much hype about it and why so many users swear by it. Most importantly, why you as the user would need it?

Why is it important for software vendors?

Having a third party –  one that is neutral – storing intellectual property helps disseminate the risk of having the source code abused once the licensee gains access to it from the vendor.

Moreover, having an escrow will ensure easier negotiations, and increase confidence while going over the license. Not only that, all the necessary materials along with the source code will be safe, and securely stored by one neutral party, instead of various customers.

Why is it important for Licensees?

An escrow brings forth various advantages to the licensee, making it equally crucial to have one from the licensee’s perspective. The escrow helps remove the risks of depending heavily on a software without the materials needed to run the software.

Furthermore, the licensee will be able to run the business smoothly without a fear of having any interruptions or damage made. In addition to that, he can legally maintain and update the software whenever needed while not worrying about the vendor’s capabilities.

When should you use a Software Escrow service?

So you understood the importance of having an escrow agent, and maybe are even contemplating about getting one. But the real question still remains — When exactly do you use one? How to know in which situations are considering a software escrow service crucial?

Here are some possible situations in which you might consider creating an agreement with an agency:

  • If the licensee worries that the software vendor may become financially unstable and is on the verge of suddenly going out of business. Bankruptcy can occur to both small and large companies and often happens unexpectedly. The laws of bankruptcy can also be misused by companies, such as turning down contracts and negotiations.
  • If the licensee fears that the vendor may willingly or unwillingly discontinue support of, or break his obligations for the software. Hence, a written agreement through a software escrow agency is crucial to maintaining the security of intellectual property, not to mention a very smart move.
  • As a matter of fact, the licensee should be prepared to continue to operate the software without the added support of software maintenance. In these unfortunate situations, having access to the source code, a record of the developers, the guide for operating and implementing the software will make things a lot simpler. This is where a software escrow service comes into play.
  • If the software vendor wants to make the company more reputable, and if he wants to come out as a reliable licensor. As mentioned above, having an escrow agent as a neutral party helps increase confidence in the licensee, and allows for smoother and easier agreements to be made.
  • To make all the versions of the software released by the vendor to be controlled and monitored for smoother operations under the agreement made by the escrow agency.

How to evaluate a software escrow service agent?

After having confirmed that you require or wish to utilize a software escrow service, the next step is to find a software escrow service agent. Not only is hiring an escrow service agent important, it is also highly recommended that you evaluate and select the best possible agency. As this will ensure the level of safety and security that your intellectual property receives, along with protection of both the licensee and the software vendor.

Below are some key points that are advised to keep in mind while evaluating potential service agents:

  • What level of expertise does the company have?
    This includes both technical and legal expertise.
    Whether the company will be able to perform their services well and without any hiccups is an important factor to note. In addition to that, you should also be clear whether the company’s legal agreements are flexible enough for customizations to occur in order to adapt better to various situations.
  • Dependability and reliability of the company:
    A company’s dependability is often determined by how long it has been running its business and how reputable it has gotten over the years. This can be verified with minimal research, or found on the respective company’s website.
  • Facilities provided by the service agent:
    This is a critical factor as private and confidential information is handled by an escrow company. Normally, software escrow companies offer offline vaults or online vaults to store your information in. Some companies offer both services. Hence, you should be clear about which system of storage do you require.
  • Ease of management of your escrow account:
    You should cross check with the company to understand the process of sending, viewing and updating information and the online transaction. Most of these escrow companies have an online management system, allowing consumers to easily access their account with ease.

In conclusion, using a software escrow service for your business is essential when one wants complete safety and a secured storage of valuable information and data. As they say, it is always better to be safe than sorry.


About Author: Jorge Sagastume, the author of this article, is a Vice President at EscrowTech International, Inc. with 12 years of experience protecting IP and earning the trust of the greatest companies in the world. Jorge has been invited to speak on IP issues by foreign governments and international agencies. You can connect with Jorge on LinkedIn here.

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