Summary:
Opening a software escrow account protects your business by securing mission-critical source code. In case your software vendor goes out of business, your data is safeguarded and released upon predetermined conditions.
Main Points:
- Choose an escrow agent: Select a reputable, neutral third-party agent with technical and legal expertise.
- Negotiate your agreement: Define terms, deposit materials, release conditions, and verification options.
- Make the deposit: Vendor deposits materials such as source code and documentation into secure, off-site storage.
- Deposit verification: Ensure all materials are complete and functional.
- Ongoing management: Regularly update deposits and manage accounts online.
What would you do if your software vendor went out of business, taking mission-critical source code with them?
Opening a software escrow account is one way to safeguard against such an event. In essence, an escrow account for software source code protects your business continuity. It accomplishes this by keeping critical source code and related materials in a secure account. If a pre-determined trigger event occurs, this data will be released to you.
In this guide, we’ll explain how to open an escrow account for business. Read on to take the first step toward securing your mission-critical data and solutions.
How to Open a Software Escrow Account in 5 Steps
A software escrow agreement involves two primary parties. These include the software vendor (or licensor) and the licensee. You can open an escrow account before entering a licensing agreement or after an agreement has been signed. Either party can initiate the decision to put source code or other materials in escrow.
1. Choose an Escrow Agent
To begin the process, you will need to choose a reputable escrow agency. This neutral, third-party organization will develop your contract, store your materials, and release them if conditions are met. Look for a dependable agent with technical and legal expertise.
Furthermore, ensure you’re satisfied with their data storage facilities. According to Data Center, it’s wise to look for facilities with defense against natural disasters. Ideally, your agent will offer at least two off-site storage locations.
2. Negotiate Your Agreement
Once you and the other party have agreed on an escrow agent, the negotiation process can begin. During this process, you’ll determine the terms of the agreement. This includes which deposit materials (such as source code and build instructions) you wish to include. You will agree to release conditions and decide if you would like to opt into verification.
3. Make the Deposit
Once both parties have signed an agreement, the vendor will deposit the indicated materials. These typically include:
- Source code
- Internal repositories
- Relevant third-party dependencies
- Documentation
- Customer data
- Virtual machines
- A list of developers
Many software escrow agencies make it easy to deposit and update materials virtually. You will likely use a secure, fully automated online system. In some cases, you may need to mail or hand-deliver deposit materials.
Materials will be moved into long-term storage vaults. Reputable escrow agencies typically offer multiple off-site storage options. Ideally, your materials will be held in two or more secure sites.
The software vendor will deposit updated materials on a schedule determined in your escrow agreement.
4. Deposit Verification
Your escrow agent should be able to verify that all agreed-upon materials have been deposited.
You might also opt-in to technical verification services. This process will identify any components that are:
- Corrupted
- Incomplete
- Password protected
- Difficult to use
- Contain viruses
Most escrow agents, such as EscrowTech, include standard verification services for free. More comprehensive verification services, such as binary comparison or test plan verification, may require additional fees.
5. Ongoing Management
You should be able to manage your software escrow account online. Typically, a key contact at your organization will be responsible for ongoing communication with your escrow agent. This individual will ensure that deposits are up to date and that balances are paid.
Your business will likely receive a status report on an ongoing basis. This report will ensure all parties are in compliance and receiving the protection they require.
Vendors can also register new licensees online.
Types of Escrow Accounts
There are three basic types of software escrow accounts:
- Single Beneficiary: Used for one software vendor and one licensee
- Multiple Beneficiary, Separated Products: Used for one software vendor and multiple licensees. Escrow materials contain different software products.
- Multiple Beneficiary, Separated Escrows: Used for one software vendor and multiple licensees with distinct and customized deposit materials that must be stored separately.
These accounts cover software and source code escrow.
Other Types of Technology Escrow
- Technology Escrow: Similar to software escrow, technology escrow covers a broader range of materials, licenses, and technology deals.
- SaaS Escrow: SaaS stands for Software as a Service. SaaS escrow protects vendors and subscribers when the subscriber has no running copy of the software or associated data.
- Domain Name Escrow: A transactional escrow service that reduces risk when purchasing a domain. It can also be helpful when using a domain as collateral.
Who Pays for Software Escrow?
There is no established standard regarding which party pays for software escrow services. In the majority of cases, the vendor is responsible for escrow-related fees. Licensors typically include funds for escrow services in their budget and running costs.
In some cases, such as single beneficiary agreements, the licensee may pay. It is also possible to split the costs.
The Benefits of Opening a Software Escrow Account
Ultimately, both the software vendor and licensee benefit from a software escrow agreement.
For vendors, software escrow can reduce or eliminate unwanted litigations. It demonstrates trust, provides leverage during negotiations, and protects your IP.
Software escrow provides licensees with protection and peace of mind. It also provides a legal framework in the event of an adverse event and, most importantly, ensures business continuity.
Open a software escrow account with EscrowTech today. Learn more here.