Summary: Developing an escrow agreement for source code ensures business continuity by safeguarding essential data. Here’s how to do it:
- Identify involved parties and select a reputable agent
- Define the agreement’s purpose
- Specify code details
- Outline trigger conditions
- Establish deposit procedures
- Include verification, security measures, and dispute resolution
- Set terms for duration and execution
You probably don’t think about your source code very often, just like you don’t think about gravity very often. However, in a world without gravity—or without the mission-critical source code that keeps your business afloat—you’d be lost.
It’s crucial to take proactive steps to protect this valuable asset before there’s a problem. Otherwise, in the event of a breach, bankruptcy, or other adverse event, you’d find yourself untethered and afloat. By committing to an escrow agreement for source code, you’re protecting your essential data and ensuring business continuity.
In this guide, we’ll share the steps involved in developing a source code agreement with an escrow agent. Continue reading to learn more about this essential protection for any business that relies on software to operate.
What Is an Escrow Agreement for Source Code?
An escrow agreement is a legal contract that protects designated data and intellectual property. In the case of an escrow agreement for source code, the agreement protects the source code behind a mission-critical software solution. This ensures continuous access to crucial solutions and programming that may contain customer or client data.
There are typically two parties involved in a source code escrow agreement. They are the licensor and licensee involved in a general source code license agreement. To create a source code escrow agreement, both parties work with a third-party escrow agent. The agent is responsible for holding and securing the source code and other IP assets.
From there, the licensor will deposit the source code into a secure escrow account. The source code will be kept at multiple off-site, secure data storage locations. The licensor will update the source code at predetermined intervals. They may also deposit associated materials.
The source code will remain in the escrow account unless a pre-determined release condition occurs. For example, a release condition may be the licensor going out of business, filing for bankruptcy, or otherwise being unable to offer support. At that time, the source code will be released to the licensee. That ensures business continuity.
Escrow agreements for source code may be:
- Single beneficiary: Between one licensor and one licensee.
- Multiple Beneficiary with Separated Products: Between one licensor and one or more licensees, in which agreements contain different source code products.
- Multiple Beneficiary with Separated Escrows: Between one licensor and one or more licensees, in which all materials are unique and stored separately from one another.
Regardless of which configuration you require, the process of developing an agreement is similar. We’ll outline the steps to take below.
How to Develop an Escrow Agreement for Source Code
The steps below are required to develop and implement a source code escrow agreement. If you work with an experienced escrow agent, much of this process will be streamlined. The more reputable your agent, the more efficient the process will be.
In fact, many reputable agents utilize a source code agreement template. This will be customized based on the specific needs and requirements of the parties involved. You can generate a source code escrow agreement sample here.
1. Identify the Parties and Choose an Agent
Typically, the process begins when a party involved in a source code license agreement requests an escrow agreement. It may be the licensee who wishes to protect their mission-critical source code. It may also be the licensor who offers this protection as part of their standard operating procedure.
In the case of the latter, the licensor may already be working with an escrow agent. For a new agreement, the parties may need to select a third-party agent to work with.
We advise you to select an experienced and reputable agent experienced in source code escrow. Ideally, they should have secure, off-site storage, secure online deposits, and tech experience. Ensure you’re paying for technological expertise, legal expertise, and security.
2. Define the Escrow Agreement
While developing the agreement, you’ll need to state its purpose. For source code escrow, this is to ensure that the source code will be made available to the licensee if certain conditions are met.
3. Determine the Code to be Deposited
The parties will provide a detailed description of the source code and related documentation. The list will also include any related materials that will be deposited in escrow. Additionally, they must specify the format, dependencies, and technical details required for the code’s proper use.
4. Outline the Release Conditions
Clearly outline the release conditions under which the escrow agent will release the source code to the licensee. Release conditions might include:
- The developer going out of business
- Failing to support or update the software
- Violating specific terms of the agreement
5. Establish Procedures for Deposit
Next, detail how and when the source code will be deposited with the escrow agent. Most established escrow agents have procedures for this. You may be able to deposit materials securely online. There will likely also be options to deliver materials via courier, post, or in person.
Likewise, you’ll establish requirements for regular updates to keep the code current. Your agreement will outline the frequency of these updates.
6. Verification and Auditing
The licensee typically has the right to verify or audit the deposit materials. These will be specified in the escrow agreement. Auditing a technical verification may incur additional fees.
7. Describe the Security Measures
The agreement will also describe the security measures the escrow agent will implement to safeguard the source code from unauthorized access. This includes protection from tampering, acts of god, or loss.
8. Identify the Terms of Release and Dispute Resolution Procedure
The agreement must also outline the procedure for handling disputes related to the release of the source code. These should include options for arbitration or mediation and where they should take place. Parties should also establish clear timelines and steps for appealing decisions made by the escrow agent.
9. Define the Duration and Renewal Terms
Most escrow agreements have a fixed timeline. You’ll define the duration in your agreement. Additionally, you should include any provisions for renewal or termination. This section of your agreement should outline what happens to deposit materials at the termination of the agreement.
10. Execution and Legal Formalities
All parties will sign the escrow agreement. Legal counsel will ensure the agreement is sound and adequately protects the interests of all involved parties. From there, the process of depositing materials can begin, as outlined in the agreement.
Is an escrow agreement for source code right for your business? Learn more about source code escrow and begin the process today.