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The Anatomy of a Software Escrow Agreement A Codekeeper guide for software developers and the companies that purchase their products or subscribe to their services

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Page 1: The Anatomy of a Software Escrow Agreement · 2020. 8. 12. · you to first read our Intro to Software Escrow: A Guide. There, we detail the ways in which software escrow and verification

The Anatomy of a Software Escrow AgreementA Codekeeper guide for software developers and the companies that purchase their products or subscribe to their services

Page 2: The Anatomy of a Software Escrow Agreement · 2020. 8. 12. · you to first read our Intro to Software Escrow: A Guide. There, we detail the ways in which software escrow and verification

Table of contents

Introduction 03

About Codekeeper 04

Conclusion 38

Chapter 1What terminology should I be familiar with? 06

Chapter 2What types of escrow agreements are there, and how do they differ? 11

Chapter 3Bipartite and tripartite agreements — what’s the difference? 15

Chapter 4What can and should be deposited in software escrow? 19

Chapter 5What is verification, and do I need it? 22

Chapter 6How does the release process work? 26

Chapter 7What other important terms are included? 33

Introduction to Software Escrow: A Guide 2

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IntroductionConsidering you’re reading this, we’ll assume you either use mission-critical software applications as a licensee or you’re the developer or publisher of such applications. You have probably already heard about software escrow, and you likely know all about how it’s an important tool for minimizing risk, safeguarding your assets, ensuring continuity, and protecting yourself from data loss.

If our assumptions are wrong, and you’re not quite convinced that you need software escrow, we invite you to first read our Intro to Software Escrow: A Guide. There, we detail the ways in which software escrow and verification services can help protect your company and mitigate your risks. But if we’re right, and you’ve already determined that you need to (and want to) escrow your software, you’re at the right place.

Escrow agreements, like any other important contract, are complex legal documents that have to be negotiated and executed carefully. This guide will walk you through some of the most common types of software escrow agreements, as well as the key terms and conditions that are typically included. The guide also covers the execution of an escrow agreement, verification services, release conditions and procedures, legal jurisdictions, and other important considerations that will help you negotiate an escrow agreement that best meets your needs. At Codekeeper, we offer both two-party and three-party agreements, so we will also explore some of the main differences between them, as well as the benefits and protections they can offer to each party respectively.

As you read through this guide, we suggest that you also follow along with our annotated sample software escrow agreement, which you can download securely from our website.

Introduction to Software Escrow: A Guide 3

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About CodekeeperCodekeeper was founded in 2013 in The Hague, Netherlands by people from the technology industry. It made no sense to us that software escrow was not directly integrated into modern software development workflows, so we set out to build a new generation of software escrow that meets the needs of agile companies, combining traditional legal security with modern technology workflows.

Software escrow is comparable to your home insurance:

You need it, but fortunately, it's rarely called upon. At Codekeeper, we believe that every organization should have access to cost-efficient insurance for its mission-critical systems. This is why we created a software escrow solution that is simple to set up and use, fully automated and integrated into developer workflows, and last but not least, transparent and fair with pricing.

Introduction to Software Escrow: A Guide 4

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Over the past seven years, we have earned the trust of thousands of great organizations from all over the world thanks to our cutting-edge technology and market-leading pricing.

Renowned global brands like Intuit, GE, Pepsico, Nestlé, P&G, Daimler, and many others rely on Codekeeper to ensure their mission-critical systems remain unaffected throughout any circumstance. Protecting the data clients entrust with Codekeeper is our first priority.

We use the strictest physical, procedural, and technical safeguards to preserve the highest level of integrity and security of your information, and we regularly back up your data to prevent loss and aid in recovery.

Our plans start as low as $59 per month, with a start-up fee of only $199. This includes an arsenal of features such as free escrow agreements, unlimited continuous deposits, beneficiary confirmations, and more.

EXPLORE OUR PLANS

Introduction to Software Escrow: A Guide 5

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What terminology should I be familiar with?

CHAPTER 1

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What terminology should I be familiar with?

This introductory chapter lays out some of the most important terminology that is used in an escrow agreement and its annexes.

As you will encounter these key terms throughout your agreement, we encourage you to familiarize yourself with their respective definitions before diving into the mechanics of a software escrow agreement in later chapters.

Client

Client (aka “Depositor” or “Licensor”) is the source code supplier in the form of a person, an institution, a corporation, or other legal body or entity who, through means of a license agreement, exercises the right to issue the usage rights of its product (i.e., software application) either directly or through a distributor.

Product

Product refers to the program product(s) (i.e., software) licensed to the beneficiary under the license agreement.

Beneficiary

Beneficiary (aka “Licensee”) in the form of a person, an institution, a corporation, or other legal body or entity gains permission from the licensor to use the product source code under the license agreement they sign mutually.

Introduction to Software Escrow: A Guide 7

Introduction to Software Escrow: A GuideCHAPTER 1

This chapter refers to Article 1 of the Codeekeeper Sample Escrow Agreement

Follow along

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Introduction to Software Escrow: A Guide 8

Introduction to Software Escrow: A GuideCHAPTER 1

Technical Documentation

Technical documentation implies any and all information necessary to make it possible for the beneficiary to maintain, amend, correct and/or modify the source code of the product.

Source Code

Source code is the computer programming code of the product in format readable by humans, including all documentation and instructions necessary to maintain, interpret, compile, and install the product..

Medium

Per the escrow agreement, Medium refers to the source code repository in which the deposit materials and all applicable updates are stored. This is typically facilitated by modern development workflows on SCM-platforms like Github, Bitbucket, Gitlab, and others.

Beneficiary

Material refers to the source code and any other information and/or data that is deposited into escrow.

Typically, the latter encompasses the following:

• all alterations, updates and/or corrections of the Product, which are made available to Beneficiary within the scope of Licensor’s release policy;

• all Technical Documentation, relevant and necessary for the Maintenance of the Product.

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Introduction to Software Escrow: A Guide 9

Introduction to Software Escrow: A GuideCHAPTER 1

Maintenance Obligations

These are the conditions set out in the license and/or maintenance agreement under which the licensor has agreed to maintain the product.

Release Event

This refers to the occurrence of an event that is predefined in the escrow agreement and which triggers the release of deposit materials to the beneficiary.

Escrow Confirmation

A confirmation can be issued to the beneficiary by Codekeeper, confirming deposit of agreed-upon materials by the licensor under the terms and conditions of the agreement. The escrow confirmation is issued within five working days via email after receiving the first deposit. It’s at the licensor’s discretion to decide, upon onboarding, whether they want Codekeeper to send an escrow confirmation or not.

Release Validation

This is the process through which the escrow agent (Codekeeper) verifies whether the release conditions agreed upon in the escrow agreement have been met.

Continuity Purposes

This implies the use of materials deposited into escrow by the beneficiary strictly and solely for the purpose of using, maintaining, correcting, and modifying the product, with due observance of the copyright and confidentiality clauses of the license agreement.

License Agreement

This refers to the license agreement that Licensor and Beneficiary enter into concerning the product. The license agreement forms the subject of the escrow arrangement, and as such, acts as a prerequisite for the establishment of a software escrow agreement.

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Introduction to Software Escrow: A Guide 10

Introduction to Software Escrow: A GuideCHAPTER 1

Maintenance Obligations

These are the conditions set out in the license and/or maintenance agreement under which the licensor has agreed to maintain the product.

Release Event

This refers to the occurrence of an event that is predefined in the escrow agreement and which triggers the release of deposit materials to the beneficiary.

Escrow Confirmation

A confirmation can be issued to the beneficiary by Codekeeper, confirming deposit of agreed-upon materials by the licensor under the terms and conditions of the agreement. The escrow confirmation is issued within five working days via email after receiving the first deposit. It’s at the licensor’s discretion to decide, upon onboarding, whether they want Codekeeper to send an escrow confirmation or not.

Release Validation

This is the process through which the escrow agent (Codekeeper) verifies whether the release conditions agreed upon in the escrow agreement have been met.

Continuity Purposes

This implies the use of materials deposited into escrow by the beneficiary strictly and solely for the purpose of using, maintaining, correcting, and modifying the product, with due observance of the copyright and confidentiality clauses of the license agreement.

License Agreement

This refers to the license agreement that Licensor and Beneficiary enter into concerning the product. The license agreement forms the subject of the escrow arrangement, and as such, acts as a prerequisite for the establishment of a software escrow agreement.

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What types of escrow agreements are there, and how do they differ?

CHAPTER 2

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What types of escrow agreements are there, and how do they differ?

This chapter recaps the basic types of software escrow agreements and helps you assess which ones might be best for you.

So for starters, let’s take a look at the four software escrow agreements that Codekeeper clients sign most commonly.

This is the most common type of escrow, and it is used for standard licensing agreements for on-premise software, whereby the licensor (depositor) offers the software as a product to the licensee (beneficiary). It designed to store not only source code, but also build instructions and any other important documentation that would allow the licensee to update and maintain a mission-critical software application in the event that the original developer is no longer able to support it for a pre-defined reason (i.e., bankruptcy, insolvency, buyout, and so on). For software-as-a-service applications, see the definition for SaaS escrow below.

Software Licensing Escrow

Many companies outsource software development, which is very risky. Putting the code in escrow solves that. So for: Outsourced personnel; Outsourced development

Software Development Escrow

Introduction to Software Escrow: A Guide 12

Introduction to Software Escrow: A GuideCHAPTER 2

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Introduction to Software Escrow: A GuideCHAPTER 1

This kind of software escrow is used for all transactions involving transactions of software, including but not limited to, purchases of bespoke software solutions and LP transactions (buying selling software companies. Escrow is a secure transaction method for highly sensitive and/or assets from a counterparty risk perspective; it safeguards both the buyer and the seller, and all assets transacted using escrow are kept in trust.

Software Transaction Escrow

Software-as-a-Service (SaaS) escrow is similar to source code escrow, but instead of retaining application code, deposit materials typically contain information that apps and web services generate or employ. This form of escrow makes it possible to recover user and state data in a range of scenarios, including bankruptcy, insolvency, and events that may result in the loss or corruption of data — whether it’s a data center disaster or a hacking attack. The key difference between a software escrow and SaaS escrow is, indeed, in the delivery of customer data. For this reason, SaaS escrow agreements include clauses concerning on-demand access to application data and database snapshots. These are effective information governance practices that ensure the beneficiary will have quick access to a copy of all of their data in a usable format at any time.

Software-as-a-Service Escrow

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Introduction to Software Escrow: A GuideCHAPTER 1

All of the agreements listed above follow the same format; and in that sense, they are structurally the same. However, Codekeeper can accommodate any number of escrow scenarios.The terms of your agreement can be tailored to meet your specific requirements concerning your agreement with the licensor or licensee. Our experts work with you from the get-go to adjust your agreement so it fits the unique needs that you (or your clients) may have, including but not limited to: release terms, preferred governing jurisdiction for dispute resolution, technical requirements, and any other terms and conditions. Together, we ensure your escrow agreement covers all of your bases and is legally-sound. Ultimately, this helps our clients save money that they might otherwise spend on expensive lawyer fees and hidden costs that traditional escrow agents may charge on top of baseline costs.

Regardless of the type of agreement you choose, some important points you should consider including in any software escrow agreement are as follows:

• rights, responsibilities, and representations of all the parties involved;

• details about verification services, deposit materials, release conditions and procedures, enrollment forms, and any deposit questionnaires or similar documents;period of coverage and termination (typically, one year with automatic renewal);

• payment of fees, including who pays what and when;dispute resolution and legal jurisdiction;other legal terms such as indemnification, warranties, confidentiality, limits of liability, waivers, and survivability.

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Bipartite and tripartite agreements — what’s the difference?

CHAPTER 3

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Bipartite and tripartite agreements — what’s the difference?

A two-party (bipartite) agreement is only signed by the depositor (the licensor) and the escrow agent (Codekeeper). The beneficiary (licensee) does not typically sign a two-party agreement.

This type of agreement supplements the software license agreement between the software developer (licensor) and the beneficiary (licensee). It is typically used to offer some assurance to the licensee that their software investment will be safe; however, unlike tripartite agreements, it does not offer extensive protections or use rights to the licensee. Most notably, a bipartite agreement typically defines only two release conditions — bankruptcy and insolvency, respectively — and it does not include technical verification of deposited materials.

Introduction to Software Escrow: A Guide 16

Introduction to Software Escrow: A GuideCHAPTER 3

Bipartite

Depositor Escrow Agent

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Introduction to Software Escrow: A GuideCHAPTER 3

A bipartite agreement is a good option for companies (beneficiaries) that do not rely on the software that is being escrowed for:

• keeping their critical business operations going;

• the health and safety of their employees;

• customer satisfaction;

• legal compliance; and any other mission-critical reasons.

A single bipartite agreement can have only one beneficiary, named and assigned by the licensor in the escrow agreement itself. That said, a licensor can store the source code of an application in a single repository (i.e., secure vault) and escrow that same repository to multiple beneficiaries, each of whom has a separate escrow agreement with the licensor. So in case the licensor needs to terminate their escrow agreement with one of their beneficiaires, this ensures that all of their other beneficiaries, who are assigned to the same repository, will not be affected.

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Introduction to Software Escrow: A Guide 18

Tripartite

A three-party (tripartite) agreement is signed by the software vendor (depositor or licensor), the escrow agent, and the beneficiary (licensee). This type of agreement provides the highest level of escrow protection and gives the beneficiary the opportunity to negotiate specific terms, release conditions, verification services, use rights, and more.

All of these and other important aspects of an escrow agreement are explained in detail in the following chapters.

Tripartite agreements also require a service level agreement, which comes at a minimal additional cost.

Introduction to Software Escrow: A GuideCHAPTER 3

Depositor Escrow Agent Beneficiary

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What can and should be deposited in software escrow?

CHAPTER 4

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Why is having access to source code so important?

Should you decide to escrow your software, the first next step you’ll need to take is draw up a list of all the materials that you want deposited in your secure vault. Your company’s technical staff and management should also participate in this process as a way of making sure that you don’t forget anything you may need in the future. Without this list, you could find yourself missing a crucial element necessary to make use of your escrow when you need it the most.

Deposit materials vary on a case-to-case basis, but the following items are a good place to start when determining what you want deposited to ensure your software escrow is complete:

This chapter refers to “Material” under Article 3 of the Codeekeeper Sample Escrow Agreement

Follow along

Introduction to Software Escrow: A Guide 20

Introduction to Software Escrow: A GuideCHAPTER 4

• A general description of the items that are being deposited (e.g., the size of the deposit; function of the software; integrations, utilities or third-party tools used to create the deposit, etc.)

• Source code (common file types include .java, .c, .cpp, etc.)

• Any applications necessary to compile and build executable code, objects, and libraries (e.g., the names of all required applications, version numbers, vendor names, and contact information)

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Sometimes, licensors are not able to provide certain materials from the licensee’s wishlist for legal or other (legitimate) reasons. This is why having a clear idea of what items you want to have escrowed — and supplying this list to your escrow agent and software developer in advance — will facilitate the entire escrowing process. And more importantly, by specifying upfront what items you want deposited, you can avoid disputes and save money in the long run.

Introduction to Software Escrow: A Guide 21

Introduction to Software Escrow: A GuideCHAPTER 4

• Build instructions and design documentation (source code architecture, overall design of the source code, and interactions among modules)

• Encryption information (e.g., required passwords, crypto keys, and software applications required to access the deposit)

• Key developers’ contact information (emails, phone numbers, and any other relevant contact information)

• Samples of any data or databases required to run the software

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What is verification, and do I need it?

CHAPTER 5

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What is verification, and do I need it?

Though not mandatory, technical verification of deposit materials is strongly encouraged.

The reason for this is quite simple: Even though the software developer deposits source code into escrow with best intentions, mistakes do happen. Escrow materials can sometimes contain files or data that are corrupted, incomplete, password-protected, difficult to use, or contain viruses. Documentation could be missing, passwords could be misdocumented, third-party dependencies not outlined or included, and the list goes on.

Verification helps ensure that the beneficiary (end-user) has everything they need to update or upgrade the software application, without assistance from the licensor (developer), before they actually need it. It is the only way of being certain that, in case of a release event, all the escrow materials will work as intended and that the beneficiary will be able to effectively use their developer’s source code in-house or transition to a new supplier effortlessly.

This chapter refers to “Material” under Article 3 of the Codeekeeper Sample Escrow Agreement

Follow along

Introduction to Software Escrow: A Guide 23

Introduction to Software Escrow: A GuideCHAPTER 4

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Introduction to Software Escrow: A GuideCHAPTER 4

The truth of the matter is that, unfortunately, the majority of deposits don’t contain everything necessary to recreate your software environment quickly and hit the ground running if a release condition occurs. So omitting verification could mean finding out too late that your escrow materials are useless, which would not only potentially negatively affect your customers or employees, depending on the nature of the software, but it would also be a waste of resources and could lead to serious negative consequences concerning the continuity of your business.

The level of verification that’s right for you depends on your budget, risk tolerance, and degree of customization of the software. At Codekeeper, we offer four different levels of verification to ensure that all parties to the escrow agreement — and especially the beneficiary — get the level of protection they need.

Verification services cost money, of course, so it’s important that you budget appropriately for the necessary level and frequency of verification testing as part of your overall risk management strategy. The good news, however, is that technical verification services have decreased in cost over the years and can be done for as little as a couple hundred, depending on the complexity of the software.

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Introduction to Software Escrow: A GuideCHAPTER 4

Our standard bipartite escrow agreement does not include verification services by default. This service is typically included in tripartite agreements, which give beneficiaries more leverage in negotiating different terms and conditions, including verification of deposit materials.

When including verification services, the verification of deposit material is done on the basis of your escrow agent’s verification options. It is recommended for verification to take place as soon as possible, preferably within the first month after escrow materials have been deposited by the licensor. And thereafter, verification is conducted at regular intervals throughout the life of the escrow agreement, until the termination of the agreement. Typically, it is recommended to verify deposit materials as they are updated or, at the very least, on a biannual basis.

The beneficiary has the right to submit a request for verification services in writing at any time; however, this is done at their own expense. Verification is conducted by the escrow agent, who has the right to access and review all the escrowed materials for this purpose, including taking all required steps to complete the verification service. And once the verification process is complete, the escrow agent shares a detailed Verification Report with both the licensor and the beneficiary.

Learn more about Codekeeper’s four levels of technical verification services.TIP

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How does the release process work?

CHAPTER 6

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How does the release process work?

This chapter refers to Article 7 of the Codeekeeper Sample Escrow Agreement

Follow along

A well-negotiated software escrow agreement will have a clearly defined release process that allows the beneficiary to make a request for the release of the deposited materials while simultaneously enabling the depositor to contest the release in case they find that release conditions have not been met. This chapter describes some of the most common release terms and walks you through the release process.

What is the purpose of the release clause in a software escrow agreement?

Under certain circumstances (and exclusively for continuity purposes), the beneficiary may require access to the source code of the product, as well as any other escrowed materials and data. These circumstances are called “Release Events”, and they typically have to do with the financial or operational standing of the licensor (depositor).

Most commonly, a release may be triggered if, for example, the licensor:

• enters voluntary or involuntary bankruptcy;is declared insolvent;• fails to operate in the ordinary course of business (OCB);• discontinues the maintenance and support of the software.

Introduction to Software Escrow: A Guide 27

Introduction to Software Escrow: A GuideCHAPTER 6

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When it comes to Codekeeper software escrow agreements, release events are always aligned with the actual wording that is used in the license agreement between Licensor (Depositor) and Licensee (Beneficiary). Upon onboarding, we also make sure those terms will be verifiable by our technical and legal staff should a release be triggered. This is important because, under the terms of the agreement, the escrow agent serves as the sole judge for determining whether the release should or should not be granted. And to that effect, the escrow agent gives both parties an opportunity to voice their opinions on the matter before making a final decision on the validity of the release claim.

The release process is depicted in Figure 1 below, but let’s take a deeper dive into its workings.

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Introduction to Software Escrow: A GuideCHAPTER 6

If, in the opinion of the beneficiary, a release event occurs, they are required to send a notice to this effect via email and/or by registered letter to both the licensor and the escrow agent. In it, the beneficiary requests the release of escrow materials and details the facts (and any available evidence) supporting the release event. Typically, the beneficiary also provides a copy of the license agreement they had signed with their licensor to facilitate the release validation process.

Step 1: Beneficiary requests release

Once the escrow agent gets a request for release from the beneficiary, release validation is initiated. The escrow agent is then required to send a written notice to the depositor (licensor) via email, formally informing them that a request for the release of deposit material has been received.

Step 2: Release validation takes place

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Time spent to process the release validation is charged to the depositor and/or the beneficiary, depending on the particular facts of the case and/or what is agreed-upon under the escrow agreement.

Good to know

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Introduction to Software Escrow: A GuideCHAPTER 6

Once the escrow agent gets a request for release from the beneficiary, release validation is initiated. The escrow agent is then required to send a written notice to the depositor (licensor) via email, formally informing them that a request for the release of deposit material has been received. Typically, this notice is sent within seven days, but it can also be required much sooner under the escrow agreement to accommodate the beneficiary’s continuity needs.

Step 2: Release validation takes place

The depositor (licensor) is then given an opportunity to register an objection to the release — typically, within 15 days, though it can also be required earlier under the agreement for continuity reasons. If the depositor fails to register an objection within the required period, the escrow agent can promptly release source code and all other deposit materials to the beneficiary. And in that case, the escrow is automatically terminated.

There’s one caveat, though: If the depositor suffers bankruptcy or a state of bankruptcy protection, they have no right of objection. The deposit material is immediately released to the beneficiary once the escrow agent has been able to validate and confirm the bankruptcy.

Time spent to process the release validation is charged to the depositor and/or the beneficiary, depending on the particular facts of the case and/or what is agreed-upon under the escrow agreement.

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The decision of the Foundation for the Settlement of Automation Disputes (or another agreed-upon body under the signed software escrow agreement) is considered final and binding on all parties and cannot be appealed to a court in legal proceedings.

Good to know

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Introduction to Software Escrow: A GuideCHAPTER 6

If, however, the depositor does register an objection within the required time and supports it with reasonable evidence, then the question of the beneficiary’s right to the release is submitted to a relevant independent body for arbitration. Under Codekeeper’s standard escrow agreement, the recommended body is the Foundation for the Settlement of Automation Disputes (SGOA), which resolves such disputes in accordance with its rules for summary arbitration proceedings.

Step 3: Depositor objects

The parties may, however, also agree to name a different body in the escrow agreement, such as the International Chamber of Commerce, which also has an arbitration court. Or, the body in question can also be aligned with the preferred governing jurisdiction under Clause 13.3 of the escrow agreement, which would rely on the local courts of the preferred jurisdiction to decide on the validity of the release claim.

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In the event that the escrow agent releases the deposit material to the beneficiary, the beneficiary gains the non-exclusive right to use the material for continuity purposes only within the framework of its own operations.

Step 4: Materials are released

Upon release of a deposit, the software escrow agreement between the parties is terminated.

The decision of the Foundation for the Settlement of Automation Disputes (or another agreed-upon body under the signed software escrow agreement) is considered final and binding on all parties and cannot be appealed to a court in legal proceedings.

Step 5: Escrow is terminated

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Introduction to Software Escrow: A GuideCHAPTER 7

Legal verification of

release conditions

Request Release

Objection procedure

Escrow is terminated

Release decision

Release to beneficiary

Escrow continues

No release

Arbitrage procedure

No objections raised Objections raised

Figure 1

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What other important terms are included?

CHAPTER 7

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Introduction to Software Escrow: A GuideCHAPTER 7

What other important terms are included?

This chapter section to Article 8 of the Codeekeeper Sample Escrow Agreement

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The depositor, first and foremost, takes responsibility for the materials they are depositing into escrow, warranting that they are an accurate and complete representation of the software application in question at the time of the deposit. And even more importantly, they warrant to the beneficiary that materials in escrow are sufficient to enable a qualified person to continue to maintain, correct, modify, and compile the product.

The depositor also warrants that the escrow agent will be protected from and against any and all claims, including those by third parties, which may arise out of or are otherwise connected with the potential release of escrowed material.

The beneficiary, on the other hand, warrants that they will use any material which is made available through a release exclusively for continuity purposes and in connection with their internal business operations. This means that any proprietary code, data, information, and all other intellectual property of the depositor must be kept strictly confidential at all times. Non-compliance could, of course, lead to legal action by the depositor.

Who warrants what

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Introduction to Software Escrow: A GuideCHAPTER 7

This, of course, also applies to any third parties that the beneficiary might hire to perform maintenance, correction, and/or modification of the product. The conditions of Confidentiality, Limited Rights to Copy, Limited Right to Use, and Intellectual Property Rights apply to any such third parties just as much as they do to the beneficiary themself.

Once they have deposited source code and other materials into escrow, the depositor has no right to unilaterally terminate their agreement with the beneficiary without the beneficiary’s prior written consent. This consent has to be delivered to the escrow agent three months prior to the next renewal date of the subscription (either annual or monthly), who then terminates the escrow.

The escrow agent may, however, unilaterally terminate the escrow agreement by sending a notice by email or registered mail to both the depositor and the beneficiary. A notice period of three months also applies here.

Who can terminate the agreement

This section refers to Article 10 of the Codeekeeper Sample Escrow Agreement

Follow along

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The question of who should pay the escrow fees — the depositor or the beneficiary — has no right or wrong answer, and there is no established standard practice. But most of the time, it depends on which company is bigger and has more resources.

On the one hand, it is certainly quite common for the depositor to pay the escrow agent directly, as this is something that is often considered an expected cost of running a licensing business. In fact, our standard escrow agreement lists the depositor as the party that covers escrowing fees. However, it’s important to note that, even though the depositor may pay the fees to the escrow agent, the beneficiary ultimately often reimburses them.

Who can terminate the agreement

Or they may even pay a greater fee to the licensor at the outset to cover both escrow fees and the licensor's administrative expenses throughout the lifecycle of the escrow agreement.

Upon request, we can also adjust the terms of the agreement so that payment obligations are tied to the beneficiary. So, for example, if the depositor is a small developer and the beneficiary is a big multinational company, they normally decide on their own accord that the beneficiary covers escrowing fees.

In terms of timelines, the paying party is charged an initial fee after signing up on Codekeeper’s website. And thereafter, they are charged on each next renewal date of their subscription period, which can be either monthly or annually — depending on the kind of plan they select upon signing up for the service.

This section refers to Article 11 of the Codeekeeper Sample Escrow Agreement

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Introduction to Software Escrow: A GuideCHAPTER 7

Our standard software escrow agreement states that the execution of the agreement and all modifications or amendments are governed by Dutch law simply because our company is headquartered in the Hague, the seat of government of the Netherlands and home of the International Court of Justice. By default, the agreement states that any disputes that might arise with respect to the escrow agreement have to be submitted in the first instance to the jurisdiction of a competent court in Amsterdam.

However, this can be completely tailored to the needs of the depositor and the beneficiary. Here at Codekeeper, we have experience working with clients in jurisdictions across all regions of the world, including Europe, North America, Asia, and others.

Which jurisdiction governs the agreement

In the event that the party responsible for payments fails to meet their obligations, neither the depositor nor the beneficiary are entitled to invoke the provisions of their agreement with the escrow agent. In other words, the escrow agent is not obliged to release any of the escrowed materials to the beneficiary in such a case.

This section refers to Article 13.3 of the Codeekeeper Sample Escrow Agreement

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Introduction to Software Escrow: A Guide 38

Conclusion

As reliance on technology — and software applications, in particular — increases, businesses face growing pressure to protect their mission-critical systems and other intellectual property assets as part of their overall risk management strategy.

Software escrow is an important tool for minimizing your company’s risk and ensuring business continuity should a vendor go out of business, fail to provide maintenance, or otherwise breach your agreement. Whether the asset is an on-premises piece of business-critical software or an outsourced Software-as-a-Service (SaaS) application, a well-executed software escrow agreement protects the interests of software developers as well as the companies that purchase their products or subscribe to their services.

But software escrowing can be complex in nature and requires careful structuring of release conditions, payment responsibilities, and other services as necessary. Modern software escrow providers are stepping up to this challenge by providing technological solutions built around software developers’ agile workflows and their end-users’ concerns regarding risk. By choosing the right escrow agent, such as Codekeeper, to guide you through this complex process, you can ensure you get more value and a higher standard of service at a much lower price.

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The Anatomy of a Successful Software Escrow Agreement

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