Common Legal Changes That Are Made to Software Escrow Agreements
Published on 19/11/2024
A Software Escrow Agreement is a legal contract that involves a third-party Escrow agent holding a software application’s source code. The parties involved in an Escrow agreement include the licensee (an application’s end-user, e.g., a lawyer), the licensor (the software provider/developer), and an Escrow provider, such as SES Secure.
Within an Escrow Agreement, trigger conditions (also referred to as release conditions) are agreed upon and finalised by the parties involved. When the criterion for these conditions is met, an Escrow agent may release a software application’s source code.
A common example of a release condition is a software vendor going out of business, leading to a licensee’s access to a critical application being interrupted. In legal practice, examples of critical applications include Client Relationship Management (CRM) software, Practice Management software, and Case Management systems. In a situation where a licensee’s access to these applications is threatened, the implementation of a Software Escrow Solution ensures that they can still maintain uninterrupted, operational access to the applications.
Essentially, a Software Escrow Solution enables organisations to resume the delivery of products, services, workflows, and key business operations when faced with unforeseen challenges.
Due to the complexity of software and other IT assets, legal changes or modifications may sometimes be made to a Software Escrow Agreement. Common examples of such changes include:
It’s crucial that an Escrow Solution explicitly addresses the specific conditions that would lead to a release event happening. Examples of common release conditions include:
In some cases, a legal change may be made to an agreement with the purpose of expanding upon release conditions or creating more clarity around them. Additional agreement modifications may be made to address timelines, disputes, and changes in control.
Most Escrow Agreements involve a third-party Escrow agent holding source code. However, many licensees build upon their agreement and expand the list of items in Escrow. Additional materials that may be incorporated into modified Software Escrow Agreements include:
The modification of a Software Escrow Agreement must be accompanied by updated processes regarding the frequency of deposits. It’s essential that the updated agreement establishes the specifications on how often updates or new versions of the software are to be deposited.
A licensee may request an Escrow agent to verify and validate deposited materials to confirm that they are complete, functional, and up to date. This confirms that the source code is functional and can be optimally utilised if release conditions are triggered.
For various reasons, a request may be made for the rights of a party involved in an Escrow Agreement to be modified. For example:
Vendor Obligations - a vendor taking on additional obligations to ensure that regular updates and deposits are made, along with maintaining the accuracy of documentation.
Licensee Rights – the rights of a licensee changing, particularly around how they can use the source code if it is released, including any limitations on modifying or sublicensing the code (distributor).
Escrow Provider’s Duties - adjusting the responsibilities of the Escrow Agent, such as how potential disputes are to be managed or how quickly a release must be processed.
Ultimately, the modification of rights and obligations supports an Escrow Agreement with being more comprehensive and effective.
Confidentiality and security are critically important aspects of most contracts. Due to the level of seriousness around these aspects, it’s understandable that in certain situations, Software Escrow Agreements are legally changed to ensure that they have strengthened confidentiality clauses and updated data security provisions.
Increasing confidentiality and security proactively elevates the mitigation of all forms of risk.
Within Software Escrow, disputes may arise when there are disagreements between the parties involved in an agreement. Typically, such disputes involve disagreements between licensors and licensees. Legal changes that may be implemented within an Escrow Agreement in response to a dispute may be:
The use of arbitration or mediation clauses - this put procedures in place for resolving disputes should they occur. For example, a disagreement on whether a release condition has been met.
Specifying the jurisdiction and governing law for any legal disputes that may arise from the agreement – this ensures that relevant laws are being adhered to during the dispute resolution process.
In some cases, a party may seek to terminate their contract. It’s therefore key that an Escrow Agreement clearly outlines conditions for termination. This supports clarifying how the Escrow Agreement can be terminated by any party and what happens to the Escrowed materials upon termination.
Additionally, it’s important that an exit strategy is in place to provide actionable steps for how the materials will be returned or destroyed after the agreement ends, ensuring the vendor’s intellectual property is protected.
Ultimately, changes to an Escrow Agreement, such as those mentioned in this blog, aim to refine, clarify, and strengthen a Software Escrow Agreement and better protect the interests of all parties involved, especially in scenarios where software application access and business continuity are critical.
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