- What is software escrow?
An escrow of a (software) source code with a neutral third party (the escrow agency). When licensing software, experience has shown that a wide array of potential points of friction can arise between software developers and their customers (the users). Opinions are often divided once it comes to disclosing the source code, if not earlier. This conflict of interest, which is so typical for the software industry, can be avoided by a so-called escrow agency – an independent trustee with technological expertise who deposits the source code neutrally for both parties.
- What is digital escrow? IP escrow? Cloud escrow and data escrow?
Digital escrow is the generic term and describes the deposit of digital assets. In practice, six assets are currently placed in escrow: software, cloud, key, IP, data and artificial intelligence (AI and neural networks). In the past, the term technology escrow was sometimes used instead of digital escrow.
Classic software escrow (today sometimes also called on-premise escrow) describes the original use case of escrow: it resolves the conflict of interest between a software manufacturer (who wants to protect their know-how = their software source code, but at the same time also sell their software on the market). IP escrow is also called know-how escrow. Examples of IP Escrow can be the deposit of chemical processes, construction plans including parts lists and concrete names of suppliers, or technical documents of machines (possibly encluding embedded software) or plants such as wind turbines.
Cloud escrow is a further development of the classic escrow and allows to effectively secure cloud software (e.g. a SaaS service) by means of an escrow. In this context – but also beyond, independent of the cloud – data escrow is playing an increasingly important role, in which large amounts of structured or unstructured data are deposited by one party, which another party is only allowed to view upon the occurrence of firmly defined conditions (or which Deposix analyses and evaluates on behalf of one party for another).
- What is source code?
The source code of a software contains critical business secrets of the developer. Therefore, the developer does not generally want to disclose the source code to customers or third parties. Users, however, rely on the source code, in case they wish to maintain the software they are using or adapt it to their changing needs, without the help of the developer. Thus, they often insist on the release of the source code. This conflict of interest is solved by the escrow agent.
- What is an escrow agency?
For classic software escrow: an escrow agency equally serves the interests of the developer / licensor (protection of trade secrets) and the user / licensee (protection of their investment in IT) by holding the source code in escrow. An escrow agency acts as a catalyst to increase the credibility, and thus the competitiveness, of smaller software providers against larger providers. In an emergency, the user can access the source code and continue to use the software without issue. Software escrow is therefore a safety net for licensees.
For newer escrow models like cloud, AI, Key, IP, and Data escrow: the escrow agency acts as a neutral third party between two other parties and examines and stores the escrowed asset, which belongs to one party (who wishes to protect it) and will be used in one form or another by the other party (whom the other party is dependant on). Again, escrow solves a conflict of interest which might otherwise cause great friction that could, for example, hinder negotiations or even prevent cooperation. Escrow is a so-called business enabler that makes business connections fundamentally possible and easy.
- How does the escrow process work?
An escrow contract is closed (typically between 3 parties), and then the deposit material is gathered by the licensor and handed over to Deposix. Deposix checks the material (if necessary via a thorough technical verification – for example, a reconstruction of the software on a neutral computer) and confirms the receival to both parties. Finally, Deposix actively supervises the contract. For example, Deposix takes care of updating the deposited source code, among other things.
- Which points regulate an escrow agreement?
An escrow agreement is a stand-alone contract in which all legal relationships between the three parties ( licensor, licensee and escrow agent) are regulated. Elements of the contract include, for example, the conditions under which the escrow material may be released, update periods, liability matters, and rights to the material.
- What are the specific benefits of escrow?
For the licensee, escrow provides investment protection for IT or other projects by covering any issue or failure on the part of the licensor. In the case of software escrow, for example, it enables the maintenance, servicing, and further development of the software by the licensee’s own employees or third parties.
For the licensor, they secure a competitive advantage through escrow and thereby increase the sales of their products. Furthermore, their intellectual property (IP) is protected.
For the general contractor, their credibility is strengthened with escrow by reducing existing risks that stem from a potential loss of a supplier. Through this, they can secure contracts and obligations entered into with customers.
- When is an escrow contract worthwhile?
An escrow contract is worth getting if, for example, you license a particularly security-relevant software, licence business-critical software, or if you have a licence agreement starting at roughly 50,000 euros. The annual fees for an escrow contract are, at the moment, 1,400 euros (pro rata per quarter).
- What does escrow cost?
For the simplest option: 1,400 euros for a one-time contract closing fee and an annual fee of 1,400 euros (pro rata per quarter). This includes, among other things, up to 4 updates per year and an incoming test and verification in each case. We are happy to send a current price list, upon request.
- How do you check the reputability of an escrow agency?
General reputation, customer reviews, quality of contracts (!), age, number of business areas, know-how of management, experience with (technical) assessments of software and source code, coverage of all six digital assets currently deposited (software, cloud, key, IP, data, AI and neural networks), …
- For which legal practitioners is digital escrow relevant?
For attorneys and lawyers that are, among other things, specialized in…
- Industrial property rights
- Competition law
- Patents and licences
- Mergers & acquisitions / transaction consulting or corporate finance
- Procurement law
- Professional and management liability
- Insolvency law