A Guide to Software Escrow

Businesses today need to work hard to ensure their long-term survival and success for the future. With this in mind, it’s inevitable that companies will have a plethora of security protocols in place to protect their electronic assets and data. Furthermore, these security systems need to be constantly updated and reviewed to ensure maximum protection. One area, however, that is sometimes overlooked is the software that these businesses use to function.

Software escrow is one solution that businesses can utilise to safeguard their software assets and this guide will explain a bit more about how it works:

software escrow

What is software escrow?

Simply put, software escrow affords peace of mind for both developers and their customers. It is a way of further strengthening the trust and relationships that many software companies/developers have with their clients. Furthermore, software developers who acknowledge the importance of software escrow will inevitably attract more clients because of their risk mitigating approach.

Businesses need assurance that the core software they rely on is fully protected and safely stored in case it needs maintenance, updating, recompiling or reinstallation. Software escrow agreements mean that even if the company software developer suddenly goes out of business its mission-critical software applications are still safe and accessible.

How does it work?

Neutral third party software escrow agents like NCC Group serve both the business and the software developer. They provide software escrow agreements that are designed to protect escrow deposits both physically and legally.

By depositing the source code with a third party, the developer needn’t give up total control of the software they’ve produced and the business can rest assured that its software assets are safe.

Software escrow agreements are obviously individually tailored but there are a number of standard conditions in which a business might request a full release of the source code held in escrow:

  • Vendor goes bankrupt
  • Vendor ceases trading
  • Vendor breaches terms of licensing agreement or support arrangement
  • Change of vendor ownership or structure
  • Software is discontinued by vendor

Should an attorney be involved?

Attorneys who represent businesses that rely on mission-critical software for their day-to-day operations will inevitably recommend software escrow to their clients. This is particularly true when the software is difficult or costly to replace; relied upon by many employees; the business’s clients are impacted by it; and the business is trying to create a corporate risk management strategy.

The role of an attorney, however, in a software escrow agreement is usually in a review capacity. After all, most software escrow agreements are fairly standard and can be set-up by the software vendor, the business and the escrow company.

Attorneys play a more hands on role when it comes to release of the escrow contents or any issues in the future.

Final considerations

The software escrow agreement needs to work, and to ensure this is the case; the businesses own IT team need to be involved throughout the process. They will be the people who inevitably liaise with the software vendor the most and will know what dependencies certain pieces of software have. This is crucial for defining exactly what the contents of the escrow should be and will define how the source code is released should circumstances dictate.