ByArun Mahadevan

Marketing DirectorEscrowTech India Pvt Ltd.

(An Indo - US Joint Venture)

Escrow?

“Escrow means to holdsomething(Money, deed, bond or anyProperty) in custody with a third partywhich is to be delivered to a grantee in caseof eventualities and upon the fulfillment ofthe conditions specified.”

Escrow Agreement

A written instrument, for holding of funds, documents,securities, and other properties temporarily depositedwith a neutral third party(Escrow Agent) for the othertwo participants in a business transaction. When thetransaction is completed, the escrow agent releases theentrusted property.

What is Software Escrow or Source code Escrow?

Software escrow means, deposit of thesoftware source code into an account heldby a third party escrow agent, to ensure themaintenance of the software for an agreedperiod between the Licensor and theLicensee.

What is Software Source Code?

Source code is a software's programming code in ahigh-level programming language that humanscan read and understand the Code written by aprogrammer. Source code must be converted toobject code or machine language before acomputer can read or execute the program.

Software Escrow Agreement

A source code escrow is a tripartite legalAgreement between the licensee (softwaresupplier), licensor (customer) and anEscrow Agent. The licensor places the copyof their software source code with theEscrow Agent.

Who is an Escrow Agent?

An Escrow Agent is an independent neutralthird party who holds the source code in asecured manner on behalf of the Owner andBeneficiary.

Why Software/Source Code Escrow?

Business-critical software which requires continuous maintenance

The software is key to the business

Use of the software impacts customers

The software would be difficult or costly to replace

Bankruptcy (Licensor) scenarios which will affect the maintenance of the Licensed Software

Purpose & Scope of Escrows

Protect Licensee’s/Beneficiary’s investment in Licensor:

time, effort, resources, $$$ etc.

Access to valuable trade secrets & working/functionality of

the Software.

Permits Licensee to assume control of project, complete

development, fix bugs, modify & enhance software, create

connections (interoperability), perhaps additional

functionality with Licensee’s software.

An Escrow Arrangement Protects Both Parties

Licensee

Support & Service

$$$

Escrow Agent acts as neutral third

party to secure the documents needed

to support

the program.

Steps to Create an Effective Escrow

Determining the Need for Escrow

Use of an Experienced Agent

Creation of a Balanced Agreement

Escrow Deposit

Periodic Verification of the Escrow Deposit

Proper Management of Escrow Arrangement

What Makes an Effective Escrow Agent?

Client Services: Staffs to provide on-going administration of

the arrangement.

Experience: Both in creation of agreements and

administering releases.

Facilities: Secured Storage Space and all State of Art

Security Devices.

Reporting Functions: Notifies parties of failures in

compliance.

Staff Expertise: Legal and Technical Solutions

How Software Escrow works?

Deposit Materials

(e.g., source code)

Escrow Agent

Beneficiary

(Licensee)

Owner

(Licensor)

Source Code withheld by Owner

Object Code of Software

Escrow Agent

Deposit Inventory Form for

Deposit Materials

Deposit Materials

(e.g., source code)

How it Works?

Escrow Agent

Deposit Inventory Form for

Deposit Materials

Escrow Agent

Deposit Inventory Form for

Deposit Materials

Beneficiary

(Licensee)

Release Condition

Escrow Agent

Deposit

Materials

Released

Beneficiary

(Licensee)

Upon the occurrence of an agreed “Release Condition” (e.g. theOwner goes out of business, the Owner’s bankruptcy, the Owner’sbreach of its maintenance obligations, etc.), the Deposit Materials arereleased by Escrow Agent to the Beneficiary. Owner and Beneficiarydecide what the Release Conditions will be. The released DepositMaterials may be used by the Beneficiary for a “Permitted Use” (e.g.,to maintain, modify, update and enhance the software).

Benefits of Licensee

Timely Maintenance of the Software

Proper updating or enhancement of the Software

Will receive the Deposit Materials if a Release Condition Occurs

Benefits of Licensor

No Risk in Escrowing the Source Code

Address the concerns of its prospective licensees

Marketable and Selling Point (USP)

Prevent delays in getting the deal done!

Best Practice

Legal

Expertise

The Escrow Contract

Technical

Expertise

The Escrow Deposit

Escrow

Thank You