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What is a Software Escrow?

Many businesses operating in today’s economy rely on technology and software applications for the day-to-day running of their organisation. This often means that the business is reliant upon a third party supplier for the support and maintenance of their software, which can leave them vulnerable to a variety of problems. 

When a developer creates software for business use, they retain the rights to the source code and possess the knowledge necessary to make any adjustments or fix any bugs that may occur. This prevents the end user (the business that buys the software) from using another third party to help them should they encounter any problems. 

A software escrow agreement is designed to protect and mitigate risk for end users and suppliers throughout the software creation and sales process. The agreement states that a copy of the source code for the software in question is to be held with a neutral third party, meaning that access can be granted if necessary. 

The agreement provides protection to business users for whom the smooth running of the software is usually a critical component of their continued operation. However, it also provides protection for the software developer and safeguards their intellectual property rights to the source code. 

Software escrow agreements can cover a range of intellectual properties including designs, formulas and data. Third parties are only able to access the source code once they have submitted a reasonable request that must be approved by the escrow provider that holds the source code. 

Software Escrow agreements come into effect when the supplier of the software is unable to maintain and support the software following a change in circumstances, for example, after a merger or acquisition, legal dispute or insolvency. 

Using a software escrow agreement makes good business sense for both the supplier and purchaser of a software application. Software developers are able to use the agreement as part of their sales process, assuring the buyer that there is no risk posed if the developer’s circumstances change. If a software provider does not offer an escrow agreement, then businesses buying the software should seek their own agreement from a software escrow provider, to cover themselves should anything happen.

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