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With an escrow agreement, a software vendor places the source code of its software in the custody of an independent third party (the escrow agent). If the vendor goes bankrupt or ceases maintenance, you are granted access to the source code under agreed conditions — so that you can continue to use and maintain the software.
The problem: dependence on the supplier
When you purchase software, you usually receive only a right of use (license), not the source code. You are dependent on the supplier for updates, repairs, and maintenance. If the supplier ceases operations—due to bankruptcy or closure—you are unable to maintain the software yourself, and your business operations are at risk.
What is an escrow agreement?
An escrow agreement solves this. The supplier deposits the source code (and often documentation) with an independent escrow agent. The agent stores the source code and releases it only when a pre-agreed event occurs. In this way, you combine the protection of the supplier (the source code remains confidential) with security for you as the user.
When will the source code be released?
In the agreement, you specify the grounds for release, such as the supplier's bankruptcy, the systematic failure to comply with maintenance obligations, or the cessation of activities. Should such a situation occur, you will be granted access to the source code to maintain the software yourself (or via a third party).
What do you look out for?
An escrow arrangement is only valuable if it is properly set up: the deposited source code must be current and usable, the grounds for release clear, and your usage rights to the source code regulated. Therefore, have the escrow agreement carefully drafted or reviewed, tailored to your license or SaaS contract.
Frequently Asked Questions
Why do I need an escrow agreement?
To prevent you from being left without maintenance if the software vendor goes bankrupt or ceases operations. You will then receive access to the source code.
When will the source code be released?
In the event of pre-agreed occurrences, such as bankruptcy, cessation of activities, or structural failure to comply with maintenance.
What should I look out for?
That the deposited source code is current and usable, the grounds for release are clear, and your usage rights to the source code are arranged.
Arranging an escrow agreement?
Our legal experts draft or review your escrow agreement and align it with your SaaS or license agreement. View our contract lawteam or schedule a free consultation.
