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Frequently asked questions


Johannesburg, 17 Jan 2004
Read time 6min 00sec

What is software escrow?

Software escrow is the protection of technology assets through source code deposits, comprehensive verification and active follow-up to keep these deposits up-to-date.

It is a formal agreement whereby a software vendor/supplier and its end-user agree that the vendor will deposit the source code and related materials of a licensed software product on behalf of end-user.

This is to warrant end-user access to those items that are required in case the supplier, for one reason or another, is no longer able or willing to provide maintenance of the software product.

Why software escrow?

Purchasing a software product usually means that an end-user is `getting license of the software`, that is `the right to use the software`. And, an end-user who acquires such a license receives only a `compiled` version of the software, the machine code for the computer to operate with.

However, to maintain, correct, modify and/or extend the software, the original programming sources and documentation are needed.

As these sources and documentation remain with supplier, the end-user will usually have a maintenance agreement with supplier. In terms of this agreement, the supplier is obliged to adjust and extend the software in order to accommodate the continuously changing business activities of end-user.

Suppose the end-user is faced with problems in the software and the supplier cannot or will not meet its maintenance obligations anymore?

No-one would want a situation, or a similar one, to that described above to occur - but it could, and it is only good governance and fair business practice to make provision for the solution of such a situation, should it arise, before it arises. The best solution would provide the end user continued access to the software.

To facilitate or warrant this continued access to the relevant material (source code and documentation), the end-user and supplier should agree upon an escrow deposit of those materials. It is also vital that these are verified and administered by a professional escrow agent.

In terms of the agreement, the escrow agent is entitled to release the materials to end-user in the circumstances specified in the agreement. Upon release of the materials, end-user is able either to continue the maintenance of the software himself, or to outsource the maintenance to a suitably skilled third party.

What are the benefits of escrow for the end-user?

Each end-user will benefit in unique way but, simply put, the benefits are: . Continuity of use of the software in circumstances where that would be impossible without escrow.

* Safeguard of the underlying business process.
* Protection of end-users investment in the software (and related hardware).
* Limitation of end-users total dependency of supplier for maintenance of the software.

When should software escrow be considered?

* When the software is critical to the business process of user.
* When the user cannot easily replace the software by an equivalent software product.
* When conversion to other software will endanger continuity of business operations.
* When the user cannot replace the software without substantial additional cost.

Does only the end-user benefit?

No, the supplier also benefits from escrow in the following ways:

* Increasing demand of licensees for an escrow arrangement can be complied with in a positive and structured way, avoiding unnecessary discussion and shortening sales negotiations.
* Escrow is an extra safeguard for the supplier itself; should employees unexpectedly drop out, it has in the vaults of Escrow Europe a complete, documented back-up of the accrued knowledge. . The deposit may be of great value as legal proof of copyright at any given moment.

Is escrow limited to software?

No, in all those cases where a company, for the delivery of its own `products`, is dependent of third party knowledge which is not obtainable elsewhere in the market, escrow offers an extra and vital safeguard.

In terms of the escrow agreement, what does Escrow Europe `warrant`?

Software escrow in essence has to warrant two vital elements: a quality deposit and the legal right to use it:

* Quality deposit
A quality deposit implies a deposit that at least has been checked for presence and restorability of the materials as agreed between parties: the technical department of Escrow Europe verifies each and every initial and update deposit on these aspects. Furthermore, a quality deposit implies a deposit that keeps track of the ever occurring changes made to the product during its lifecycle: the technical department of Escrow Europe at least once a year initiates active follow-up for the latest version of the product.

What is the difference between `active` escrow and `passive` escrow?

The `passive` approach to intellectual property custodianship involves passive custodians (such as banks, notaries, legal firms) that may physically `hold` a copy of the software, source code and documentation et al BUT these custodians do not warrant that it is the `correct` or `up-to-date` versions.

With active escrow, the escrow agent verifies the property held as least once a year to warrant that the deposit contains what the supplier has committed to lodge so as to provide proper reassurance that it is up-to-date and usable. For example, and escrow agreement with Escrow Europe works as follows:

* We advise you on the best set-up of the arrangement.
* We draft a tailor-made escrow agreement.
* We prompt the supplier for the initial deposit.
* We verify whether the material is readable and virus free.
* We verify whether the deposit contains the components that were agreed upon in the contract.
* We deposit the material in highly secured storage.
* We prompt the supplier to deposit new updates or new releases at least once a year or more often, as you require.
* We keep you informed about the status of the deposit and the results of the verifications.
* We release the material under those circumstances and conditions as set out in the escrow agreement.

A simple comparison could be made to a first aid kit: someone playing a passive role may simply ensure that there is a kit; the person playing an active role would, however, open the kit regularly, and, according to a consistent set of rules, check that there are sufficient supplies check that none of the medicines it contains are past their `sell by` dates, and confirm the contents by means of a written report for the record.

Editorial contacts
C3 Communications Cathy van Zyl (021) 852 7198 cathy@iafrica.com
Escrow Europe Andrew Stekhoven 083 227 3340 andrew.stekhoven@escroweurope.com
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