Mitigate the Risk – Avoiding Serious Business Software Interruptions with an Escrow Agreement

Jorge Sagastume
Vice President EscrowTech International, Inc


No one can deny the dire need for software in business today. Companies are becoming increasingly dependent on software that is hosted by a third party and is consequentially outside of their control. But what happens once a software vendor goes out of business?

The company utilizing the software system will be bound to modify their whole workflow or invest in another similar system. These are both very expensive options. Not to mention, this will cause serious long-term interruptions resulting in angry customers and lost profits. An escrow agreement can provide a solution to this situation, ensuring safety for all the parties involved.

What Is An Escrow Agreement and How Does It Work?

A software escrow agreement provides a software user (licensee) access to the source code, access credentials, and supporting materials. However, this is only if the software maker goes out of business. This will allow them to take control of the software in the case of any imminent risks to the software system.

According to this agreement, the owner must deposit the source code, instructions, tools, encryption keys, and other utilities with the escrow agent. This agent will keep these items safe and secure, only providing them to the licensees when a release event occurs.

Along with the software items, include detailed contact information of the software developers. This is because they are most likely looking for a job since the software maker is no longer functional.

Some types of software escrows will even include replicating the software maker’s production environment. This is so that a working environment is ready, should the software maker randomly disappear.

What Is A Release Event?

A release event is an event which causes disruption and results in discontinuity of the software, which then should trigger a release of the software escrowed with the escrow agent.

The factors leading up to such event may be numerous. The software owner or provider might go through bankruptcy, insolvency, or become unable to maintain the program properly. It might also be his failure to repair any malfunction or nonconformity of the software. Whatever the reason may be, a release event will trigger the effectiveness of the escrow agreement immediately.

In the escrow agreement, both the software maker and the licensee will decide what release events best fit their situation in an agreeable manner.

In the end, an escrow agreement is an undisputed risk mitigation technique that every business should consider carefully. This is especially important if they are relying on software for critical business functions.

Be educated and put in the work to confirm that the escrow agent you select is knowledgeable enough to carry out the task. They should not only guide you on how best to setup an escrow. In addition, they should have the technical skills to make sure it works, should a release occur. The agent also needs to be reliable and impartial enough for providing the highest level of protection to both parties.


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