What is escrow?
The manufacturer hands over the agreed upon materials to the escrow agency. The agency deposits the material in trust.
Under certain conditions (e.g., manufacturer goes out of business, breach of contract etc.) the deposited material is released to the licensee/buyer.
The released material can then be used to keep the licensee’s business running, making the continued use and maintenance of a business-critical product or system possible.
Are there concerns about escrow?
In the negotiation phase when the buyer/licensee broaches the topic of escrow, manufacturers often react with emotional concerns: “I’m being forced to disclose my trade secrets, my one and only, my baby.” / The customer does not trust us. / The customer thinks I do not have my business under control.
HanseEscrow is always a neutral party between the licensor and the licensee, representing the interests of both parties. When depositing material with a professional escrow agency, commercial use of the sources is prohibited even in the event of release to the licensee, unless otherwise stipulated. After release, the sources can only be used to ensure continuity in the sense in which the product was originally purchased.
In the negotiation phase, we are always glad to be involved as advisors and mediators at no additional cost.
What good is software escrow?
If the provider or manufacturer of a product goes out of business or is taken over by another company, the product might no longer be supported and have to be replaced quickly.
Usually, costs incurred for purchasing and deploying a replacement product as well as those of migration and training are not in the budget. A production outage, delivery delays and damage to the company reputation can result.
Therefore, escrow represents investment security and protection of business-critical processes on the one hand and, on the other hand, helps manufacturers position themselves favorably in the market and quite often make more sales.
What should I consider when choosing an escrow agent?
Core management capabilities: process management, quality management, technical competence (manufacturer and user perspectives).
Transparent cost structure, e.g., price list or cost examples are available on the Internet and are logical and understandable.
Flexibility: adjustments, modifications and extensions can be made to the standard contracts at no additional cost.
Source code assessment and verification of working order: long-standing cooperation partners, ideally with accredited organizations.
Preferably no freelancers. The audit should be able to take place at the manufacturer’s location.
Service orientation: response time, quality, personal contacts, professional appearance (information material, Internet presence, etc.)
What should be in an escrow contract?
Safeguarding Copyrights vs. Protecting Investments
In an escrow contract there should be:
- Definitions of terminology
- Contract prerequisites
- Services provided by the escrow agency
- Manufacturer obligations
- Licensee obligations
- Non-disclosure agreement
- Release conditions
- Term of contract
The detailed description of the release conditions is of utmost importance. Individual conditions between the manufacturer and the licensee can be included in the contract, or the standard conditions recommended by HanseEscrow can be used.
Which release conditions are standard?
§ 8 – Conditions for the release of source code [excerpt from our standard contract]
- Discontinuation of the manufacturer’s business operations (closing the company; without successor)…
- The manufacturer’s failure to comply with contractual obligations (e.g., maintenance), despite reminders…
- Commencement of bankruptcy proceedings against the manufacturer or rejection thereof due to lack of assets…
- Third-party takeover of the business, where the contractual obligations (e.g., maintenance) are not accepted or only with different conditions…
- Enforceable arbitration award…
If you would like a copy of our standard contract, just send us a short email with the subject “standard contract”.
Why HanseEscrow store the escrow material at two separate safety deposit boxes?
HanseEscrow provides its customers with the maximum security level of its deposit service. “Double deposits” (the material will be deposited at two escrow locations) are one part of our security policy.
The benefits are easily explained:
- If one escrow location fails by a great event (e.g. plane crash, damage by fire or water, etc…), the access to the data/source code is ensured.
- In case of loss or destruction of the escrow material in context of a surrender a second copy is available. This copy will be destroyed after the licensee has confirmed the receiving of the original.
- Insolvency improvement: if we create a copy of the material we gain ownership to the copy-storage-media (not to the content!).
This practise makes us different from other escrow agencies.
Is it possible to transfer the escrow material online?
HanseEscrow provides its customers with the maximum security level of its escrow service by depositing the escrow material in two vaults of different bankhouses. Online transfer of the escrow material is not the best solution.
We would like to give an example: After the surrender, the licensee determines that the escrow material is not complete.
He will inform HanseEscrow about this situation. HanseEscrow rejects the responsibility for this absence. “We have been appropriated all of the material which has been provided by the manufacturer.” The manufacturer will argue that he has been provided the complete material for download.
To avoid this situation, HanseEscrow recommends to use unchangeable media storage for the material transfer (CD/DVD/SD-Cards with write protection).
But: If the contracting parties want to have an online transfer of the escrow material, we will do this if this practice is agreed in the escrow contract by the licensee.