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What Is Software Escrow and When Is It Required?

Posted on the 03 October 2022 by Litcom

What Is a Software Escrow?

A software escrow service is a service that assists in the protection of all parties engaged in a software licensing; a neutral, third-party escrow firm retains any source code, data, and documentation until a mutually agreed-upon event occurs.

Why Are Software Escrows Required?

When negotiating a software licence, a sensible licensee might ask, “What if the software vendor goes out of business?” Typically, a request for access to the source code and any other crucial documents necessary to maintain the product follows.

A licensee having access to source code or other secret documents poses a risk to a software vendor’s business. How can a software vendor be certain that the licensee will keep the source code safe and confidential and will not utilize it prematurely? What happens if hundreds of licensees request the source code?

A licensee’s business is jeopardized if they do not have access to the source code and resources required to maintain or upgrade the software. How would the licensee continue to use and maintain software on which it is significantly reliant if the software vendor went out of business, failed to meet its obligations, or experienced any other unforeseen event?

Software escrows emerge because of this disparity in perceptions and concerns.

How to Choose the Best Software Escrow Vendor for Your Business

Once you’ve decided to utilize a software escrow vendor, there are several elements to consider guaranteeing the software escrow vendor is suitable for your needs. These are some examples:

1. Experience

You should consider the software escrow vendor’s appropriate experience, particularly with SaaS hosted apps on Amazon Web Services (AWS), Google Cloud, and Microsoft Azure. Case studies provided by the escrow vendor are an excellent source for learning more about their relevant commercial expertise in offering software escrow solutions.

2. Technical Knowledge

Every software escrow agreement includes testing of the source code in a software escrow deposit. It is critical to select a software escrow vendor with in-house technical experts that have experience in source code management and verification. With more firms shifting to SaaS-based applications, and if this relates to your company, check to see if the software escrow vendor has consultants that are certified engineers in the major cloud infrastructure providers, such as AWS, Google Cloud, and Microsoft Azure.

3. Competent Process Management from Start to Finish

It is best to select a software escrow vendor who can handle the entire management process of a software escrow agreement, from initiation to testing to the release/trigger event procedure. This management procedure should address important essential aspects listed below:

  • Data storage – A important component of the software escrow agreement is the deposit and storage of data. For this, the software escrow vendor should provide a simple yet secure approach. Choose a software escrow vendor who can provide you with a secure File Transfer Protocol (FTP) to upload your files to their servers. While in transit and at rest, your data should be encrypted. Most software escrow suppliers now use cloud storage service providers like Amazon Web Services (AWS) and Microsoft Azure to store data.
  • Security – As stated earlier, your data must be protected. Look for a software escrow vendor who can provide the highest level of data confidentiality and privacy.
  • Management – Once a software escrow agreement has been established, it is critical to guarantee that the source code is updated on a regular basis. You should choose a software escrow firm who can offer automated deposits from Git. This ensures that the developer may use SSH encryption to automatically upload the source code from their Git repository. This procedure assures that the software escrow provider always has the most recent version of the source code.
  • Release Process – In the unlikely event that a release/trigger event occurs, you must guarantee that the software escrow vendor you choose can handle the process delicately, professionally, and neutrally.

Software Vendor Benefits

  • Smoother bargaining
  • Establishes trust by resolving prospective licensees’ worries (those concerns may be unspoken)
  • Safe storage of source code and other materials with a single organization rather than several customers

Licensee Benefits

  • The ability to maintain, update, and improve mission-critical software, as well as the legal right to do so
  • Reduced risk of substantial company interruption or damage. Eliminate concerns about the software vendor’s capabilities
  • Continuity of operations

When Should I Apply for A Software Escrow?

The first step toward a successful escrow is to determine whether one is required. If an escrow is not required, neither the software vendor nor the licensee should waste time, effort, or money on it.

For example, an escrow is likely required if the licensee is concerned that:

  • The software provider is not financially secure.
  • The software provider may go out of business.
  • The software vendor may, willingly or unwillingly, terminate software maintenance and support.
  • The software provider may, deliberately or unwillingly, fail to meet its maintenance and support responsibilities.

The size and reputation of the software vendor should not be the only factors considered in this assessment. Bankruptcies do not only affect small, unrecognized businesses and individuals. Large corporations use bankruptcy laws to refuse contracts as well. Furthermore, any vendor may decide to discontinue software support and maintenance.

When any of the following events occur, the licensee should imagine being suddenly without software maintenance or support:

  • The software crashes, delivers incorrect results, or is incompatible with other software.
  • Because of changing business requirements, the software must be updated.

Would it be useful to have source code and additional materials such as build instructions, deployment documentation, virtual machines, and a list of developers that produced the product in any of these scenarios?

If so, an escrow may be appropriate for your situation.

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