Software Escrow Clause Example 2018-06-28T16:13:20+00:00

Software Escrow Clauses

The requirement to place source code into escrow provides an arrangement where source code deposited with a trusted software escrow vendor may be released to the beneficiary in the unlikely event that the developer is unable to support the software in the future.

One of the most searched terms in Google relating to software escrow is “software escrow clause example”.  This question should be divided into 2 key areas:

  • Clauses to use in a software license agreement referencing the need to include a software escrow agreement.
  • Clauses in a software escrow agreement that outline in what situations the escrow deposit will be released.

Sample clauses to use within a software license agreement.

Option 1

Within 30 Days of signing the Software License Agreement, the Supplier shall enter into a Software Escrow Agreement with {ENTER NAME OF SOFTWARE ESCROW VENDOR} in relation to the depositing of the source code, databases and relevant documentation for the software.

Option 2

Within 30 days of the date of this agreement, the supplier will lodge with a reputable software escrow agent a copy of all source code, databases, passwords and any other documentation relating to the software which are required to further maintain and operate the application.  The terms of the software escrow agreement will be approved by the customer within reason.

Option 3

Within 30 Days of signing the Software License Agreement, the supplier will enter into a Software Escrow Agreement with a reputable software escrow vendor in relation to the depositing of the source code, databases and related documentation for the application.

Additional verification rights:

At any time, {ENTER NAME OF SOFTWARE ESCROW VENDOR} can be tasked with performing a Full Verification of the escrow deposit materials to assure that they are complete and updated. An independent build guide detailing full rebuild instructions in the event of a release will be produced and distributed to supplement the verified deposit.

Software Escrow Release Clauses

A software escrow agreement is typically put in place as part of a wider software license, development or investor agreement.

Software escrow agreements are an arrangement to protect the beneficiary in the unlikely event that the developer ceases operations or the agreement is terminated due to a material breach.

Escrow London provides a pre-defined set of Event of Default clauses for all our agreements.

The clauses below are sourced from the Escrow London template agreements and may be modified if all parties agree to them.

  1. EVENTS OF DEFAULT

4.1.        The occurrence of any of the following shall constitute an “Event of Default” for purposes of this Agreement:

4.1.1.     Depositor’s material failure to support the Deposit Materials in accordance with the License Agreement and failed to cure such material failure within ten (10) Business Days of Beneficiary’s written notice to Depositor of such material failure;

4.1.2.     Depositor becomes unable to pay its debts or is deemed to be unable to pay its debts within the meaning of section 123 of the Insolvency Act 1986;

4.1.3.     Depositor applies for or consents to the appointment of a trustee, receiver or other custodian for Depositor, or makes a general assignment for the benefit of its creditors;

4.1.4.     Any bankruptcy, reorganization, debt arrangement, or other case or proceeding under any bankruptcy or insolvency law, or any dissolution or liquidation proceedings commenced by or against Depositor, and if such case or proceeding is not commenced by Depositor if it is acquiesced in or remains un-dismissed for sixty (60) days;

4.1.5.     Depositor ceases active operation of its business or discontinues the licensing or maintenance of the Deposit Materials in material breach of the License Agreement; or

4.1.6.     Depositor assigns its Intellectual Property Rights to the Product to a “Third Party” and within 60 days, the Third Party does not agree to offer the Beneficiary substantially similar protection to that provided by this Agreement without significantly increasing the cost to the Beneficiary.

What is the process to release the source code and other deposit materials?

A good software escrow agreement will have a clearly defined process in order for the Beneficiary to make a request for the release of the deposited materials. The Escrow London agreement includes the following clauses relating to this;

  1. RELEASE OF DEPOSIT MATERIALS

5.1.        Upon the occurrence of any Event of Default (as defined in Section 4.1), an officer of Beneficiary must notify Escrow London by sending a statutory or notarized declaration as to such Event of Default (a “Notice”). The Notice must include a list of circumstances of the Event of Default and should include any supporting facts.  Escrow London shall send a copy of the Notice to the Depositor by courier or registered mail.

5.2.        Unless Escrow London receives Contrary Instructions (as defined below)  by an officer of Depositor within ten (10) Business Days after sending the Notice, the Deposit Materials then in escrow shall be delivered to Beneficiary by Escrow London within the next ten (10) Business Days following the end of such ten-day period.

5.3.        “Contrary Instructions” for the purposes of this Agreement means a certificate executed by an official of Depositor stating that the Events of Default specified in the Notice have not occurred, or have been cured prior to the applicable period. This certificate must be sent to Escrow London by courier or registered mail.

5.4.        Upon receipt of such Contrary Instructions, Escrow London shall send a copy of the Contrary Instructions to the Beneficiary and not release the Deposit Materials then in escrow, but shall continue to store the Deposit Materials until otherwise directed in writing by Depositor and Beneficiary jointly or until resolution of the dispute pursuant to Section 6 of this Agreement.

5.5.        Escrow London shall be entitled to receive payment of costs, fees and expenses due to it, prior, and as a condition precedent, to release of the Deposit Materials.

5.6.        Unless otherwise provided in the License Agreement, upon release of the Deposit Materials in accordance with this Agreement, Beneficiary shall have the right to, and Depositor hereby grants the Beneficiary a worldwide, non-exclusive license to, use the Deposit Materials for the sole purpose of continuing the benefits afforded to Beneficiary pursuant to the License Agreement. The Beneficiary shall be obligated to maintain the confidentiality of the released Deposit Materials.

What happens in the event of a dispute?

All Escrow London agreements include a Dispute Resolution clause. The purpose of this clause is to provide the opportunity for the developer to dispute any of the alleged Events of Default. If the dispute is unable to be resolved, Escrow London will appoint an independent arbitrator. The sole purpose of the arbitrator will be to decide whether or not an Event of Default has occurred at the time the release application was delivered.

  1. DISPUTE RESOLUTION

6.1.        A dispute resolution may be requested within thirty (30) Business Days of receipt of any Contrary Instructions pursuant. If Escrow London receives a call for dispute resolution by any of the parties pursuant to section 5 hereof, Escrow London shall appoint an independent arbitrator in London, England.

6.2.        The parties shall submit all their claims including supporting documents in writing to the arbitrator within ten (10) Business Days following delivery of the request for dispute resolution. The sole question to be determined by the arbitrator shall be whether or not there existed an Event of Default at the time that the Contrary Instructions were delivered under Section 5. The decision by the arbitrator will be established on the written documentation submitted by all the parties without the requirement for a hearing.

6.3.        Notwithstanding the applicable rules or arbitration, all arbitral awards shall be in writing and shall set forth in detail the findings of fact and conclusions of law of the arbitrator. The decision of the arbitrator shall be final and binding upon the parties and enforceable in any court of competent jurisdiction. The arbitrator shall immediately deliver a copy of such decision to Depositor, Beneficiary and Escrow London.

6.4.        If the arbitrator finds that the Notice was properly given by the Beneficiary and that an Event of Default existed at the date Depositor had delivered the Contrary Instructions, Escrow London shall promptly deliver the Deposit Materials to Beneficiary.

6.5.        All fees and expenses charged by the arbitrator in the arbitration shall be paid by the non-prevailing party in the arbitration. Each party shall bear the cost of its own counsel’s fees and expenses in connection with any arbitration or judicial proceeding brought hereunder.

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