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Five things you’ve always wanted to know about Software Escrow

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A software escrow agreement is a vital tool for any business that wants to protect itself against the large financial losses that can be caused by software related problems. Software suppliers can and do go out of business and without a software escrow agreement, the software a business uses on a daily basis can simply vanish, leaving businesses essentially unable to run their software with no access to support or the coding of the software itself.

There can be conflicting advice about software escrow and its benefits. Here are five things we hope you’ll find helpful:

1) Our business has no technical staff – how can we use the source code?

This can be a problem for some smaller businesses. In order to avoid this, a list of the software company’s specialist staff can be requested to be included as part of the software escrow agreement and can then be contacted to be used as consultants for your business if your software company goes out of business.

2) Other people are beneficiaries of our software company’s escrow account – will we have to wait until they’ve all got access to the code first?

Any good escrow company should be able to make sure you get access to the source code without having to wait too long. Make sure your business uses an escrow company that can make copies of the code in order to speed up the process – as some legally can’t.

3) Is the source code that’s released from software escrow actually usable?

Businesses worry that even if the software company did something that would trigger the release of the source code to them, they wouldn’t be able to use it as it wouldn’t look anything like the version they use on a day to day basis. Including terms in your agreement that make the software company update the code whenever there is a new version can prevent this causing a problem for your business.

4) If someone fails to pay for the annual escrow fee, does the account have to be shut down?

If you’re in a software escrow agreement with your software company and other beneficiaries, if one of the other beneficiaries fails to pay their annual fee then your escrow agreement doesn’t have to come to an end. You should be notified by the escrow company that a payment has been missed and you and the other beneficiaries should be given the option of making up the fee in order to stop the account being closed.

5) Can the software company reject our business’ request to have the code?

In order to be fair, software escrow agreements generally allow the software company to argue that the request from the beneficiary to have the code should not be allowed. You can get a clause written into your escrow agreement that would allow any dispute between your business and the software company to be resolved by arbitration (an independent third party) rather than lengthy court battles.

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