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Who traditionally pays for software escrow agreements?

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Software escrow agreements can be  put in place to protect both the software developer and the end user and may include terms that guarantee  payment for the developer and access to the source code for the end user. End users may request escrow agreements to protect their interests in the event that the developer for some reason cannot finish creating the software, cannot maintain it afterwards or most commonly goes out of business

The escrow agent will usually request a number of deposit materials which can include, but is not limited to; the software’s source code, build instructions, programming documentation, configuration information and anything else needed to understand, maintain, develop or update the software.

There are often questions over who is responsible for paying for the software escrow. There are two key payments to be met, the set up fee and the annual fee. The set up fee is a one off payment and as you would expect meets the cost of “setting up” the agreement – this, in most cases is met by the software developer. The annual fee is paid each year by each registered licensee (end user) for the term they are registered on the agreement. These costs can be negotiated between the licensor (developer) and the licensee.

In some cases, the developer may choose to pass their cost onto the end user, particularly if an escrow agreement is not part of their usual offering and if it is a single licensee agreement with terms or a source code deposit specific to one end user. In the majority of cases, a developer will set up a multi-licensee agreement, where multiple end users may register against the same agreement, as the source code deposit is not specific to one individual end user. The escrow agent will normally offer a flexible approach to billing and will work with the developer and their end users. In the past, the developer often incorporated their cost into their client’s annual support fee; however it has now become more common for escrow agents to bill the end user directly. This is because developers are keen to avoid showing any extra charges that may unnecessarily inflate their support fees. In some cases developers may wish to consider covering the cost of the software escrow agreement themselves. Where they are competing to develop an application for a customer wishing to spend a considerable amount of money, it could help them to waive the escrow agent’s cost and cover this themselves. In short the party responsible for paying the bill is always up for negotiation.

For more advice on software escrow agreements take a look at our Twitter account @leas29

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