As a website operator you may want to consider offering escrow agreements to your customers, particularly if you run SaaS (software as a service) applications via your website, which are critical to your customer’s business.
What is Escrow
Escrow refers to a third party holding a copy of the software source code on behalf of the customer and the supplier.
What is an Escrow Agent
An escrow agent is a third party who stores a copy of the software source code. The escrow agent will release a copy of the source code to the customer if any of the events set out in the escrow agreement occur.
Why use Escrow
This is usually a customer driven requirement resulting from the fact that the source code for the SaaS software, the expertise to implement it and rights to the software are only licensed to, and not owned by, the customer for the term of the SaaS agreement.
Customers are concerned that the supplier may:
- fail to maintain the software;
- transfer ownership of intellectual property rights in the software;
- become insolvent;
- or become unable to carry on supporting and maintaining the software for some other reason.
By having an escrow agreement in place the customer has the right to continue to use the software, if the supplier is in default of its obligations under the SaaS agreement i.e. it no longer operates the website.
Advantages of an Escrow Agreement
Having an escrow agreement in place protects all parties involved in the development, supply and use of business critical SaaS applications. It provides customers with peace of mind for securing long-term availability of a critical software application by enabling customers to update software and fix any bugs even if the supplier is no longer able to support them.
Disadvantages of an Escrow Agreement
Having the right to use the software under an escrow agreement is in reality of little use if the customer does not have the know-how and resources to actually use, maintain and support the source code itself.
Also, the costs of setting up an escrow agreement and maintaining it are relatively expensive. Escrow costs are usually paid for by the customer.