Data Escrow Agreements

By Honylyn Bueno
What does Escrow mean?

'Escrow' is a legal term which means 'money, goods or a written document, held by a trusted third party, pending the fulfilment of some condition'.

Data insurance should be taken out for the data you use to provide for unplanned events.

The importance of Data Escrow Agreements

Normally in a Data Escrow Agreement a copy of the database content along with instructions, support manuals, computer source code (instructions for a computer in the form of a computer program), intellectual property etc is provided to the escrow agent (who is a trusted third party) by the owner.

The Escrow agreement sets outs certain events under which the above can be released to a licensed user of the data ('the Licensee'). This provides a safety net in case of events such as the Licensor going into bankruptcy or liquidation, a merger or acquisition takes place, or the Licencor fails to properly maintain the software or perform under the Licence Agreement.

With current advancements in the IT industry more and more businesses are dependent upon third parties for the supply of bespoke software which usually comes with a maintenance service contract. A Data Escrow Agreement is therefore essential in order to protect the Licensee from the above risks.

Why should a typical Licensor consider placing source code in Escrow?

Placing the source code in Escrow allows for better marketing of the software and the licensor's services and also provides peace of mind to licensees who know that they are safe in the knowledge that if there are bankruptcy proceedings or mergers or if any of the circumstances listed above occur, they will be safe.

The licensee can also have the source code amended and customised to their requirements very quickly which ensures continuity of business.

Computer software engineers take pride in their creations and therefore may often be unwilling to release the source code to a Licensee so a Data Escrow Agreement is a very good compromise.

The protection provided by a Data Escrow Agreement is essential for anyone involved in software development, software licensing or the use of another's bespoke software. An evaluation of the importance of software etc to a business should be carried out and put into context with the importance of a Data Escrow Agreement.

How Lawyers can help with Escrow

Clients who use this service are usually database administrators, software developers, web designers and creatives etc who are continually coming up with new ideas.

Data Escrow Agreements allow them to safely deposit and archive their work. Depositing their work with an escrow agent will assist in the event that there is some copyright or ownership dispute.

Many lawyers and solicitors offer data escrow services in relation to Software Escrow, Website Escrow, Database Escrow and Development Escrow. Choose a lawyer who has specialism in this industry and many have acted for leading software providers and many household brands.

Your lawyer should not only draft the escrow agreements but also act as an 'escrow agent'. The lawyer may also be able to store the data Escrow material in escrow and can advise on the terms of Data Escrow Agreements which are drafted by others and are specialists in negotiation.

Escrow fees range from £450 + VAT to £950 + VAT ($700 - $1500 US). Many lawyers will always provide a fixed fee before undertaking the work and can draft a bespoke data escrow agreement within a short timeframe.