As a SaaS supplier you may want to consider offering escrow agreements to your customers, particularly if you run SaaS applications which are critical to your customer’s business.
What is Escrow
Escrow refers to a third party holding a copy of the SaaS 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 SaaS 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 SaaS 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 SaaS 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.
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 SaaS 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.
Irene Bodle is an IT lawyer specialising in SaaS agreements with over 10 years experience in the IT sector. If you require assistance with any SaaS, ASP, software on demand contracts or any other IT legal issues contact me:
To register for my newsletter click here
Other related articles:
- SaaS, ASP Agreements – Essential Elements
- SaaS, ASP Agreements – FAQs – Escrow
- SaaS, ASP Agreements – FAQs – Security
- SaaS, ASP Agreements – FAQs – Confidential Information
- SaaS, ASP Agreements – FAQs – Software Licence
- SaaS, ASP Agreements – FAQs – Source Code and Object Code
- SaaS, ASP Agreements – FAQs – Data Protection
- SaaS, ASP Agreements – Data Protection and Safe Harbor, Issues with German Customers
- SaaS, ASP Agreements – SLAs Explained – Essential Elements
- SaaS, ASP Agreements – SLA – Security Issues
- SaaS, ASP Agreements – SLA – Maintenance and Support Requirements
- SaaS, ASP Agreements – SLA – Service Credits
- SaaS, ASP Agreements – SLA – Maintenance
- SaaS, ASP Agreements – SLA – Error Fix Times
- Legal Clauses to include in a SaaS Sales Proposal
- Cloud Computing and the Legal Cloud
- SaaS, ASP, Software on Demand – Confused?