Escrow Levels the Playing Field

One of the main reasons for technology escrow, from the viewpoint of the small- to medium-sized developer, is that it levels the playing field against larger competitors — often perceived as more reliable. With an escrow in place, smaller developers can offer to their customers all of the advantages of working with an entrepreneurial company, while assuring them that in the event of bankruptcy or lost support, they will have access to the source code. The superior technology generally offered by smaller developers is a powerful incentive to many large, influential customers. But news articles reporting on the instability of software companies can cause some customers to steer clear from cutting-edge technology if they are worried the vendor won’t be there in the future to support it.

An escrow account addresses those concerns. For those not familiar with the concept of software escrow, it is an arrangement whereby a software vendor’s source code and other maintenance materials are administered by a neutral third party. If the vendor fails to support the software or does not deliver the final product as promised, the escrow beneficiary (usually the software licensee) is given access to the materials necessary to support the application or to find a party to complete the work on the program.

A breach of contract can be caused by bankruptcies, acquisitions, mergers and other events as spelled out in the escrow contract. When those elements of a contract are broken, the licensee may request that the escrow agent release the deposited materials. Software developers are finding it is especially effective to introduce the topic of escrow during licensing negotiations, offering it as an added benefit to the licensee. More vendors are beginning to understand that the cost of an escrow account can usually be borne, or at least shared, by the licensee. It is becoming more common for vendors to include the cost of escrow in the license or maintenance agreement.

What software users find attractive are the options that open up when an escrow is offered. Users believe they can confidently take advantage of the small developer’s ability to keep prices lower and quickly customize products to match their needs. Developers, in turn, begin to see business prospects grow.

Escrow is a Selling Tool
"I often urge developers to think of software escrow as a selling tool. It addresses customers’ concerns up front that can be dealt with immediately and as a result can expedite licensing negotiations," said Gail Bronson, president with InternetAssist™, a consulting firm that focuses on marketing and security technologies for software developers.

Agreeing with Bronson was a representative from a major computer company that demands escrow contracts from its vendors. He said that an escrow account "puts smaller developers in a better bargaining position to make their assets accessible. This is important because a company dependent on a vendor’s software shouldn’t be exposed to risk if something happens to the vendor. An escrow agreement will protect against that."

Clients Prefer Iron Mountain’s Proven Contracts
Iron Mountain, the world leader in providing software escrow services, is uniquely qualified to help vendors protect their intellectual property and meet their customers’ demands. Iron Mountain’s time-tested escrow management procedures and its proven sample contracts can be relied upon to save you time and money during negotiations.

Vendors will often turn to Iron Mountain’s two-party escrow relationship, which provides a standardized contract that only requires licensees to sign a simple form to be added as a beneficiary to an escrow account. If a contract must be customized, Iron Mountain offers consultation services to help clients meet specific objectives. Under most plans, Iron Mountain can bill the licensee directly for the escrow fees — reducing paperwork and administration costs for the vendor.

Vendors will find that by being proactive about escrow, they will not only address legitimate customer concerns, but also reap the benefits of escrow by protecting their proprietary technology. Iron Mountain dates and time-stamps all deposits and updates, providing a genealogy of the software development process. This record can be used in court as evidence in any ownership dispute regarding patent, copyright or trade secret infringement.