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Software Escrow Release Conditions "The Escrow
Update"
October 2009 Issue
"What has
to happen in order for the escrow deposit
materials to be transferred to a
Beneficiary?”
This is the number
one question in the minds of IT licensees (escrow
“beneficiaries”) everywhere. Most
folks know, in general, that the escrow agreement
provides for contingent access to the deposit
materials, but the details are very important to
both Parties.
While a
well-written escrow draft can often be used
as-is, or with minimal changes, the drafts
sometimes end up looking like a Rand McNally road
map with all of the red lines, additions and
deletions – largely regarding the
“release conditions” or
“triggering events”, as some agreements
name them. Simply put, these are the
contingencies that must occur before the escrow
agent may release a copy of the deposit materials
to the Beneficiary.
And don’t
forget, these are mutually agreed upon by both
the Depositor and the Beneficiary, and they
comprise the escrow agent’s directives
should something go south.
In many cases,
simple release conditions will suffice and
satisfy the Parties. These often include:
1. Written
verification that the Depositor has ceased
business operations (e.g., a bankruptcy
filing, or a letter from a company officer
indicating the business is closing or has
closed) or the licensing/maintenance of the
Deposit Materials without a successor, AND/OR
2. Written
verification that the Depositor has somehow
materially failed to support the product or
breached the Parties' license agreement or
contract.
The “written
verification” component is
imperative! Remember, "If it
isn't in writing, it didn't happen".
The escrow agent MUST have support documentation
from one of the Parties to substantiate
all release requests. To protect the
Depositor, the escrow agent is not going to just
hand over the deposit materials in response to a
Beneficiary’s phone call or an e-mail
claiming that the Depositor’s support desk
didn’t return a phone call. A
substantial failure or issue – or other
release condition in the escrow agreement –
has to be properly documented.
If a release
condition occurs (or is suspected), it is the
Beneficiary's responsibility to notify the escrow
agent, who then initiates the protocol for
release. This protocol usually includes
notices, objection periods, alternative dispute
resolution (ADR, if needed) and other steps to be
taken before any transfer occurs.
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Page updated 01.02.2012.
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