| Basic
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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