The 5 different types of Software Escrow contracts

The 5 different types of Software Escrow contracts

An Escrow contract can take many forms depending on the needs of the parties. Although the traditional Escrow agreement is a tripartite contract between a digital asset owner, a beneficiary and trusted third party, it is not the only possible configuration. First, it is possible to escrow an asset simply via a special clause introduced in a contract (Escrow clause), but it is also possible to have a quadripartite agreement involving a distributor on top of the traditional tripartite contract. An Escrow can also help a beneficiary manage his dependencies to his supplier (Beneficiary Escrow contract) or can be concluded between a SaaS and a beneficiary (SaaS Escrow).

Basic escrow contract

 

An agreement containing an escrow clause is signed between the Beneficiary and the Digital Asset Owner. This escrow clause can be a standalone contract or part of a broader agreement entered into between the Beneficiary and the Digital Asset Owner. Vaultinum is happy to assist Digital Asset Owners in drafting an escrow clause (contact@vaultinum.com).

The Escrow Agent is not a party to the agreement containing the escrow clause. However, the Escrow Agent is mentioned in the clause as the trusted entity with which a copy of the Digital Asset Owner will be placed for safe-keeping. The escrow clause also mentions under which circumstances the escrowed Digital Asset may be released, to whom and under which conditions. In the escrow clause, the Digital Asset Owner undertakes to deposit the Digital Asset with the Escrow Agent. This involves a contract between the Digital Asset Owner and the Escrow Agent.

The downside to the Basic Escrow Contract is that the Escrow Agent is not a party to the contract with the Beneficiary. This can create complications when the Beneficiary wishes to access the Digital Asset, mainly because, from a legal standpoint, the Escrow Agent, who is not a party to the contract between the Digital Asset Owner and the Beneficiary, cannot be bound by said contract.

The escrow process explanation

Tripartite Escrow Contract

 

This is the most common form of Escrow. It is a specific agreement entered into between the Digital Asset Owner, the Beneficiary and the Escrow Agent. This sets out the obligations and rights of all three parties, such as the deposit modalities (nature and content of deposited elements, frequency of updates, verification of the deposited elements, etc.), the Escrowed Digital Asset’s access triggering events, the Digital Asset’s access procedure, the rights granted to the Beneficiary once access has been granted, the duration and termination conditions of the Tripartite Escrow Contract, and the apportionment of the escrow costs between the parties.

 A model tripartite escrow contract can be made available by Vaultinum upon request.

explanation of tripartite escrow

Complex multi-party Escrow Contract

The Tripartite Escrow Contract can sometimes be expanded to include another party, such as a distributor. Indeed, where the Digital Assets Owner uses a distributor for the distribution of its Digital Asset to the Beneficiary, it may make sense to release the Digital Asset to the distributor for the purpose of continuing to provide the Digital Asset, and related maintenance and support to the Beneficiary.

 

explanation of multi-party escrow agreements

The Beneficiary Escrow Contract

 

Escrow can also be seen as a way for a Beneficiary to manage their dependencies on multiple suppliers in a world where software solutions increasingly involve the integration of multiple products from multiple software suppliers. The same Escrow Contract is entered into between the Beneficiary and each Supplier ensuring that the Escrow Agent and release conditions are the same, thus ensuring a centralized management of suppliers. Vaultinum is currently upgrading its Digital Asset Management Platform to allow Beneficiaries to manage multiple suppliers. This will also send alerts of when deposits and related updates are required/made.

explanation of how escrow contracts work

SaaS Escrow

The establishment of a SaaS Escrow can prove to be a real business continuity guarantee.

advantages of Saas Escrow

SaaS Escrows can take different forms depending on the level of intervention by the Escrow Agent. In some instances, the Escrow Contract will involve only the ability to retrieve client data from back-up servers by enabling the Escrow Agent to access such servers or perform streamlined back-ups, whereby the Escrow Agent becomes a third-party back-up provider of sorts. The Escrow Contract will include the SaaS provider or cloud provider as applicable. In other instances, the Escrow Contract involves the cloud provider or even the data centers with the Escrow Agent ensuring continuity of service instead of the software supplier, provided that the cloud provider/data center fees are paid.

the saas escrow process

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