There are two school of thoughts when it comes to software license agreements and the escrow of the associated software source code.  One school of thought is that a software license agreement requires a comprehensive escrow agreement--preferably also signed by the escrow agent.  The other, less-widely adopted, school of thought is that you really don't need anything more than a simple few-sentence paragraph in the body of the software license, just between licensor and licensee (meaning no escrow agent as a party).

Let's call the first school of thought the "mega-escrow" and the other "mini-escrow."

Mega-escrow requires that the software license agreement contain a referring clause something similar to the following:

Escrow Agreement.  In the form of an escrow agreement attached as Exhibit B hereto, and corresponding to the applicable Exhibit A, Licensor agrees to place in escrow with an escrow agent copies of the most current version of the source code for the applicable Software and other materials necessary to internally support (i.e. maintain and/or repair) the Software for the benefit of Customer.

Obviously, there then needs to be an entirely separate escrow agreement.  If you don't agree with the rest of what I suggest in this blog post and you're a mega-escrow fan, you can find the 4-page version of what I used to use here: Software Escrow Agreement.

Mega-escrow, with its lengthly and important-sounding provisions, makes people (licensees) feel nice and cozy that, should something go awry with licensor, they'll have access to the source code to perform self-maintenance and everything will be wonderful.

Back in the day, I subscribed to the mega-escrow school of thought.  Heck, I even wrote from scratch the darn escrow agreement that I've attached here.  I now subscribe to the mini-escrow school of thought.  As I indicated earlier, mini-escrow is a simple clause in the body of the software license:

Escrow Agreement.   Licensor agrees to place in escrow with an escrow agent copies of the most current version of the source code for the applicable Product, including all updates, improvements, and enhancements thereof from time to time developed by Licensor necessary to internally support (i.e. maintain and / or repair) the Product for the benefit of Customer.  Licensor agrees that upon the occurrence of any event or circumstance which demonstrates with reasonable certainty the inability or unwillingness of Licensor to fulfill its obligations to Customer under this Agreement, Customer shall be able to obtain the source code of the then-current Product from the escrow agent.  The provisions of this Section shall survive the termination of this Agreement.

Yep, that's it.  In fact, it's not much longer than mega-escrow's mere referring clause that I pasted above and it's certainly less than the 4-page escrow agreement that I've attached.  But, I've included mini-escrow in software deals worth hundreds of thousands of dollars and slept soundly from the point of license execution and beyond.  Some of you may not get the same warm and cozy feeling with mini-escrow like you do with mega-escrow.

Mega-escrow agreements contain "triggers," typically called "events of default" or "default events" that, when they occur, require the escrow agent to deliver the source code to the licensee.  The attached escrow agreement contains over half a page of default events.  Escrow agreements also contains all sorts of formalities as it relates to notice of default and so on.  Here's the basic, fundamental problem with mega-escrow...  The tighter your grip, the more that slips through your fingers.  In other words, what happens if one of the default events described in the escrow agreement doesn't occur but some other event does, that you haven't foreseen, that impacts the licensor's ability to maintain the software?  Oops, too bad for you, because it's not in the escrow agreement.  Source code?  Not yours!

Plus, generally speaking, the escrow agent must agree that the default event has occurred.  Sure, they're supposed to be neutral, but do you think escrow agents really are?  Do you think they'd be in business long if they had a reputation of giving up source code without putting up a fuss first?  Also, you have to keep an eye on the procedures for notice.  One slip up and you may not be entitled to the source code.

Mini-escrow is very broad, but clear--if the licensor demonstrates an "inability or unwillingness" to fulfill any of its obligations under the license agreement, I get a copy of the source code--period.  The escrow agent can't balk and nit-pick over whether a default event occurred or not because I'm using pretty plain language, particularly because they're not a party to the license agreement.  I could care less what the agreement between them and the licensor says.  I don't have to worry about complicated notice periods.  I can go to court and easily get specific performance with my super-handy mini-escrow in pocket.  Mini-escrow is beautiful in its simplicity.

Sometimes, licensors want to include their agreement with the escrow agent as an exhibit to my license agreement.  Some folks really like this.  I really don't and put up a fight when licensors try to do that.  Even though I'm not a party to the agreement between licensor and escrow agent, merely including it as an exhibit to my license agreement means that I acquiesce to its terms (and default events).  Including the licensor / escrow agent agreement as an exhibit to my license agreement would have the effect of killing mini-escrow--and mega-escrow as well.

When it comes to contract language, frequently "less is more" and this is a perfect example.  Besides, think about what an escrow agreement or provision is really for.  You really don't want the source code.  Even if you got the source code, your employer likely wouldn't even know what to do with it.  The real purpose behind escrow, at least in my opinion, is a deterrent or leverage creator.  It keeps the licensor focused on not triggering the release of the source code in escrow.  In that way, mini-escrow is particularly powerful because the "trigger" for escrow is "the inability or unwillingness of Licensor to fulfill its obligations to Customer under this Agreement...."  That's pretty powerful leverage.

P.S.  The ultimate escrow?  You (licensee) hold the source code, instead of an agent.  I've done that before as well.

Agree or disagree with what I've posted here?  Think mega-escrow is better than mini-escrow?  Let me know...

Happy Negotiating!