The beginner guide for escrow

The basics of escrow explained

 

 

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What is an escrow arrangement?

Let's begin at the beginning. Escrow, what is that actually? in short: what does escrow mean and where does it come from?

Escrow as we use it today is an English term that freely translates to a guarantee, collateral or a pledge. The assurance is given to 2 parties by a third party that both parties trust.

Escrow for software or knowledge is precisely about keeping the software or knowledge available in the event that the supplier is no longer able to do so due to, for example, bankruptcy or another calamity.

The origin of the word proves that escrow as a principle is both international and very old. This crept into the current English language via Old High German (scrot), Old French (escroe) and Anglo-Norman (escrowe). A traceable language journey of about 1,500 years across half of Europe.

Why do I need an escrow arrangement?

This is often as a guarantee or guarantee if, for example, the parties do not know each other well enough. But it may also be that one party feels vulnerable in some way or another in relation to the other.

For example, because they build an entire business on top of a software platform or certain knowledge. A supplier sees that software or knowledge as intellectual property and may be afraid that the user will sell it himself.

Nevertheless, they do want or have to do business with each other. Software, source code or technology escrow is the answer.

Who is involved in the escrow arrangement?

Irrespective of the type of escrow, it concerns something that is deposited by 2 parties for a certain period of time with a trusted, independent 3rd party: the escrow agent.

Those 3 parties can be in a single country or spread across the world. Since there are often legal conditions attached to an agreement, it is important to check which legal conditions apply where and when. This can be done by seeking advice from us, a lawyer within your company or a lawyer or consultant who specializes in this.

What is an Escrow Agent?

An escrow agent (sometimes also written as escrowagent or escrow agent) agrees with the 2 parties what will be kept, where, for how long and when it will be released.

We also call such an agreement an escrow agreement. The escrow agent is thus the intermediary that supplier and user trust. You also come across this as neutral or trusted third party or TTP (trusted third party) in escrow jargon.

Escrow Alliance is an escrow agent. We manage, verify and execute the escrow arrangement on behalf of the 2 parties - in our case the software user and supplier or the knowledge user and supplier.

In practice, this means that the escrow agent ensures the implementation of the agreements made by the parties from the escrow agreement. Such as the management of the escrow agreement, the verification or control of the material and the storage of the depot.

Why can't my business partner be an escrow agent?

An escrow arrangement is all about security. Such a arrangement must be drawn up, checked and implemented by parties who have all the necessary legal and technical knowledge in-house.

If you go to a business partner who does not have this knowledge in-house (or only partly), you run the risk of an unnecessary risk somewhere.

Whether that is a legal flaw in the escrow agreement, a verification error during the audit or technical difficulties during an interim update of the deposit.

Whatever happens, it's an unnecessary risk. If something goes wrong, you as a user will lose the warranty. Then this whole exercise was for nothing because you needed escrow to guarantee that your company can continue to run.

As a supplier, you also want to protect your intellectual property and good name with a reliable party that has often used this axe.

We therefore recommend that you look at the following 4 characteristics when choosing an escrow agent:

- Has a good, fast service and clear information
- Drafts modern, balanced escrow agreements
- Ensures that the depots are safely stored at at least 2 physical locations in the Netherlands
- Is completely neutral for both the user and the supplier

But my civil-law notary, company lawyer, lawyer or bank (advisor) is reliable, right?

As a rule, these are specialists in a specific field who often do not have all the necessary qualifications in-house. Especially for something as complex as software or technology escrow. Below are a few examples where these partners unfortunately fall short.

The company lawyers or lawyer
Company lawyers or lawyers (often) know enough about the legal side of the story. It is therefore a good idea to consult them when drawing up an escrow agreement.

However, they generally lack the specialist knowledge, manpower and access to advanced storage vaults necessary to verify, store and maintain depots.

the notary
Pre-eminently an independent third party, you would think. But what if it is your notary? Or that of your supplier? Then one of you will doubt the independence of the notary in question, right?

Furthermore, notaries generally lack the specialist knowledge, manpower and access to advanced storage vaults that are necessary to verify, store and maintain depots.

The bank (advisor)
What is more secure than the average bank vault? Surely there is software or documentation in there? Unfortunately it doesn't work like that. Of course, there are banks that act as escrow agents in financial escrow. It's just a completely different kind of escrow.

Furthermore, bank employees generally lack the specialist knowledge, manpower and access to advanced storage vaults (which cannot be compared with a bank vault) that are necessary to verify, store and maintain deposits.

What types of escrow are there?

For starters, Escrow Alliance specializes in software escrow and technology escrow. Both protect the intellectual property of the suppliers and the business of the users.

What types of escrow are there?

For starters, Escrow Alliance specializes in software escrow and technology escrow. Both protect the intellectual property of the suppliers and the business of the users.

software escrow

Used by users and suppliers of business-critical software or data to ensure that users can continue to work, even if the supplier can no longer (or does not want to) deliver.

This often concerns source and object code, data and documentation and is provided by Escrow Alliance in 6 different escrow arrangements: escrow for source code, escrow for SaaS, escrow for cloud platforms, escrow for mobile, escrow for ARBIT and custom escrow.

Technology Escrow

Used by users and suppliers of mission-critical knowledge to ensure that users can continue working even if the supplier can no longer (or does not want to) deliver.

This often concerns intellectual property such as formulas, construction drawings and patents/patents and is provided by escrow Alliance through technology escrow and custom escrow.

Besides those 2, there are many other types of escrow. Below are a number of common main categories that can sometimes be broken down into many subcategories. The drafting of an escrow agreement and the implementation of an escrow arrangement can differ per provider, category and country.

Equity Escrow

Used to pay out shares without the recipient being able to resell them directly. Think of performance bonuses for members of the MT.

crypto escrow

Used as a means of guarantee in crypto transactions, for example ICOs (initial coin offerings). It is also a marketing tool to show that you are reliable.

Financial Escrow

Used, for example, to buy or sell something or as a guarantee between a client and contractor for a project. This often concerns a blocked bank account with an escrow agent.

internet escrow

Used for online purchases. Think of the Equal Crossing Service from Marktplaats. It is similar to financial escrow.

Real Estate Escrow

Used when buying or selling real estate. It is a means of guarantee so that both parties can meet all the conditions for the final transfer.

What is an Escrow Agreement?

An escrow agreement is made between a supplier, user and Escrow Alliance as an independent escrow agent.

In this (legal) agreement, agreements are made about which materials must be deposited in the escrow depot, what type of verification must be carried out, what the grounds for deposit are and what other escrow conditions apply.

The Escrow Alliance escrow agreements are flexible and usable for the longer term.

What are release grounds?

The grounds for issue are laid down in an escrow agreement. They are simply the scenarios in which a deposit may be handed over to the user.

Escrow Alliance supports a large number of issuance grounds. We are flexible in that. Our goal is to satisfy both the supplier and the user, so balance is very important to us.

What are common grounds for abandonment in software or technology escrow?

- Bankruptcy of a developer, owner or supplier
- Stopping the software product or even the company by the developer, owner or supplier
- Death or resignation of key employees or developers of a supplier
- Acquisition or merger of the supplier with a competitor
- Unreasonable price increases

What is an escrow deposit and what can I store in it?

An escrow depot is the collective name for all materials that we store safely in special storage vaults.

A software escrow depot involves things like source or object code, documentation about the development environment or built environment and even complete configurations in the case of SaaS or cloud platforms. Depending on the arrangement, the depot is regularly renewed so that you can keep up with updates of the program or data.

A technology escrow depot concerns matters such as patents/patents, domain names, production plans and processes, blueprints, pharmaceutical formulas, construction drawings and recipes.

Where is the escrow deposit kept?

Escrow Alliance has specially developed vaults for media storage at 2 locations in the Netherlands - something we also call dual storage. We use both physical and electronic locations. Dual means it never comes together.

These modern storage safes are so safe that they can withstand fire and other extreme external influences without significantly increasing the internal temperature.

Furthermore, our storage vaults are very closely guarded with very strict access controls, passwords and keys. This way you can be sure that all business-critical materials are safe.

What do individual and collective agreements actually stand for?

For each type of escrow arrangement (source code, data, etc.), a subdivision can also be made into individual and collective agreements - the latter you also come across with competitors as an umbrella agreement.

The individual escrow arrangement is between the supplier, Escrow Alliance and the user. Think of it as the escrow agreement with specific arrangements between the parties.

The collective escrow arrangement is between the supplier, Escrow Alliance and multiple users. Think of it as a standard escrow arrangement that all users use under the same condition.

What is an Individual Escrow Agreement?

An individual escrow agreement should be seen as 1 agreement between the parties: the supplier and the user. The escrow agent is involved as a party in this.

It is therefore also referred to as a 3-party escrow agreement or tri-party for short.

As a mnemonic you can maintain that an individual escrow agreement is concluded for 1 party, often the user.

What is a collective escrow agreement?

A collective escrow agreement should be seen as an agreement between 1 supplier and multiple users.

This is especially useful for suppliers who do not want to conclude a separate agreement with every user. It is therefore also referred to as a 2-party escrow agreement.

The escrow agent stores the materials in the depot and helps draft the agreement, which is then offered to all users.

Escrow Alliance then provides the supplier's new customers with an information pack containing everything they need to know.