Have you ever wondered who should pay for a source code escrow agreement? Should he be the software developer? What about the beneficiary? Or should the payment be split equally? Surprisingly, this is a question that is often asked by potential customers before initiating a source code escrow agreement.
Before we get into the nitty-gritty of who should pay what – let’s remember what source code escrow/software escrow is:
Source code escrow or software escrow is a three-party agreement between a software developer (the depositor), the end user (recipient) and the source code escrow provider. The goal of a source code escrow agreement is to reassure the end user that if the software developer is unable or unwilling to support the software, the code can be released to them. The software escrow agreement will outline the responsibilities of all parties and will typically include predefined release terms.
As you can see from the statement above, a source code escrow agreement involves more than one party, so when it comes to paying for the agreement, there may be payment disputes between two parts. On the one hand, we’ve talked to developers who think their client/beneficiary should pay for the agreement and all associated fees. On the other hand, we have also spoken to recipients who think the developer should pay for the source code escrow agreement to do business with them.
Unfortunately, when it comes to who should pay, there is no definitive answer. However, there are certain cases depending on the situation where the costs of escrow of the source code can be borne only by the developer, the beneficiary, or even divided equally between the two parties.
Come to a mutual agreement on who pays
When negotiating a software license agreement, a clause for the inclusion of a source code escrow agreement is often included.
In our experience, if the developer is a young start-up and the beneficiary is a corporate organization, the annual costs of the source code escrow arrangement will often be absorbed by the developer as they are willing to do whatever it takes to get the software license agreement executed. At this point, the cost and data security of their sensitive IP are important factors when it comes to selecting a source code escrow provider.
In cases where the developer is more established and the recipient has made a request for source code escrow inclusion, the costs will often fall on the recipient.
There are situations where we have seen the developer and recipient agree to amicably split the costs to proceed with the implementation of a source code escrow solution.
Source code repository Verification services to ensure that the deposited source code can be incorporated into a working application would generally be requested by the recipient. Thus, the costs associated with these services would be paid by the beneficiary. In addition to the Source Code Escrow Provider’s verification fees, the Developer may charge the Recipient for its own resources allocated to these testing exercises.