Who Pays for a Software Escrow Agreement?

This is a question that is often asked by prospective clients before initiating a software escrow agreement.

There is no definitive answer to this question. Depending on the situation, the software escrow fees may be borne solely by the developer, the beneficiary, or even split equally between both parties.

During the negotiation of the software license agreement, a clause for the inclusion of a software escrow agreement is often included. From our experience, if the developer is a young start-up company and the beneficiary is an enterprise organisation, the annual costs of the software 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, costs and data security of their sensitive IP are important factors when it comes to selecting a software escrow vendor.

In the circumstance where the developer is more established and the beneficiary has made a request for the inclusion of software escrow, the costs will often fall on the beneficiary.

There are situations where we have seen both the developer and beneficiary agree to split the fees as an amicable way to proceed with implementing a software escrow solution.

Verification services to ensure that the source code can be built into a working application would typically be requested by the beneficiary. As such, the fees associated with these services would be paid for by the beneficiary. In addition to the escrow vendors verification fees, the developer may charge the beneficiary for their own resources allocated to these testing exercises.

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