Source code escrow is an arrangement under which an independent agent holds the source code and build instructions for a software package. If a pre-defined event occurs, usually insolvency or a lasting failure to maintain the software, the agent releases the code to the user together with a licence to maintain it independently.
Legal basis
Escrow is a contractual construction without its own statutory regime. It rests on the deposit contract of Article 7:600 of the Dutch Civil Code and on a conditional licence under the Copyright Act. Its resilience in insolvency is the sensitive point: under Article 37 of the Dutch Bankruptcy Act a trustee may decline to perform a continuing contract. In a well-designed arrangement the licence is therefore not granted when the event occurs but already at signature, subject to the condition precedent that the event occurs. The Dutch Supreme Court ruled in Nebula and later in Berzona on the limits of what a trustee may set aside, which makes the drafting of the licence decisive.
How it works in practice
There are two models. Under two-party escrow the supplier deposits code with an agent for all of its customers; under three-party escrow the customer also signs and holds its own claim. Only the second offers real security. Verification matters just as much: the agent periodically checks whether the deposit is complete, whether it compiles and whether the documentation is sufficient to keep the package running without the supplier.
Where it goes wrong
A deposit without verification is often worthless. In practice the deposited version turns out to be years old, third-party libraries are missing, or it refers to a build environment nobody still has. SaaS adds a further problem: code alone does not help, because the customer also needs the infrastructure and the data. A separate form exists for this, covering the environment and a recent data back-up as well.
Related terms
Escrow builds on copyright in software, which determines whether the licence can be granted, and on the SaaS agreement, where the exit arrangement matters at least as much.
Would you like to know whether your escrow arrangement survives insolvency? Our IT lawyers assess the construction.
