4 ms·

If they are trying not to end up in the situation where you go out of business and they are screwed, offer them to escrow the code for a certain amount of money

If they are trying not to end up in the situation where you go out of business and they are screwed, offer them to escrow the code for a certain amount of money. If you go out of business, they get the code. If you do not, they don't

skmurphy 9y ago
Even source code escrow should be resisted. "Out of Business" is not always clear and if you are trying to get acquired your value drops dramatically if major customers have your source.
- bluGill 9y ago
  True, the code escrow needs to be written correctly. Done correctly it only kicks in if the code goes unsupported. You can be acquired so long as the company buying you continues to support it at a "reasonable price". If they don't support the code for a "reasonable price" they didn't buy you for the code anyway so it won't matter. If they do support it, then the escrow doesn't come into play.
  - FireBeyond 9y ago
    I had a customer ask (we have an escrow clause), "What's to stop us not paying your bills (for support and licensing) until you go out of business and then getting the source code?" We pointed to (one of many) conditions that said that escrow would be only released to customers who were in good standing with us -before- the escrow event (and that wasn't transferable, as in they couldn't settle accounts with trustees, acquirers or the like - similar to 'not being able to buy retroactive insurance').
- notyourday 9y ago
  Ask your attorney.
  - skmurphy 9y ago
    I guess reasonable people can disagree. It's a business risk calculation not a point of law.
    - valuearb 9y ago
      If you think "out of business" can't be defined adequately, it's a point of law. That's what lawyers get paid to do for you.
wgj 9y ago
If the out of business scenario includes the possibility of acquisition or asset sale, code escrow is a significant factor lessening the value of assets or killing the deal entirely. Stated differently, it's not what a buyer wants to find in due diligence. The $50+bn company might even be the potential buyer, but under code escrow they just get it for free (less whatever was negotiated up front.)
- notyourday 9y ago
  Rubbish. Structure it as 1 year, 2 year, 10 year whatever the hell deal you want. If you are a $50BN company ( you aren't ) you simply fire that customer.
- theobon 9y ago
  Typically these are worded as part of support & maintenance and is triggered by failure to meet that obligation. Acquisition, merger, spin-out, JV or bankruptcy would not trigger it provided support is maintained. Also, the force majeure clause typically allows some reasonable timeline to reinstate support before it is triggered. I would think the positive of a large client greatly outweighs the liability of the code escrow.

skmurphy 9y ago

Even source code escrow should be resisted. "Out of Business" is not always clear and if you are trying to get acquired your value drops dramatically if major customers have your source.

bluGill 9y ago
True, the code escrow needs to be written correctly. Done correctly it only kicks in if the code goes unsupported. You can be acquired so long as the company buying you continues to support it at a "reasonable price". If they don't support the code for a "reasonable price" they didn't buy you for the code anyway so it won't matter. If they do support it, then the escrow doesn't come into play.
- FireBeyond 9y ago
  I had a customer ask (we have an escrow clause), "What's to stop us not paying your bills (for support and licensing) until you go out of business and then getting the source code?" We pointed to (one of many) conditions that said that escrow would be only released to customers who were in good standing with us -before- the escrow event (and that wasn't transferable, as in they couldn't settle accounts with trustees, acquirers or the like - similar to 'not being able to buy retroactive insurance').
notyourday 9y ago
Ask your attorney.
- skmurphy 9y ago
  I guess reasonable people can disagree. It's a business risk calculation not a point of law.
  - valuearb 9y ago
    If you think "out of business" can't be defined adequately, it's a point of law. That's what lawyers get paid to do for you.

wgj 9y ago

If the out of business scenario includes the possibility of acquisition or asset sale, code escrow is a significant factor lessening the value of assets or killing the deal entirely. Stated differently, it's not what a buyer wants to find in due diligence. The $50+bn company might even be the potential buyer, but under code escrow they just get it for free (less whatever was negotiated up front.)

notyourday 9y ago
Rubbish. Structure it as 1 year, 2 year, 10 year whatever the hell deal you want. If you are a $50BN company ( you aren't ) you simply fire that customer.
theobon 9y ago
Typically these are worded as part of support & maintenance and is triggered by failure to meet that obligation. Acquisition, merger, spin-out, JV or bankruptcy would not trigger it provided support is maintained. Also, the force majeure clause typically allows some reasonable timeline to reinstate support before it is triggered. I would think the positive of a large client greatly outweighs the liability of the code escrow.