Source Code Escrow Clause
(Identifying and Managing Bankruptcy Risk)

Summary

This source code escrow clause is used in license agreements to protect the licensee if the licensor under the agreement files for bankruptcy. This template includes practical guidance and drafting notes. A licensee should protect its rights in the event the licensor files for bankruptcy. The licensee will want the license to contain payment and other terms that will apply after a rejection in a bankruptcy case. These bankruptcy specific terms should be designed to reflect the responsibilities of the parties in the event that the licensee elects to retain the licensed software and related source code after a rejection. A software escrow is a deposit of source code of software and other materials with a third party escrow agent. This clause is needed so that the licensee can access the source code information to continue its use, make updates, and develop intellectual property even though the licensor no longer can or will provide support at agreed-upon levels of service. Counsel should include such language in a license agreement even if it is not clear that the licensee would be entitled to the protections of Section 365(n). This clause can be used in tandem with the Software License (Tandem Use with Software Escrow) (Identifying and Managing Bankruptcy Risk) which is a provision that addresses the effect that the licensor's bankruptcy and the rejection of the license will have on the license. For more information, see Intellectual Property Agreements: The Assumption/Rejection Risk.