The Clause Signed on Page Forty
Drafting the software escrow clause in Indian licence agreements
A software escrow clause is the provision in a licence agreement that obliges the licensor to deposit source code with an independent agent and defines when the licensee may receive it. In Indian technology contracts it often appears as one sentence near the boilerplate, promising escrow “on request”. That wording rarely survives a real trigger event.
What must a software escrow clause contain?
A workable clause commits the parties to five elements rather than to an intention:
- Obligation and timing: the escrow agreement is executed within a fixed period of signing, not “on request”.
- Deposit scope: source code, build scripts, a third-party dependency list, database schemas and documentation sufficient for a competent developer to rebuild the application.
- Update duty: the deposit is refreshed on every major release and at a minimum defined interval.
- Verification: the licensee may commission independent verification, with the cost allocation stated.
- Release conditions: objective trigger events, cross-referenced to the escrow agreement.
Why does the licence need an express use right?
Release transfers possession of the deposit materials, not rights in them. Computer programmes are literary works under the Copyright Act, 1957, and Section 30 requires a licence of copyright to be in writing. Unless the licence expressly permits the licensee to use, modify and have third parties maintain released code for its internal purposes, the licensee may hold code it cannot lawfully use. The use right should therefore be drafted into the licence, not assumed.
Which document prevails when they conflict?
The licence and the tripartite escrow agreement should state which governs which subject. A common allocation is:
Subject | Governing document |
Deposit, verification and release procedure | Escrow agreement |
Scope of use after release | Licence agreement |
Definition of trigger events | One definition, repeated verbatim in both |
Inconsistent trigger definitions across the two documents are among the most frequent causes of delay at the point of release.
Quick answers
Can escrow be added after signing? Yes, by amendment, although the licensee’s leverage is usually weaker once the contract is awarded.
Who pays for escrow? The allocation is negotiable. Licensees commonly bear the escrow fees, while licensors bear the cost of preparing deposits.
Counsel reviewing a licence can request a sample escrow agreement from info@escrownxt.com.
EscrowNXT, India’s pure-play software escrow provider, administers tripartite escrow agreements for licensors and licensees. Further information is available at www.escrownxt.com. This article is for general information only and is not legal advice.
