Contract Corner: SaaS Escrow Considerations (Part 1)

by Morgan Lewis

Morgan Lewis

With software as a service (SaaS) offerings here to stay as the preferred technology solution for many key business requirements, we are seeing more and more requests for escrow arrangements involving SaaS solutions.

We’ve discussed source code escrow agreements in a previous two-part series (see Part 1 and Part 2). Like escrows involved in other license deals, SaaS escrows are often appropriate where customers are concerned about business disruption if the vendor goes out of business or otherwise stops supporting the software, and vendors remain reluctant to make their proprietary source code available to third parties.

Part 1 of this two-part series outlines some unique issues for escrow arrangements in the SaaS context and highlights related customer and vendor considerations.

Scope of SaaS Escrow Arrangements

In license deals for installed software, the scope of the escrow materials is generally limited to the source code for the particular licensed software and any related documentation necessary to allow the customer to ensure continued maintenance and support of the software by providing those services itself. In contrast, in license deals involving hosted applications, the scope of the escrow must be broader in order to allow the customer to assume responsibility for hosting the solution in addition to the related maintenance and support. For this reason, the scope of the escrow typically includes the source code and object code of the underlying software, any ancillary software necessary to operate and maintain the underlying software, and any related documentation.

Customer-Side Considerations

From the customer side, it is important to ensure that you have a sufficient understanding of what is necessary to provide the software so that you can adequately define the scope of the escrow materials in the contract. While the nature of SaaS solutions makes it inherently difficult for a customer to simply step into the vendor’s shoes and begin hosting and providing the software upon the occurrence of a release event (even where the correct materials are included in the escrow), this difficulty can become an impossibility if the escrow materials do not include all of the requisite technology.

Vendor-Side Considerations

From the vendor side, it is important that the definition of the escrow materials isn’t overly broad in such a way that commits the vendor to placing materials in escrow that it does not in fact possess. An example of this type of broad escrow materials requirement would be any requirement that all ancillary software in escrow includes detailed, complete documentation that would allow any programmer with no experience with the underlying licensed software to host and make modifications to such software, where that level of detailed documentation does not exist within the vendor’s organization. In this situation, aside from attempting to negotiate a narrower scope of escrow materials, the vendor should consider whether it is in fact unable to produce the requisite documentation or, if the requisite documentation could be produced, if it would be an expensive and time consuming task that the vendor is not willing to undertake. In the latter situation, the vendor may be able to agree to the broader scope of escrow materials if the customer is willing to share the cost of or otherwise provide economic incentives for the vendor to develop any additional materials that the customer is requiring to be escrowed.

We will continue to discuss these issues in Part 2 of our series next week.

This post is part of our recurring “Contract Corner” series, which provides analysis of specific contract terms and clauses that may raise particular issues or problems. Check out our prior Contract Corner posts for more on contracts, and be on the lookout for future posts in the series (including Part 2 of this discussion next week).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morgan Lewis | Attorney Advertising

Written by:

Morgan Lewis

Morgan Lewis on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.