Investors in high-technology assets as well as banks and other financial institutions who lend to high-tech companies have to be careful when it comes to securing their investments. In the sometimes-nebulous world of intellectual property assets, it can often be challenging to define and enforce rights in and to continually evolving IP products, processes or concepts.
As with most loans or investments, an item of value is used as security. For example, when a lender loans its customer funds to purchase real property, a mortgage or deed of trust is contemporaneously recorded with the grant deed creating a lender’s lien against the purchaser’s interest in the real property purchased. Similar type security concepts become much more complex when software, intellectual property assets or technology licensing are involved in business transactions as there is no deed and, often, the asset is not readily definable.
In these instances, many should turn to neutral third party escrow companies that specialize in software and technology asset escrow arrangements and secure their investments with software and technology escrow agreements. Software and technology escrows allow lenders and investors to deposit, enforce and verify the intellectual property assets they wish to secure until the loan is repaid. Escrow agreements allow investors and lenders ready access to such IP assets in the event of a default on a loan or failure of a business.
Software and technology escrow agreements require the use of intellectual property management professionals and each step of the process should be meticulously scripted in order to avert incurring potential litigation and business costs and expenses.
Securing your investment or collateral
Whether you are investing or securing loan collateral for software or technology assets, the following items should be included in your software and technology escrow agreement:
- Source code documentation.
- Software build instructions.
- Third-party applications and uses.
- User documentation.
- Contact information for key employees.
If you are dealing with hardware or product designs, your agreement should also include the following:
- Prototypes.
- Blueprints or schematics.
- Actual equipment.
Enforce deposit provisions
Identifying and defining the items to be deposited into escrow is only the first step, however. Last year, an investment firm failed to follow-up and enforce the source code deposit requirements of its software escrow agreement and, when the software developer defaulted, there were no assets on deposit for the firm to access.
Verify the deposits
It is essential that lenders and investors make certain that software and technology escrow deposits are verified, complete and functional as the usability and quality of the deposits increase their value. While it is often the neutral escrow agent who conducts the verification process, it is the lender’s or investor’s responsibility to ensure that the deposits were made and updated as time goes by.
Consult an attorney
If you are a lender or investor contemplating making a loan that in any way involves software, intellectual property or technology products or assets, consult an experienced intellectual property lawyer. It is important to consult an attorney who is knowledgeable about tailoring software and technology escrow agreements to fit your particular needs.
