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Escrowing your intellectual property overseas

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aa13-dec-jan-2005-06-legal-escrowing-your-intellectual-property-overseasOffshore intellectual property transactions, generally, include an element of escrowing.

Whether an intellectual property owner is involved in a licensing, franchise, reseller, distribution, partnership, joint venture, and/or collaborative development relationship, it is inevitable that the intellectual property owner will need to manage requests/contractual requirements to have their core intellectual property escrowed in a foreign country (common in the USA). Most American clients and business partners have existing relationships with escrow agents, and usually include escrowing as a condition of completing a deal.

Some businesses have been caught off guard during negotiations, when their foreign business partner or prospective client/licensee has requested an escrow of source code managed by an escrow agent not selected by the intellectual property owner.

Owners of intellectual property who currently trade in other countries (or plan to) should have a pro-active strategy for escrowing their intellectual property. Establishing your own escrow relationship offshore will allow you to manage/negotiate escrow requests as they arise, with greater visibility and certainty of the legal terms and conditions around the escrow and the location of your intellectual property. An escrow engagement can also be used as supporting evidence of ownership and commercial intentions, in particular, in the event a dispute occurs.

An escrow agreement should have clearly defined parameters around:

  • The delivery of intellectual property, including modifications, updates and new releases (and related documentation) to the escrow agent
  • The term (initial term and renewal terms) of the escrow engagement
  • Conditions to maintaining the escrow engagement
  • The role of the escrow agent
  • Who has a right of access (and applicable access procedures) to the escrowed intellectual property
  • Procedures to manage the requests for disclosures of the escrowed intellectual property
  • Trigger events for disclosing the escrowed intellectual property
  • Escrow agents rights to, and rules around, copying the escrowed intellectual property
  • Representations as to accuracy, completeness and functionality of the escrowed intellectual property
  • Dispute resolution procedures
  • Governing law
  • Escrow fee and payment structure
  • Status of intellectual property ownership; and
  • Available verification services for business partners and clients who use the escrowed intellectual property.

Most escrow engagements will support multiple transactions, so the duration of an escrow engagement will generally extend at least for the term of commercial licensing contracts and, sometimes, beyond that period in order to service the needs of a business partner(s) or client(s) that uses the escrowed intellectual property in a contractual transition out phase.

Escrow engagements are also called into play when there is a dispute situation between the owners of the escrowed intellectual property and the users of the escrowed intellectual property, or when the owner of the intellectual property is in a bankruptcy situation or chooses to phase out a particular line of business (or product or service) that involves legacy contractual commitments around the escrowed intellectual property.

Without a suitable escrow engagement strategy, Australian owners of intellectual property who are asked to escrow their intellectual property offshore will fi nd themselves delivering their intellectual property to an escrow agent that they are not likely to have any previous dealings with, nor input into, the actual escrow terms and conditions under which their intellectual property will be housed; including the location, use, access, copying, disclosure and contractual variation rights, all of which are necessary to properly manage intellectual property offshore and minimise any commercial risks of intellectual property infringement that come with a global licensing transaction.

Jarmal Richard is Principal of jdrlegal Pty Ltd, a boutique Australia-USA intellectual property law fi rm specialising in assisting companies commercialise intellectual property between Australian and the USA. www.jdrlegal.com.au

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