As you are undoubtedly aware, most of what I know I learned from MyTechnologyLawyer Members. Here is an intresting business model that I have witnessed over the last year that may improve your revenues.


We have a Member that Licenses a software product to insurance companies. Because of the size and risk profile of his customers, this Member is routinely required to escrow the source code for his product.


To address this requirement, this Member structured the typical escrow arrangement using the MyTechnologyLawyer service. Under the agreement, source code is stored by the Agent (MyTechnologyLawyer) for contingent release to the Insurance Company. If the software agreement between the customer and the Member is breached by the Member, the Source Code is release to the customer under a restricted source code license.

These arrangements did not typically require the customer to pay source code license fees. The primary focus of the arrangement was to lower the risk of source code release based upon the assumption that the source code is trade secret and release should be discouraged. Like many technology and software companies, this Member discouraged his customers from escrow and only agreed to escrow if forced by the customer.


Last June this Member entered into software licensing negotiations with yet another Insurance Company requesting escrow of the source code. In discussions with this Member, I noted that contingent release of Source Code from escrow could be structured for minimal risk and extended profitability. The idea is to frame the traditional escrow release as a Source Code license (with restrictions to preserve trade secret status) and to charge a Source Code license fee in the event the Source Code is actually released to the customer under the escrow arrangement. The Source Code fees negotiated by this Member with his customer turned out to be quite substantial, exceeding the hosting and object code licensing fees under the object code licensing contract with that customer. In addition, the Customer also agreed to pay a premium escrow fee for the arrangement.


This Member's success with this model has now motivated him to convert all of his escrow arrangements to this new licensing framework. Instead of discouraging escrow, this Member is now promoting his escrow model as an inducement to buy his product. This Member is now selling the Source Code escrow license as an added measure of "protection" for the user (much like the rationale and sales pitch for buying the extended warranties on appliances from local retailers). This approach also positions our Member for some big fees if the escrow right is ever triggered.


This success raises the question of whether other MyTechnologyLawyer Members might also benefit from this model. As a software vendor, you may want to re-think your software licensing fee model and consider whether you can exploit this approach to promote escrow for your Software product. You may be able to increase your License Fees by offering a premium software escrow arrangement that includes a source code licensing fee in the event the release is actually triggered.