How to establish an IP Escrow Agreement: Everything Proptech companies should know

May 20, 2023

From the pressure to conclude an agreement, to the fear of unexpected curveballs derailing the process entirely - tensions are often high during any pivotal business transaction.

This tension is multiplied when the asset being negotiated with, has its value underpinned by Intellectual Property.

The real estate industry is no exception.

As property technology (PropTech) companies aim to maintain a competitive advantage, scale up their business and secure the confidence of investors, the tools that enable this growth and progress become increasingly more valuable.

The three questions our lawyers most frequently receive from UK Proptech companies are:

1. How can intellectual property be protected from exposure or misuse when pitching to investors?

2. How can buyers of PropTech guarantee they will receive the most up-to-date and relevant technology?

3. What legal tools can be used to safeguard against licensee insolvency?

The answer is this: an Intellectual Property Escrow Agreement. A legal device that is essential in tackling obsolescence, increasing buyer confidence, and fostering long-term relationships for Proptech companies in the scale-up, selling, and investment stages of their business.

In this 7-minute read, we'll dive right into the key benefits of IP escrow agreements, and how Proptech companies can harness them to unlock new growth opportunities and foster long-lasting business relationships.

4 Benefits of Intellectual Property Escrow Agreements for IP Owners

1. Safeguarding IP Assets - IP escrow agreements protect the IP owner's valuable assets from potential misuse or unauthorised access by the licensee. By entrusting the IP assets with a neutral third party, the IP owner can ensure that the release of the assets occurs only when the predetermined conditions are met. This approach minimises the risk of infringement and unauthorised access to confidential information.

2. Strengthening Trust in Business Transactions - The involvement of a neutral escrow agent in an IP licensing transaction helps build trust between the licensor and licensee. By demonstrating a commitment to a transparent and secure transaction process, IP owners can enhance their reputation and foster long-lasting business relationships with their licensees.

3. Mitigating Risks in Business Continuity - Unforeseen circumstances such as the insolvency of a licensee or disputes between the contracting parties can threaten the continuity of business operations. IP escrow agreements provide a safety net for IP owners by ensuring that their assets are securely held and can be swiftly released to the licensee, as per the escrow agreement, in the event of such unforeseen circumstances. This mitigates the risk of business interruption and the potential financial loss that might otherwise occur.

4. Facilitating Dispute Resolution - By setting out the terms and conditions for the release of IP assets in an escrow agreement, IP owners can simplify the process of dispute resolution between the contracting parties. The escrow agreement can serve as a reference point for both parties, providing a clear understanding of their respective rights and obligations. This can help expedite the resolution of disputes and reduce the likelihood of costly litigation.

Companies are inundated with articles and posts about how technology is changing the way their industries operate. However, what businesses aren't receiving in abundance, is clear direction on how to protect the creativity of their ideas whilst also fostering trust with stakeholders during the scaling, selling or investment process.

This can be done in the stages of establishing an Intellectual Property Escrow Agreement.

How to Establish an Intellectual Property Escrow Agreement

1. Select an Escrow Agent - The first step in setting up an IP escrow agreement is the selection of a reliable and experienced escrow agent. IP owners should consider factors such as the escrow agent's industry experience, reputation, financial stability, and the range of services offered.

   Some of the prominent IP escrow service providers in the UK include:

   • NCC Group: NCC Group is a global expert in cyber security and risk mitigation, offering a range of services, including IP escrow services. With a wealth of experience and a strong focus on security, NCC Group is a popular choice for IP escrow services in the UK and worldwide.

   • Iron Mountain: Iron Mountain is a global leader in storage and information management services, with a strong presence in the UK. They provide comprehensive IP escrow services, including storage, management, and release of IP assets, as well as verification and validation services.

   • Guard-IT Corporation: Guard-IT Corporation is known for its customer-centric approach, providing tailored solutions in a range of IP escrow services such as software escrow, technology escrow, and secure data storage.

   • EscrowTech International, Inc.: EscrowTech is a leading provider of IP escrow services worldwide, including the UK. They cater to the diverse needs of clients across industries through services such as software escrow, technology escrow, and SaaS escrow.

   • SES Secure (previously known as SES Escrow Solutions): SES Secure offers IP escrow services in the UK and Europe. They help businesses to protect their IP assets in various sectors with services such as software escrow, source code escrow, and data escrow.

2. Negotiate the Escrow Agreement - Once a suitable escrow agent has been chosen, IP owners must work closely with their legal advisors to negotiate a comprehensive escrow agreement. Most of these have standard forms of escrow agreement. Some possible legal issues or areas that may require careful consideration with a standard escrow agreement include:

   • Scope of the deposited materials: The standard agreement may not clearly define or fully cover the specific IP assets to be deposited, which could lead to disputes over the completeness or accuracy of the deposited materials. It is crucial to ensure that the agreement accurately reflects the IP assets being protected.

   • Release conditions: The standard agreement may contain generic release conditions that may not be suitable for every situation. Customising these conditions to reflect the unique circumstances of each IP licensing transaction will help avoid misunderstandings and potential disputes.

   • Confidentiality provisions: The standard agreement may have insufficient or overly broad confidentiality provisions. However, it is important that confidentiality requirements are tailored to the specific needs of the parties and protect sensitive information appropriately.

   • Liability and indemnification: The standard agreement may not adequately address the potential liabilities of the parties or the escrow agent. However, liability and indemnification provisions should not only protect the parties' interests but also must comply with the applicable laws.

   • Termination and dispute resolution: The standard agreement may lack clear provisions regarding termination and dispute resolution, which could lead to uncertainty and potential legal disputes. Customising these provisions to reflect the specific needs and expectations of the parties is essential for a smooth and efficient dispute resolution process.

   • Applicable law and jurisdiction: The standard agreement may not specify the applicable law and jurisdiction for the resolution of disputes, which could create uncertainty and complications in the event of a legal dispute. Clearly defining the applicable law and jurisdiction will help ensure a predictable and efficient legal process.

   • Updates and amendments: The standard agreement may not adequately address the process for updating and amending the deposited materials. Ensuring a clear and efficient process for updating and amending the escrowed materials is crucial to maintaining their relevance and accuracy.

3. Deposit the IP Assets - After the escrow agreement is executed, the IP owner must deposit the IP assets with the escrow agent. The assets may include source code, design documents, schematics, and other proprietary information essential to the operation and maintenance of the licensed IP. It is crucial that IP owners ensure the deposited materials are complete, up-to-date, and appropriately formatted to facilitate seamless access by the licensee upon release.

4. Monitor and Update the Escrow - IP owners should regularly review and update the deposited IP assets to ensure their continued relevance and accuracy. This may involve adding new materials, updating existing ones, or removing obsolete information. Regular monitoring of the escrow ensures that the licensee receives the most current and accurate version of the IP assets upon release.

5. Release the IP Assets - When the conditions outlined in the escrow agreement are met, the escrow agent is responsible for releasing the IP assets to the licensee in accordance with the terms of the agreement. This may occur, for example, when the licensor becomes insolvent, ceases to provide necessary support, or is otherwise unable to meet their contractual obligations. The release process must be carried out promptly and efficiently to minimise disruption to the licensee's business operations.

As a law firm specialising in digital innovation, we are committed to helping PropTech companies navigate the complexities of IP escrow agreements. Our legal professionals are well versed in creating secure solutions to protect IP assets. Whether it be the need to establish a tailored escrow agreement, a consultation to assess whether one is needed based on company objectives, or simply a discussion on how your business can give investors peace of mind; our Virtual General Counsel packages allow companies to successfully navigate the property technology landscape.

If your business operates in the built environment or technology sectors and would like to know how the topics in this article apply to your case specifically, please get in touch with our legal experts here.