Guidance on the Use of Escrow Agreements for Rail Applications

Supersedes Iss 1 with effect from 03/03/2018 Guidance on the Use of Escrow Agreements for Rail Applications Synopsis An escrow agreement is, typically, a tripartite agreement between a Licensee (for example, the asset owner), Licensor (for example, the original equipment manufacturer (OEM)) and an independent third party (usually the escrow agent), but can include additional parties in order to reflect more complex situations. The escrow agreement is a legal agreement where specified intellectual property is put into the custody of an independent third party (referred to as an escrow agent) until specified conditions (typically referred to as release events) are fulfilled. Copyright in the Railway Group documents is owned by Rail Safety and Standards Board Limited. All rights are hereby reserved. No Railway Group document (in whole or in part) may be reproduced, stored in a retrieval system, or transmitted, in any form or means, without the prior written permission of Rail Safety and Standards Board Limited, or as expressly permitted by law. RSSB members are granted copyright licence in accordance with the Constitution Agreement relating to Rail Safety and Standards Board Limited. In circumstances where Rail Safety and Standards Board Limited has granted a particular person or organisation permission to copy extracts from Railway Group documents, Rail Safety and Standards Board Limited accepts no responsibility for, nor any liability in connection with, the use of such extracts, or any claims arising therefrom. This disclaimer applies to all forms of media in which extracts from Railway Group documents may be reproduced. Published by RSSB Copyright 2018 Rail Safety and Standards Board Limited

Supersedes Iss 1 with effect from 03/03/2018 Issue Record Issue Date Comments One 07/06/2014 Original document. Two 03/03/2018 Replaces issue one. Revision to provide additional guidance to industry on using escrow agreements when there are multiple intellectual property owners. Revisions have been marked by a vertical black line in this issue. Superseded Documents The following Rail Industry is superseded: Superseded documents Sections superseded Date when sections are superseded issue one Guidance on the Use of Escrow All 03/03/2018 Supply The authoritative version of this document is available at www.rssb.co.uk/railwaygroup-standards. Enquiries on this document can be submitted through the RSSB Customer Self-Service Portal https://customer-portal.rssb.co.uk/ Page 2 of 14 RSSB

Supersedes Iss 1 with effect from 03/03/2018 Contents Section Description Page Part 1 Introduction 4 G1.1 Purpose 4 G1.2 Background 4 G1.3 Structure of this document 4 G1.4 Approval and Authorisation 4 Part 2 Escrow Agreements 6 G2.1 What is an escrow agreement? 6 G2.2 Purpose of an escrow agreement 7 G2.3 The escrow agent 7 G2.4 When to initiate an escrow agreement 8 G2.5 Escrow and the Licensor 8 G2.6 Escrow and the Licensee 8 G2.7 Release of escrow 9 G2.8 Disputes for release 10 Part 3 Escrow Agreement Deposit 11 G3.1 Contents of an escrow agreement deposit 11 G3.2 Timing of deposit 11 Part 4 Validating the Escrow Deposit 12 G4.1 Media check 12 G4.2 Validation of the escrow deposit 12 Definitions 13 References 14 RSSB Page 3 of 14

Supersedes Iss 1 with effect from 03/03/2018 Part 1 Introduction G1.1 Purpose G1.1.1 This document gives guidance in understanding the use and application of escrow agreements. This document does not set out any requirements and only covers escrow agreements related to intellectual property. G1.2 Background G1.2.1 G1.2.2 G1.2.3 G1.2.4 Within the railway environment, there are many different parties that each have their own obligations and may need to use escrow. For example, when considering railway assets, including rail vehicles, this includes vehicle designers and manufacturers together with their suppliers, those who own and lease rail vehicles, and those who maintain and operate rail vehicles. Throughout this chain, it is important that the specified intellectual property relating to a vehicle design (and the design documents themselves) are available and can be accessed legally for the lifetime of the asset or project. It is essential to maintain a business continuity strategy that enables access to critical data where the intellectual property is retained outside of an organisation or group by the legal owners of such items. It is essential to maintain business continuity such that access to critical data is available where the intellectual property in a design (for example program source code) is retained by the designer. In addition, many railway products are specified to operate for 40 years and obsolescence can be a critical business continuity issue. Identification of the responsibility for reading code and related software products needs to be identified for the appropriate life. It is likely that either hardware or expertise to operate or administer products will be lost over this period without specific provision. This guidance explains how escrow agreements can be used in the rail industry and is aimed at those who need to maintain business continuity when a key supplier ceases to operate, goes into liquidation, or withdraws from the market or support ceases. Escrow agreements are not unique to the rail industry; this guidance is, however, aimed at introducing the concept of escrow and provides a signpost to the key elements of information required in an escrow agreement. The document provides guidance relating to: a) What is escrow, its purpose, when to use it and what it means for different parties. b) Contents of an escrow deposit and what problems could be encountered. c) Validation of an escrow deposit agreement. G1.3 Structure of this document G1.3.1 Guidance is provided as a series of sequentially numbered clauses. G1.4 Approval and Authorisation G1.4.1 The content of this document was approved by Rolling Stock Standards Committee on 19 January 2018. Page 4 of 14 RSSB

Supersedes Iss 1 with effect from 03/03/2018 G1.4.2 This document was authorised by RSSB on 26 January 2018. RSSB Page 5 of 14

Supersedes Iss 1 with effect from 03/03/2018 Part 2 Escrow Agreements G2.1 What is an escrow agreement? G 2.1.1 G 2.1.2 G 2.1.3 G 2.1.4 G 2.1.5 Guidance An escrow agreement is, typically, a tri-partite agreement between a Licensee (for example, the asset owner), Licensor (for example, the original equipment manufacturer (OEM)) and an independent third party (usually the escrow agent, see G2.3), but can include additional parties in order to reflect more complex situations. The escrow agreement is a legal agreement where specified intellectual property is put into the custody of an independent third party (referred to as an escrow agent) until specified conditions (typically referred to as release events) are fulfilled. In scenarios where there are multiple intellectual property owners, then it is better to set up individual escrow agreements. An escrow agreement provides: a) The Licensee access to specified intellectual property when a defined event occurs. b) Assurance for both the Licensor and Licensee that the specified intellectual property is held securely by an independent third party (the escrow agent). Specified intellectual property could include: a) System source code (including build / compilation instructions to enable deployment in a production environment). b) Designs and schematics for hardware. Some examples of specified intellectual property (either in the form of design schematics or source code) in the rail industry that have been placed into an escrow agreement include: a) Traction control monitoring system. b) European Train Control System. c) Train recording unit. d) Global System for Mobile Communications for Railways (GSM-R). e) Traction converter system. f) External video system and on-board closed-circuit television system. g) Public address system. h) On-board internet system. i) Energy meter. j) Battery charger. k) Fire protection system. l) Braking system. m) Heating ventilation and air conditioning system. n) Exterior and interior door system. o) Signalling control system. p) Signalling control centre designs / system. q) Operator display terminal. Page 6 of 14 RSSB

Supersedes Iss 1 with effect from 03/03/2018 G2.2 Purpose of an escrow agreement G 2.2.1 G 2.2.2 G 2.2.3 G 2.2.4 Guidance Escrow agreements are one way of protecting business systems and processes which rely on the intellectual property owned and supplied by a third party. An escrow agreement also provides a disaster recovery and business continuity method that supports the procurement process. It adds value by providing a process whereby access to the specified intellectual property is guaranteed based on certain defined release events specified in the escrow agreement (for example a failure to honour warranty, support or maintenance obligations) irrespective of the stability of the commercial status of the Licensor. The escrow agent holds the specified intellectual property in accordance with the terms and conditions set out in the escrow agreement. The escrow agreement protects the interests of the Licensor in that the specified intellectual property is only made available on the occurrence of a release event. The Licensee can only obtain access to the specified intellectual property on the occurrence of a release event. The escrow agreement protects the Licensee against the following events: a) Failure to maintain the specified intellectual property by the Licensor. b) Bankruptcy of the Licensor. c) Acquisition of the Licensor by another party. d) Liquidation of the Licensor. e) Withdrawal of support by the Licensor. The escrow agreement contains the specified intellectual property and the details of the circumstances when the specified intellectual property is released. This occurs when defined conditions specified in the escrow agreement are met. The specified intellectual property is then released to the Licensee (see G2.7). G2.3 The escrow agent G 2.3.1 G 2.3.2 G 2.3.3 Guidance The escrow agent holds the specified intellectual property under the terms of the escrow agreement. The escrow agent only releases the specified intellectual property upon the occurrence of a release event (see G2.7). The escrow agent supplies information and advice relating to the different forms of escrow agreement. The escrow agent also provides the necessary expertise to confirm that the escrow agreement provides intended protection. An escrow agent provides comprehensive advice in what can be a complex legal area. Examples of influencing factors in choosing the type of escrow are: a) The country or countries where the escrow agreement is to be enforced. b) Whether the escrow agreement is between one Licensor and one or many Licensees. c) Whether there are any additional parties involved in the supply chain (see also G 2.1.2). RSSB Page 7 of 14

Supersedes Iss 1 with effect from 03/03/2018 G 2.3.4 d) Whether Licensees have free perpetual rights of use. e) The material to be held in escrow. The escrow agent provides technical expertise to validate the specified intellectual property (see Part 4), which as a result can be relied on to work in the event of a release. G2.4 When to initiate an escrow agreement G2.4.1 G2.4.2 G2.4.3 G2.4.4 G2.4.5 When there is a requirement to maintain the long-term availability of specified intellectual property, the decision to use an escrow agreement is based on a variety of factors, such as: a) Financial risk: i) The total cost of replacing the product. ii) The financial stability of the Licensor. b) Operational risk: i) The impact of failure of the products which depend on the specified intellectual property. c) The practicality of using the released specified intellectual property. Where the Licensee determines that an escrow agreement is appropriate, the Licensee requests the Licensor to enter into an escrow agreement. The selection of an escrow agent is agreed between the Licensor and Licensee of the specified intellectual property. The agreed need for an escrow agreement as early as possible (in the contractual stage) can prevent a dispute at some time in the future. Escrow agreements can be set up retrospectively, however this is more difficult, for example if the Licensor refuses to enter into an escrow agreement. G2.5 Escrow and the Licensor G2.5.1 G2.5.2 An escrow agreement gives the Licensor the ability to demonstrate confidence in their product and stability of their business. It also provides an additional means of disaster recovery. After the specified intellectual property has been delivered, it can be modified for business needs and the Licensor has an obligation under the escrow agreement to keep the specified intellectual property up to date (with respect to version changes and upgrades). There is no direct consequence if the supplier fails to deposit under an escrow agreement. G2.6 Escrow and the Licensee G2.6.1 Escrow agreements, when used by a Licensee, provide an assurance that the specified intellectual property can be made available when required. This facilitates continued use, maintenance and / or support of a product (or, in a build contract, for completion Page 8 of 14 RSSB

Supersedes Iss 1 with effect from 03/03/2018 G2.6.2 G2.6.3 G2.6.4 of the build) if the Licensor is unable to or does not provide the agreed service and / or service levels. An escrow agreement gives a Licensee the right to access the specified intellectual property when a specified release event, contained in the escrow agreement, occurs. The Licensor cannot remove the specified intellectual property from the escrow agent without the Licensee s consent. After the specified intellectual property has been delivered by way of a Release Event, the Licensee has the right to develop or modify the material for the purposes for which it was originally purchased. It is important to understand the scope of the specified intellectual property and its implications on the escrow agreement. This is because the Licensor may have used third-party components for the production of the specified intellectual property. Without such third-party components the specified intellectual property may not be useable. Additional escrow agreements are often required to include these third-party components. G2.7 Release of escrow G2.7.1 G2.7.2 G2.7.3 G2.7.4 G2.7.5 G2.7.6 The procedures for release of the specified intellectual property are detailed in the escrow agreement. This avoids conflict when the escrow agreement is implemented. In particular, more comprehensive coverage given to maintaining the specified intellectual property in the escrow agreement minimises any dispute over the failure to maintain the specified intellectual property which is more subjective than release on the grounds of insolvency. The release event for an escrow agreement is usually the insolvency of the Licensor, the Licensor ceasing to trade or the failure on the part of the Licensor to observe obligations to maintain the specified intellectual property. A specific release event relating to the sale of the intellectual property rights ensures that if a new owner of the specific intellectual property does not wish to take over the escrow agreement the Licensee is entitled to receive a copy of the escrowed material. When a release event occurs for the release of the specified intellectual property from the escrow agreement, the escrow agent is usually notified by the Licensee, an appointed liquidator or the receiver. Where the Licensee requests the release (see G2.7.2) of the specified intellectual property from the escrow agreement, the Licensee provides the evidence required to release the specified intellectual property. The specified intellectual property is released only when the agreed procedures set out in the escrow agreement are followed. The Licensor cannot remove the specified intellectual property, deposited in the escrow agreement, from the escrow agent without the Licensee s consent. The specified intellectual property in the escrow agreement is only released by the escrow agent after certain agreed procedures set out in the escrow agreement have been complied with. RSSB Page 9 of 14

Supersedes Iss 1 with effect from 03/03/2018 G2.7.7 G2.7.8 An escrow agreement is contractually in place for an indefinite period until terminated in accordance with the terms of such agreement. The Licensee has the option to terminate the agreement upon written notice. Contracts which continue for a definite term can be agreed within the terms of the escrow agreement. In the event that the escrow agent was no longer trading and still held the escrow material, the escrow agent would be obliged to return the intellectual property to the Licensor or securely destroy it. The parties would be expected to appoint a new escrow agent to replace the agreement. G2.8 Disputes for release G2.8.1 Procedures for resolving a dispute over release of the specified intellectual property held are detailed in the escrow agreement. Page 10 of 14 RSSB

Supersedes Iss 1 with effect from 03/03/2018 Part 3 Escrow Agreement Deposit G3.1 Contents of an escrow agreement deposit G3.1.1 G3.1.2 G3.1.3 Information when specified intellectual property is deposited in an escrow agreement includes, but is not limited to: a) Description of the specified intellectual property. b) Components of the specified intellectual property. c) Protection / security of the specified intellectual property. d) Documentation for build and use of specified intellectual property. e) Contact details of staff involved in producing / maintaining the specified intellectual property. An example of an escrow agreement deposit based on a traction control and monitoring system is: a) Traction control and monitoring system serial / version number, applicability (vehicle type). b) The source code and details provided by third party for example tools, compilers / linkers. c) Password / encryption details required for accessing the source code. d) Documentation detailing the instructions for building, compiling, and installation, including names and versions of development tools. e) Name and contact details of employees with knowledge of how to maintain and support the specified intellectual property. f) The escrow agent will be responsible for maintaining and updating communication and details of both the commercial and engineering contacts between the parties. Where the specified intellectual property is being updated because of an engineering change, a reference to the engineering change, for example, to the traction control and monitoring system, provided with the deposit enables the specified intellectual property to be linked to the engineering change. G3.2 Timing of deposit G3.2.1 Where the design and development of the product is over an extended period it may be appropriate to make staged submissions to the escrow agent, subject to prior agreement by all parties. RSSB Page 11 of 14

Supersedes Iss 1 with effect from 03/03/2018 Part 4 Validating the Escrow Deposit G4.1 Media check G4.1.1 The escrow agent checks the specified intellectual property deposited in the escrow agreement. Checking the integrity of the specified intellectual property deposited in the escrow agreement includes, but is not limited to: a) The specified intellectual property can be read without error. b) Checking whether any compression, when software is deposited, has been used. If compression of the data is used it is to be decompressed. c) Viewing samples of the specified intellectual property to determine that the deposit contains the code. d) Viewing samples of the specified intellectual property to assess legibility and maintainability. G4.2 Validation of the escrow deposit G4.2.1 G4.2.2 G4.2.3 G4.2.4 A verification test of the specified intellectual property validates that the specified intellectual property submitted in the escrow agreement can be built and deployed into a fully functional system. The verification of the specified intellectual property is typically conducted at the Licensor's site with the escrow agent witnessing the build. Tests are then conducted by the Licensee to ensure that the build meets the Licensee's expectations. Additional verification options are available on request from the escrow agent. The verification of the specified intellectual property is an important part in the escrow process because the specified intellectual property can be used in the event of a release, which may otherwise receive no scrutiny before being released. Specified intellectual property deposited into escrow can fail validation when: a) The media is blank. b) The files are compressed and cannot be decompressed. c) The media cannot be read. d) The media contains a virus (it is recommended that a virus check be performed periodically as the software is updated). e) There is no source code present. f) The specified intellectual property is identified as being for software not named in the escrow agreement. This is when the Licensor has provided the wrong program. g) The files are not specified intellectual property owned by the Licensor. h) Files are password protected and the password is not supplied. i) Insufficient information for the specified intellectual property is supplied by the Licensor to allow the escrow agent to carry out validation of the escrow deposit. Page 12 of 14 RSSB

Supersedes Iss 1 with effect from 03/03/2018 Definitions Escrow Escrow agent License Licensee Licensor Original equipment manufacturer Release event Source code Specified intellectual property A legal term referring to a deed which only becomes effective upon the occurrence of a future event. An independent provider of legal or technical services to set up an escrow agreement. An agreement that gives the right to use the specified intellectual property in the escrow agreement. An individual or organisation for example a vehicle owner, railway undertaking or infrastructure manager that is licensed to use the specified intellectual property developed or supplied by the licensor. The party (normally the OEM) that grants the use of a licence to the licensee. For the purposes of this document, an individual or organization that holds the intellectual property rights of the specified intellectual property. This is usually, but is not restricted to, the individual or organisation which develops or supplies the specified intellectual property to the licensee. An event that triggers the release of the specified intellectual property. What the computer programmer writes / produces which is in human readable form. The subject matter of the escrow agreement (including but not limited to source code, schematics and build instructions). RSSB Page 13 of 14

Supersedes Iss 1 with effect from 03/03/2018 References The Standards Catalogue gives the current issue number and status of documents published by RSSB. This information is available from http://www.rssb.co.uk/railway-group-standards.co.uk. RGSC 01 RGSC 02 Railway Group Standards Code Standards Manual Page 14 of 14 RSSB