IP Transfer Escrow Costs
Selling a software platform, patent portfolio or SaaS code base in California triggers a unique set of escrow costs that do not appear in vanilla real estate deals. The buyer wants the source code, the seller wants the cash, and both parties need a neutral custodian to verify that intellectual property actually changes hands without hidden encumbrances. Secured Trust Escrow specializes in IP transfers and typically charges 0.20% to 0.35% of the transaction value, with a $7,500 minimum and a $150,000 cap on deals above $100 million.
The baseline fee covers three core services: source-code verification, lien and royalty search, and post-closing code release. Verification starts with a hash-value comparison of the source repository delivered into escrow against the production environment used by the target company. Escrow engineers run a SHA256 checksum on every file and generate a certificate that proves the code placed in escrow is identical to the code running in production on the day of closing. That certificate becomes part of the bill of sale and protects the buyer from “bait and switch” allegations later.
Lien searches are more nuanced than a standard UCC filing review. Patent assignments, open-source license obligations, and university joint-venture agreements can all create clouds on title. Escrow counsel runs a full USPTO assignment search, reviews GitHub commit history for copyleft contamination, and checks the California Secretary of State for any pending litigation that names the IP. The search costs $2,200 and takes ten business days, but it prevents a six-figure indemnity claim if a forgotten Stanford research grant suddenly surfaces.
Post-closing release mechanics are spelled out in a three-party escrow agreement among buyer, seller and Secured Trust. Source code is released to the buyer only after: (1) the full purchase price is wired, (2) the USPTO assignment recordation is confirmed, and (3) the seller delivers a signed affidavit that no third-party licenses remain unpaid. If any condition fails, the code stays in escrow and the buyer can walk away with a full refund of the purchase price.
Sample Cost Sheet for $50 Million SaaS Acquisition
- Base IP escrow fee: $125,000 (0.25% of purchase price)
- Source code verification: $8,500
- Patent and lien search: $2,200
- Post-closing release administration: $3,500
- Wire fraud insurance: $175
- Same-day courier and UCC copies: $275
- Total escrow cost: $139,675 (split 50/50 = $69,838 each)
Buyers often ask if the code needs to be updated after closing. The escrow agreement can include a “maintenance release” clause that requires the seller to deposit updated versions of the source code annually for three years. Each maintenance release adds $1,800 to the tab but ensures the buyer receives critical patches if the seller later goes bankrupt or stops supporting the product.
Sellers should also budget for the indemnity holdback. Most buyers insist on retaining 10% of the purchase price for 18 months to cover hidden IP infringement claims. Instead of parking $5 million in a zero-interest escrow, the parties can purchase representation and warranty insurance for $250,000 and reduce the cash holdback to $1 million, saving the seller significant carrying cost.
Tax treatment is straightforward: escrow fees are generally deductible as transaction costs by the buyer and reduce the seller’s net proceeds. The IRS considers the verification and lien search as “facilitative” costs, so they must be capitalized into the buyer’s basis, but the post-closing release service can be expensed as incurred.
Bottom line: IP transfers are high-stakes, high-complexity transactions that demand specialized escrow services. Secured Trust Escrow has handled over 300 tech deals ranging from $2 million mobile apps to $1.2 billion enterprise software carve-outs. Reach out today for a fixed-fee quote and a sample IP escrow agreement tailored to your code base.
