What would happen if a software supplier goes into bankruptcy? The following is provided for educational purposes, and is not meant to be legal advice.
Upon filing for bankruptcy, the vendor would have an opportunity to assume or reject the software license similar to other executory contracts. If the purchaser treated the agreement as being breached by the vendor, the purchaser could have an unsecured claim (unless it was a secured license) for damages under the US Bankruptcy Code.
If the buyer retained its rights to the product, for the term of the contract, it might not be able to demand specific performance for any obligations such as support. Though, the purchaser might have to continue to pay for the license.
In negotiating the agreement, it is important for the licensee to keep payment obligations and rights concerning the license separate from those concerning maintenance and support. For instance, obtain a perpetual license, but have the maintenance and support be under a separate agreement with an annual term versus subscription relationship with the product hosting services and maintenance and support combined into a single fee.
Requesting a source code escrow would also allow the purchaser to obtain source code to the product and maintain the product itself. The source code escrow agreement should be supplementary to the license within the meaning of the US Bankruptcy Code, and clearly define the deposit materials and release conditions.
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