An Incremental License Fees clause was used in original PeopleSoft and JD Edwards contracts, and it usually came in two versions. The more common one determined that the end-user should report the usage of enterprise licenses once a year, 90 days prior to the anniversary date of the ordering document. In case the reported quantity would exceed the License Base the end-user should pay a fee for an increase of the licensed quantity: typically 10% of the initial license fee for an incremental step of 10% of licensed quantity. This was phrased in these words for the Employee Count (EC) metric:
“Employee Count” shall mean the full or part time employees of Licensee and all related entities for whom Licensee and such related entities withhold payroll taxes, and contractors who are or would be deemed “employees” under applicable laws.
“EC Software” shall mean those Software modules licensed pursuant to this Schedule which are priced based upon the Employee Count, as indicated in the Software/Services table above.’
‘Incremental License Fees for the EC Software: Licensee may use the EC Software licensed pursuant to this Schedule in accordance with the terms of this Schedule and the Agreement, to process its data at no additional license fee, provided that the Employee Count does not exceed XXXX (“Base Employee Count”). Each year, ninety (90) days prior to the Anniversary Date, Licensee shall report to PeopleSoft the Employee Count as of such date and, in the event the Employee Count as of such date exceeds the Base Employee Count, Licensee shall pay, on or before the applicable Anniversary Date, additional non-refundable, non-cancelable license fees. Upon receipt of such license fees in the amount $ XXXX, Licensee’s Base Employee Count shall be modified to increase by XXX (typically 10% of the Base Employee Count). Licensee shall pay as many increments of $ XXXX as necessary so that the Base Employee Count exceeds the Employee Count as of that particular Anniversary Date.
The other Incremental License Fees version sets a threshold for the expansion and establishes what fees the end-user should pay for each increment in case the threshold is exceeded. If the end-user exceeds the License Base but not the threshold, then no expansion is needed.
Example: An end-user has a License Base of Enterprise Employee 1000. The Incremental Step is Enterprise Employee 150. The Expansion clause states that “additional fees will be paid for each incremental increase of Enterprise Employee 150”.
If the end-user has Enterprise Employee 1,149, then no additional fees need to be paid. But if the end-user grows to Enterprise Employee 1,151, then he will need to purchase 1 Incremental Step, raise the License Base to Enterprise Employee 1,150 and set a new threshold at Enterprise Employee 1,300.