contract-law software licensing
How does this agreement define &#39;revenue&#39;?
<p>Microsoft restricts its <a href="https://www.visualstudio.com/license-terms/mt171547/" rel="nofollow noreferrer">license of some particular software</a> for organizations with "more than one million US dollars (or the equivalent in other currencies) in annual revenues...."</p>

<p>My clients are small business owners, less than 50 employees. I am confident that none of my clients net over a million dollars in <em>profit</em> in any given year, but can I define "revenue" as profit?</p>

<p>If a client sells widgets for $5k each, 201 in a year, and makes 2% profit after Costs of Goods Sold, is that $1.005MM revenue, or $20.1k revenue?</p>

<p>I don't want someone to give me assurances that I can win against Microsoft in court, but I don't know where to look to confirm my suspicion that revenue has very little legally to do with how much money moves through your account in a given year, but instead how much money you actually make. My suspicion comes from the fact that Microsoft seems to be equating an organization with $1MM in revenue with one that has 250 PCs in use at any given time.</p>

<p>Without explicit legal clarification from Microsoft, can I determine how a court would construe this otherwise undefined term?</p>

<p>You cannot define "revenue" as profits. Indeed, you probably can't even deduct cost of goods sold. </p>

<p>Revenue is the amount of money that a company brings in from selling goods and services (investment income is arguably more ambiguous, and loan proceeds would clearly not be revenue).</p>

<p>In the absence of other indications, a court would probably look the generally accepted accounting practices (GAAP) to define revenue, or perhaps definitions used by the U.S. Small Business Admnistration, or dictionary definitions, in the context of a contract.  Whatever "revenue" means, it almost certainly doesn't mean "profits".</p>

<p>Revenue makes more sense than profits in any case in this circumstance. They are trying to use a measure that is hard to manipulate, easy to determine from accounting records, easy to estimate in the absence of good record keeping, and that reflects the scale of the enterprise. </p>

<p>Revenue is a standard measure of small v. large businesses for many purposes. </p>

<p>Profit, in contrast, can be easily manipulated (e.g. through salaries paid to insiders and related party cost of goods sold contracts). Businesses are also much more likely to publicly disclose their revenues (and hence create evidence relevant to the contract) than to disclose their profits.</p>

<p>The <a href="https://www.visualstudio.com/license-terms/mt171547/">TOS</a> does not define "revenue", so it would have its ordinary meaning. <a href="http://www.investopedia.com/terms/r/revenue.asp">Revenue</a> is usually defined as income from sales and services, and is synonymous with gross income (so, Black's Law Dictionary 2nd Pocket redirects to 'gross income'). See <a href="https://en.wikipedia.org/wiki/Revenue">this</a> as well. Profit or net income would be distinct &ndash; the hypothetical client has $1.05M in annual revenue, and much less profit.</p>
