What is considered as a “passive” instance?

A passive SQL Server instance is one that is not serving SQL Server data to clients or running active SQL Server workloads. These may only be used to synchronize with the primary server and otherwise maintain the passive database instance in a warm standby state in order to minimize downtime due to hardware or software failure. If it is serving data, such as reports to clients running active SQL Server workloads, or performing any “work” such as additional backups from secondary servers, then it must be licensed for SQL Server. See diagram below: